This morning, as I was working, my mind drifted a bit. I was watching one of my trades and I thought about how many times I had traded this one stock, so I looked it up. In the last two months, I have flipped this one stock seven times. The stock is EMR. I mentioned it a while ago as something for you to check out as a trade. One reason I suggested that is it correlated strongly with the DJIA and it because of that, it was extremely volatile. I said its chart looked jagged. Sure enough, the stock has performed as expected, but that is not the reason my mind drifted.
While I was watching EMR, it occurred to me that literally millions of people trade the markets and in that vast array of market players, there must also be millions of reasons people pick a particular market to trade. Thinking about that it then occurred to me there must also be millions of ways people play particular markets. That then reminded me of the recent reader who pushed me to define a specific trading plan for him and that memory brought me back to the reality of my own trading “plan.” The fact is that it is not a plan per se; rather it is an understanding. I understand my financial limits. I understand my risk tolerance. I understand my in and out parameters, my goals if you will. I understand my tolerable stress levels. I understand my penchant for fear and I understand my penchant for greed. I understand the big picture, which allows me to understand the market. Most of all, I understand me, how I think related to the market. All of the above in one blurry mass is my trading plan and the interesting thing is it works. I am making my money work and I am earning a decent return on my investment.
Yet, I, and others, tell folks all the time to get a trading plan, to write a trading plan. Why is that? Why don’t I just say folks should wing it, should go with whatever their whim is, just roll the dice? The answer is this. If I did say that, I would be offering bad advice.
Playing the market is gambling, no doubt about it, but as I have said before, playing the market is much like tournament poker – you bet on what you think you know. The big difference is that in poker, 52 cards and nine people or less define the scope of what you “know” at any given time. In the market, at any given moment, millions of folks have millions of plans and what you know is defined by the work you put in to knowing.
Yet, one can find a stock such as EMR and one can trade it successfully over and over again in the market with confidence, which is a different sense than one has in most hands of poker. What, then, breeds the confidence when gambling in the market? The answer is that folks who trade successfully over periods of years learn the market, learn how to “play” specific markets in the context of the larger market. Successful traders have a plan, written or not, and they follow it. Successful traders understand the market and all that entails. Successful traders understand what they want to do in any given trade and, most importantly, successful traders understand themselves.
Yes, my mind drifted a bit today, but that drifting and then writing about it helps me understand myself a bit more, which is good because I like success. I like making money in the market and the fact that I just now sold EMR again for a 1.62% gain breeds confidence in my ability to understand all I need to understand in order to make it work.
Trade in the day; Invest in your life …
