Streamline Your Trades
By Chris Craig
Approaching investing in the markets is very similar to how I approach a mountaineering quest. The most vital part of my trades is the preparation I put in before pushing a button to buy or sell. Much like a mountaineer has a check list before going on a trek, a trader must have a checklist for each strategy. Consequently, after choosing a stock and strategy, I run through my checklist before pulling the trigger. Furthermore, my checklist changes depending on which strategy I’m utilizing.
When contemplating the relation between trading and hiking, I can think back to one hike in particular which taught me a vital preparation lesson. As the thunder clouds became visible through the thick green canopy overhead, I immediately regretted the decision to leave my poncho out of my pack. Standing there four miles up in the Uinta Mountains, I franticly searched through my pack looking for any makeshift cover from the downpour about to be inflicted by Mother Nature. My hope was to reach the summit within the day, but getting wet would defeat any chances of reaching my goal. At the current altitude, it’s about 55 degrees and getting wet wouldn’t do more than cool me down for a little while. The problem was, in less then an hour I would be reaching altitudes where the rain comes as snow and the temperature would be at least twenty-degrees cooler. Now that I was drenched from the storm, trying to top out the hike was too risky.
I go hiking almost every weekend and I always try to pack as light as possible so I can get up the trail faster. This trip I had failed to properly prepare myself, and I paid the price for my lack of preparation. The most important part of my hike is the time I spend preparing before stepping foot on the trail. I lay out all my essentials and make sure everything is in order. The last thing you want on your hike is to be faced with a sudden storm and not have your poncho, or slip into a stream and not have spare socks.
Not only is it crucial to make sure I have everything I’ll need, I also want to make sure I don’t bring anything that’s not a necessity. Carrying extra gear just weighs you down and makes getting to your destination more difficult. This concept of packing light and efficient is referred to as “Streamlining”.
STREAMLINE
It is imperative to know what is essential to your decision to move on a stock, and what isn’t. Investors often think that spending more time making the decision to place a trade lowers their risk. These investors are the same that miss out on an opportunity when it presents itself. If you want to get in and out closer to the top and bottom, make your strategies more streamlined so you can make your decisions quicker.
Saving time is one of my main reasons in streamlining my trades. I don’t trade for the fun of it, or the thrill of predicting the market. I want to get in as soon as I can, start accumulating profits, and exit when the appropriate time comes. All too often I see traders focusing more on doing all the research possible on a trade prior to jumping in, and time and time again they miss their opportunity to take profits. I could spend eight hours a day for a month checking the fundamentals of a company, running through all the technical analysis I can get my hands on, and have a great prediction on the direction of the stock. However, I could also commit twenty minutes going through five to six quick steps to arrive at the same conclusion. Thanks to our advanced software, the Edutrader, everything I need is right in front of me at the click of a button.
Another reason I have my checklist is it allows me to have more confidence in my trades. I have a strategy that works for me and I’m confident in its ability to produce profits. The past performance and success of my strategies helps to buoy my confidence and comfort level in trading. Moreover, sticking to a checklist helps keep emotion out of trading.
TURNING BACK
One thing important to remember about my experience hiking that rainy day is that I made the educated decision to turn back. I could have stuck to my guns and said, “I’ve committed to reach the top, and that’s exactly what I’ll do!” This is the kind of mentality investors sometimes adopt that burns them all too often. Don’t let your emotions get the best of you. Many people adopt the mentality of winning at all costs. In other words make whatever decisions are needed so that you never lose. Never surrender! While this may be conducive to success in sports, business or other parts of our lives, it is disastrous when applied to trading in the financial markets. Remember, our goal as traders is to maximize our gains and minimize our losses. Make no mistake about it folks, losing trades are inevitable! It’s not about winning every trade, but knowing when to take a loss (turning back). Those who seek to win at all costs HATE to take losses and thus try to avoid the unavoidable. Talk about an exercise of frustration. Rather than simply selling losing trades, they began to rationalize and justify, seeking to hold on until the trade turns into a profitable one.
Just as there are millions of trails to hike in the U.S. alone, there are thousands of stocks to invest in. Be disciplined enough to invest in the right ones, not just the one’s your committed to, or the one’s that have been “so good to you over the years”. Although I was disappointed that my hike was cut short, I can look back and be thankful I came down.
Create your checklist, keep it “streamlined”, and don’t forget that minimizing your losses is as equal in importance as maximizing profit!