TPS E11: How to handle wild market moves while trading?

The market is always moving. It never stops. It may slow down and pause for a little while, but it never stops moving. Even when the markets are closed, the prices are still moving, as they can certainly open up at a different price than where they closed the night before. (This is more true than ever before, as many markets now trade almost 24 hours straight.)

The three simple ideas of getting in, getting out, and not trading become even more difficult because there really is no end. Only you can decide when to end it. In a profitable trade, you need to decide when you’ve made enough. Many people let greed get the best of them. These people get caught up in thinking that there is never enough, no matter how much they’ve made in the trade.

If they’ve made a 500 profit, they get upset with themselves that they didn’t make 1,000. If they’ve made 5,000, they want 6,000. A truly greedy person can never be satisfied. No matter how much they have in a trade, it will never be enough.

On the other hand, with a losing trade, a greedy person will not want a losing trade to exist because it represents failing. So this person may act as if it doesn’t exist by convincing themselves the market will come back and reward them with a winning trade. It just hasn’t happened yet. These are very dangerous characteristics for any trader to have. Without question, these traits will put you on the road to failure faster than you can imagine. A truly greedy person cannot succeed in the trading environment.

The question “how much is enough?” causes many people to deal with some issues that are very important to them. But these issues have nothing to do with the movement of the market or the potential of the market to move in a certain direction. These issues are:

1) What or why I need the money?

2) Can I really afford to lose this money?

3) How confident am I in my ability to trade?

4) How important is this money to me?

These issues are difficult to confront because they will contaminate your opinions and observations of the market. They are personal issues that you are concerned with and many times will have influence on your market decisions, but they shouldn’t because they have nothing to do with how far the market will move.

Let’s think about this for a second. For example, do you only having 5000 left in your account have anything to do with whether or not the market will move in a certain direction? No, of course not. Does your wanting money to buy that bike you’ve had your eye on have anything to do with whether or not your current short position will make you enough money to buy that bike? Definitely not!

But the problem is many people take those factors into account when they trade. These issues become factors as to whether or not to get in and out of the market. And as you can see, that is a big mistake. The market doesn’t know or care whether you need the money or not. It doesn’t care or want to know about the reasons you are trying to make money.

This is why you’ll see many successful traders say to only trade with money you can afford to lose. In other words, you will be in the best possible position if you aren’t relying on the money. Thus, those issues that contaminate our outlook on the market will be much easier to deal with.

But, on the other hand, if you are trading with money that is meant to pay the loan and your kid’s tuition this month, these issues will be very apparent and will undoubtedly cloud your judgment and cause you to not see opportunities in the market as clearly.

The reason to put on a position in the market is because you feel it has the potential to move a certain direction and you think that you can capitalize on that move. That is really the only reason to get into and out of the market. Getting in the market because you need money to take a vacation is just not going to work out ever! Please remember that.

Making it even more difficult is the fact that the “game” only begins when you enter the market and only ends when you get out of the market. This is a lot of freedom for any individual to have. You are free to participate whenever you like. You can get in for whatever reasons are good enough for you. You can get in the market because you see a reliable chart signal, or you could get in because it just started raining outside. No one will tell you not to participate if you want to for whatever reason you feel is right. Or like we just talked about a minute ago, you could get in because you think this trade will make you enough money to take your family to nice vacation. Nobody will stop you from doing the trade.

It’s obviously the same thing when getting out of a trade. The “game” only ends when you do decide to end it. Other than your broker getting you out of the position because you’re out of money, you will have decide when enough is enough and it’s time to exit. Again, that is a lot of freedom for anybody to have. In most cases, especially for new traders, we usually don’t get to experience that kind of freedom in everyday life.

“The most important thing you can learn here is you’ll need to be making your market decisions strictly on what the market is doing and showing you. This is the only way to be successful. If you are making your decisions on outside factors (like how badly you need the money, or what you need the money for), your judgment will be clouded and it will be much more difficult to see good opportunities to profit.”

I repeat:

The most important thing you can learn here is you’ll need to be making your market decisions strictly on what the market is doing and showing you. This is the only way to be successful. If you are making your decisions on outside factors (like how badly you need the money, or what you need the money for), your judgment will be clouded and it will be much more difficult to see good opportunities to profit.