Friday, July 31, 2009

Getting Back Up

Those successful in the market will often say that it is not because they are right all the time, they are just better at accepting and fixing their mistakes. I'm still working on those two aspects of trading, but I have improved so much from when I began.

The market is always right.

You'll hear that said, too. It is a basic truism, albeit, somewhat anthropomorphic. I guess it should be, "The market just is." But, of course, it is not going to change because you push it to.

Accept that you were wrong and try to make the best of it. Which leads me to something called "outs." This is a concept that you will hear about frequently in the poker world, but not quite so directly in the trading world--which makes sense. In poker, the "outs" (that is, the number of ways you can make a solid, if not winning, hand) are much more tangible. We know exactly how many cards are in a deck, how many of each suit, and how many of each rank per suit. It's all easily summed up in an entry level probability formula.

The markets, however, are not so easily quantified. Whereas you know there are 52 cards in a standard deck, in the markets there is no upper bound on stock price, and the lower bound gets hit only when rock bottom, zero, is reached. Volume and earnings, volatility and news releases, make trading a much more complex game.

Take '08 and the beginning of '09, for instance. Records were broken, both positive and negative. But, even so, you must leave yourself an "out." Essentially, in the trading world this means: do not over utilize leverage, know your support and resistance levels, diversify (cash is diversification! as are short positions), and never ever place all your eggs in one basket (i.e. the opposite of diversification).

There are other rules, too, that will provide you with extra "outs." Those take time and experience to develop.

I will write some more about these topics, as they are extremely important, but would like to say that my three trades in EUR/USD are closed. Two with +25 pips each, and the third with a loss of ~10pips. I am up to $113, or about a 10.5% gain from beginning. My poker account is currently at $45, which puts me at a $60 gain for the month of July. In both cases, I'm pleased--more work ahead!

Thank you for reading.

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