What is the most difficult thing to do in Trading? 11/11/12

I was thinking this morning about what is the most difficult thing I find doing in stock trading?

For many people it is exiting a bad trade. They get stuck in a trade and hope that it will turn around for them. This is the worst situation to deal with. Add to that most people do not know technical analysis and have no exit plans. I have suffered through that during the 2002 time frame before I got into technical analysis and it wiped me clean in my technology funds. I remember all my Strong funds that were the opposite of strong. I was frozen and could not get out. And when I finally did, that must have been when the market capitulated along with me. I almost promised never to trade again. But I picked myself up and told myself I will learn to master this. This is a non-issue for me now! When I see an exit signal, I head for the doors. No problem with that anymore.

For me, the hardest thing is buying into dips as a stock is moving up. When I see an up signal and the stock is going up, and it pauses for breath, starts pulling back; that is an excellent time to buy. Pristine preaches that methodology well. I have put together trading systems that is a combination of trend following and contrarian, that provide entry signals on dips. Still, it is easier for me to sit there and watch it pull back and then rip upwards without my participating in the trade! I knew it would happen, saw the signal, but did not jump in. Coulda-shoulda-woulda! Why? I suppose I am afraid to lose money. This game involves risk, and without risk, there is no reward.

Learning to trade stocks is a very hard thing to master. Not only are their technical things to learn, there is the difficult part of knowing yourself and managing your own emotions as it relates to money. I think that is why so many people hand over their money to others to manage. Unfortunately there are many shysters and very ignorant people out there under the guise of money managers. Their goals may be quite different from yours, particularly as far as risk tolerance is concerned. Their knowledge level could be poor. For many, it is diversify and rebalance once per year. That works well in a growing economy; but not so well for a stagnating economy. In the end, we need to learn when we want to enter a trade, when we should take profits and when we want to exit because the trade did not go our way. In addition, we need to master what % of our money we should put in a trade, recognizing that it is easy to have 5 losses in a row and we don’t want to blow our account on a string of bad trades. I never put on too large a trade – at least not consciously. And if I even did, I would balance it with put options to cover my tail.

  

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