I think we've all been there...we've made a trade, we're happy with that trade, and yet our reasoning behind the trade was wrong! Today I'd like everyone to welcome Bob Iaccino from TraderOutlook.com. Some of you might reconognize the name, and that's because Bob is a frequent contributor on CNBC, CNBC Asia, Bloomberg Television, Bloomberg Radio, CNN, CNN International, Fox News, and several other media outlets as a special guest analyst. Yeah he's all over the place and he knows what he's talking about.
Enjoy the special Sunday guest blog, please post comments to Bob or about the article, and spend a few minutes on TraderOutlook.com and watch his forex videos!
I remember one of the smartest human beings I’ve ever mentored, in my 15 years in the markets, explaining a trade he wanted to place. Let’s call him “Neal.” Neal told me that the Fed needed to raise rates immediately and he was piling up long USD. Well, the rate rise never came, but he made $1oK on his position anyway. The market was pricing in a larger rate rise in the future. He then prances around my trading room like a show horse, talking about how he was right for taking such a large long position. I walked over to him and proceeded to tell him that we were taking the money out of his account. “What?! Why?!” exclaimed Neal. “Because you were wrong. You said the Fed was going to raise rates immediately and they didn’t,” I told him, “so you have to give the money back.”
Obviously, we didn’t take the money from Neal but the point, I believe, is a strong one. In trading, focusing on being “right” will get you a cup of coffee and a few hours in front of the help wanted section of Craigslist. Right is ego and that has no business in a trader’s working day. If you want to be “Big shot trader,” do it at the bar at The Four Seasons Hotel on the weekend.
In successful trading, there is no “right,” only good trades and bad trades. As you grow as a trader, you want to eliminate as many bad trades as human nature will allow. It is possible to lose money on good trades and make money on bad trades but as time goes on, the more you eliminate the bad trades and put on the good ones, the more money you will make. What makes a “good trade”? It’s a combination of discipline, risk/reward, money management and internal honesty. Looking inward to see if you are in a trade because you want to prove (to others or to yourself) just how smart you are or because you did your analysis, calculated risk/reward and decided that this was the best trade the market offered you. Have you ever walked up to your screen with a position in mind only to find the charts or the fundamental news told you something different? Which trade did you put on? Were you able to face that your opinion was wrong and put on the good trade that the market was offering you?
Most successful traders that I know in the modern age have varying levels of personal ego, but very little trading ego. They are fine with a loss and know that the market will not save them from themselves. The days of the big swinging pit trader, pushing the market around, are over. There may be funds and institutions that can temporarily affect market direction, but the Forex market is too large and will always go exactly where it is supposed to be. Do your research and be disciplined in your trading plan and leave Neal, the prancing show pony exactly where he belongs…in the barn.
5 thoughts on “Good Trades, Bad Trades and the Trap of Being "Right"”
Thank you very much for the article. It hit home because I wanted to be right instead of being a good trader. When things got bad my ego refused to reverse. It hit me hard since Mar 9 but lesson learned.
Like the responsible parent to the child. Very much in the same vein as Mr Buffett and his mentor Mr Graham. Managing the emotions and how it effects money-plays is the constant companion that I sometimes forget, or, lose awareness. Thanks for the reminder.
It seems to me as a newbie, this is not where I want to go. I have other things to earn a living from. Much safer but maybe not as profitable but safe. Since I am a cautious guy, I look twice before crossing any street. Wall Street is a dangerous place to cross. You don't get a scond chance if you're run over. There are big rigs out there and I don't want to get in front of one. I am backing away and taking my marbles with me.
Mr. Saito of San Diego CA
Jeez kid. Live a little. How can yo ugo through life being so boring?
When I was a lot younger, I came to the conclusion, that after a really good trade, I hoped that it would bail me out of the mess I would inevitably get into. Usually sooner than I expected. Great article - been there and done that.
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