Author: Chris Hood
Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.
I’ve lost track of just how many books on trading I’ve read.
And I can’t imagine just how many interviews by top traders and investors I’ve listened to over the years.
Though I’m a professional trader with a system that provides me a consistent and sizable income from the markets, I know I’m not perfect. I can always improve.
It’s the same with any skill.
The moment you think you know everything, you’ve ceased to grow.
Today we’re going to look at three key quotes that have stuck with me and helped guide my progress.
Sure, I could come up with my own, but I’m a trader, not a writer. And I don’t think these points could be summarized any more clearly or succinctly.
“There’s nothing wrong with cash. It gives you time to think.”
– Robert Pretcher, Jr.
One advantage that we as retail traders have over institutions and fund managers is that we don’t have to be fully invested.
In fact, I highly recommend you maintain a cash balance and only trade with a portion of your funds. This is a crucial component of allocation in any trading plan.
You cannot lose money that isn’t tied up in trading positions.
Think of it this way. Cash is a position that carries no risk.
In addition, having ample liquidity lets to take advantage of trade opportunities as they arise.
How much you choose to trade with is your choice.
In strong seasons, such as between November and January, use a bit more. However, in months with traditionally high volatility like March and April, trim your positions and tread lightly.
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
– George Soros
Though Soros refers to investing, this sentiment is equally true of trading.
Professional traders like me don’t play the market for excitement or an adrenaline rush; we trade to make profits.
Nothing else matters.
Many retail traders get involved with the market because they’re ‘seduced by yield.’ In other words, they want to get rich quick and forget the risk.
A professional can indeed make fantastic returns on capital.
However, consistent base hits of 50-70% returns are the key to long-term success, not swinging for home runs on every trade.
Never bet the house on any single trade.
Oversized positions are the number one reason new traders blow up their accounts.
They play the market like slots in a casino and eventually go broke, gambling away their hard-earned capital.
This doesn’t mean that you can find trading a challenging and enjoyable journey. However, you must trade on logic rather than emotion.
“The riskiest moment is when you are right. That’s when you’re in the most trouble, because you tend to overstay good decisions.”
– Peter L. Bernstein
In trading, you’ll have winners and losers.
You put in the time studying the charts and doing your research, but you cannot predict the outcome. It’s a simple fact.
Many go down with the ship on losing trades.
Unwilling to admit they were wrong, they watch their position slowly sink as they hope in vain for a turn-around.
Yet even those who can manage their losses by cutting losers early have serious problems taking profits—a combination of poor planning and greed.
Entering a trade with no idea of when to take your money off the table is a rookie mistake.
Unless you have a profit-taking strategy, then you’ll be governed by emotion. Waiting, holding, and wanting just a bit more.
It’s heartbreaking to watch your potential gains disappear because you didn’t know when to get out.
Believe me, I’ve been there.
Save yourself the heartache. Make a plan to get out, then execute it no matter how much your money-hungry lizard brain begs you to stay in.
Here’s the take-away:
No matter what your skill level, you can always get better.
Do the work, do the research, and constantly refine your trading process.
Now get after it.