Trader, Know Thyself!

August 28, 2010 / Emilu Bailes

Linda Raschke said, “Trading is ten percent learning about the market and ninety percent learning about you.”

Dome Plan Drawing — Image by phatcontroller via Flickr

As we begin in our journey to become a master trader we may not give much consideration to our own psychology. Yet, understanding ourselves is a critical step in becoming a successful trader. There are several basic questions to be answered before you can structure your trading strategy.

What’s my time horizon?

Those who are fortunately enough to have developed an interest in this field as young adults have many decades ahead of them to apply the knowledge and experience they gain from the education at OptionsAnimal. This group of traders may not have as much capital with which to trade as the older generation, but they will most likely have the benefit of “extended compounded interest” in their journey.

How much risk am I comfortable with?

This may relate to the answer you discover from the previous question, but a person’s risk tolerance MUST be defined no matter what stage of life you fall into. None of us assume that the younger people will, by default, be more comfortable with higher risk. What does your behavior suggest? Imagine yourself on a vacation to Las Vegas. How much money would you allow yourself to spend at the casinos and call it “entertainment?” At what level would that “entertainment” turn to regrettable loss?

What are my strengths & weaknesses?

As a golfer I always heard “drive for show, putt for dough.” I was told that I have a very pretty swing. My swing path is on plane and I can hit them straight most of the time. The putting game is another matter. I tried to buy my way into a great putting game with a variety of expensive putters. However, I didn’t like to spend time on the practice green developing my aim, stance, and follow-through. I came to understand that if putting was my greatest weakness, I would HAVE to practice when I wasn’t under pressure in a tournament. Did you ever consider that this is the reason you are required to trade only in a practice account during your education at OptionsAnimal? Your tuition for your education will be far greater than the fees you’ve paid to OA if you trade with your precious capital while you’re in training. (This makes me remember some lessons I took from a professional golfer. During those lessons, as I was incorporating the information into my game, my scores suffered badly. Can you relate?)

How will I protect my self-confidence during drawdowns?

Every trader experiences losses. It’s a part of the business that cannot be avoided. Have you ever considered that in addition to your capital trading account you must protect your emotional trading account? If you don’t protect your confidence level you may find yourself emotionally bankrupt and join the hundreds who leave trading for more pleasurable pursuits.

Emilu Bailes

OptionsANIMAL Instructor