It's time for traders to look back, measure their annual performance, and get set for the 2011 markets. Unfortunately, the majority of retail players flipping stocks, futures and currencies this year probably lost money, getting caught in the flash crash and high-volatility tape that continued through the summer. Indeed, that was a tough period for everyone, including long-time professionals.
We have no one to blame but ourselves when we lose money, however, because we're given the right tools by smart people, understand how to play the game and know exactly when to take exposure. But somehow, despite our best efforts, we routinely turn victory into defeat because we doubt ourselves, forget our risk management or get caught leaning the wrong way.
Taking the final step from casual observer to profitable speculator marks the last and longest yard in a trader's long journey. Commit to closing that gap in 2011 and you just might enjoy the greatest success of your market career. Start with this simple wisdom: the best way to make money in the market is to stop losing it.
In that regard, here are 21 ways to shake off your 2010 losses and get back into the winner's circle. Happy holidays, everyone!
Don't blame the machines. Look at a daily chart of an S&P 500 company. Then, flip back and see how it traded 20 years ago. You'll find that nothing has changed, despite our transition into a modern electronic market.
Don't believe in a company, an idea or an icon. Forget the balance sheet. Traders need to focus exclusively on price action and leave the American Dream to Graham and Dodd.
Don't break your entry and exit rules. You made them for stupid mistakes and bad trades, just like the one you're stuck in right now.
Don't try to get even. Playing catch-up will soothe your ego, but it's a terrible way to earn a living. Simply stated, every action you take in the market has to stand on its own merits.
Don't trade over your head. Unless your name is Kass or Cramer, stop trading like them. Just concentrate on playing the game well, and stop thinking about making big buckets of money.
Don't seek the Holy Grail. Guess what, there's no secret trading formula, other than good position choice, solid risk management and precise timing. So why are you looking for it?
Don't forget your discipline. Anyone can learn the basics of the trading game. Sadly, the majority wash out of the markets due to a lack of self-control, not a lack of knowledge.
Don't chase the crowd. Dude, this is serious business. Tune out the groupthink and get out of the chat rooms, off the stock boards and away from the tweets.
Don't trade the obvious. Nasty traps are set when everyone sees the same thing at the same time. Simply stated, if it looks too good to be true, it probably is.
Don't ignore the warning signs. Don't wait for a lifeboat or a screaming spouse before abandoning a sinking ship. Save a fortune in 2011 by just staying alert and understanding that big losses rarely come without several warnings.
Don't trust the opinions of market gurus or financial columnists. Remember that it's your money at stake, not ours. Go ahead and listen to what we say, then step back and do your own homework.
Don't count your chickens. That green glow on your trading screen isn't real money until you close the position and book the profit. Trail stops, take blind exits, and do everything in your power to get that cash into your pocket.
Don't forget the plan. Remember why you took a trade in the first place, and don't get blinded by greed or fear when the position starts to move, with you or against you.
Don't have a paycheck mentality. You won't get paid every week or month, but it's OK because we book 80% of our profits on just 20% of the days the markets are open for business.
Don't cut corners. There are computers out there working full time to take advantage of your mistakes. Fight back by examining your results, updating your strategies and finding working themes for the next session, next week and next year.
Don't ignore your intuition. Listen closely to that calm little voice that tells you what to do and what to avoid. That's the voice of the winner trying to get into your thick head.
Don't hate losing. Even market wizards lose money on a regular basis, so get accustomed to the pain. There's a side benefit because losing teaches more about winning than winning itself.
Don't fall into the complexity trap. Traders who can't see the market are looking for it everywhere, except in the price action. In truth, a well-trained eye is more valuable than a stack of technical indicators.
Don't confuse execution with opportunity. Expensive software won't help you to trade like a hedge fund. Pretty colors and flashing lights will make you a nervous trader, not a profitable one.
Don't project your personal life. Trading gives you the perfect opportunity to find out just how messed up your life really is. In other words, get your own house in order before you play the markets.
Don't think that trading is fun. The trading game should be boring most of the time, just like the real-life job you have right now. If it's too exciting, you're doing it wrong.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in
. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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