How Are You Really Doing?

Are you making any money this year? It may sound like a simple question, but profitability is harder to determine than you might think. Tactical, emotional and perceptual issues all come into play when we tally our bottom lines.

This is especially true when we set up multiple accounts to play the markets. Each cash hoard may serve a different purpose, especially when retirement funds comprise a good part of our assets. We've been trained over the years to regard profitability in those accounts from a different angle than speculative funds applied to short-term positions.

This is where self-deception begins. You make a little money in your trading account but a few dogs rip a big hole in your retirement fund. Oddly, you still think you're profitable because of a false belief the retirement fund will pay you back at some mysterious date in the future. The truth is, you're not making any money at all.

Of course there's only one way to address this mind cramp. Combine all your assets and positions onto a single data sheet and compute the total return from that point of reference. This is tremendously difficult to do if you're ignoring your long-term positions in an unconscious effort to fool yourself.

This consolidated view is urgent after you pass your 55th birthday. Many retirement funds can be tapped without penalty once you reach 59 1/2, so that money no longer represents a distant nest egg that doesn't need to perform on a daily or monthly basis. Rather, it may be the lifeblood of your soon-to-be golden years.

I can't overstate the importance of combining all accounts when looking at profits. Traders are emotional animals subject to all kinds of self-sabotage. The profit/loss bottom line is the only truth serum in our business. Everything else is just entertainment and a huge time sink.

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Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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