Tuesday, September 1, 2009

Long term success

From a very young age, we are ingrained with a powerful short-term reward system. We are incentivized to eat on day one with the reward of satisfying our hunger. Such immediate gratification teaches us to always eat when we are hungry. As we began with our education, we were rewarded to learn with grades in mind. And grades, we soon realized, yielded the reward of approval (and love, I suspect) from parents, teachers, and peers. We would study non-stop for days to take an exam, with the assurance that we will receive a grade within a week. As we entered the job-market, a day's work was rewarded with a monthly salary. In many cases, an immediate commission was rewarded for each sale - or aggregated into a bonus at the end of the year.

So, how all of this reflects on trading?

Very small percentage of people makes it in trading and my personal opinion is that most of the people who were bumped out of this game have placed short term rewards in front of the long term goals. Most of the people will take small profits instead of letting them go, just to be satisfied with their short term reward. They will keep losers for much longer then they should because they will not be rewarded if they close them early, so they chose to hope that positions will probably swing back to positive territory. This approach is absolutely wrong as in trading one must keep winners as long as he/she can and cut losers very fast. Only by doing this one has a chance to make it in this game. Problem is that there are just a few people who understand this and that is the reason why we have so many losers in trading game. But, I guess, this doesn’t apply only to trading – it applies to everything around us. Only few people make it in big league, starting alone simply because they were not satisfied with their salaries at the end of every month. So, they took bigger risks and started their own companies.

Trader who is just starting with trading should encounter many setbacks during which he/she must always keep long term goals in his/hers head. Short term reward will be so tempting (at the beginning) to take profit and to break system rules when you are in good trade. That’s when your mind must work towards achieving long term goals by following/respecting trading system, money management and trading discipline as long lasting success will simply wait at the far end of this endeavour.

Trade with trend!

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