Back in my twenties, if you happened to be a passenger in my car there was a good chance you would have experienced an occasional “outburst” from me while driving. Calling it “road rage” would be too harsh, but let’s just say I kept an ashtray full of pennies in case I needed to “huck” one at an idiot driver.
Of course today I am a mature forty-five year old with two young kids and drive with a cool, detached, almost Zen-like nature. But I almost lost it the other day.
I arrived at four-way stop and was waiting patiently to proceed; problem was, none of the other three drivers at the intersection had a clue as to what they were doing.
I would creep out, they would creep out….then seeing me creep out, they would stop. I would wait, they would wait….then I would start out again, and so would they, beginning the whole dysfunctional cycle from scratch.
But the really scary thing for me was that I could see their eyes as they were doing this, and it was apparent that they had no idea what was going and no plan for how to get out of it. They were just reacting, and taking (delayed) cues from my actions.
I see a lot of this type of behavior with traders. They find themselves in the markets; sometimes they are up, and sometimes they are down, but it’s apparent to me by their tweets and chat room messages that they don’t know what to do.
Worse than that, they don’t even stay still, like a deer in the headlights. They creep, and stop, and watch, and wait, and then creep, and stop, and watch, and wait. Getting long, closing out, getting short, closing out, chasing news, chasing earnings, and trading on tips.
In the markets you have to have a plan before you get into a trade. It has to include objective criteria for why you will enter the trade, how you will manage it, what will cause you to exit, and what circumstances would make you to reverse your position.
You have to plan for all contingencies and know what you will do in all sorts of situations. You can’t just jump in and “wing it.”
If you do that, the market will chop you up along with your account equity. And you might just get hit by a random penny.
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