Discipline, detachment are keys to profits
Whether those goals are related to finance, fitness, relationships, spirituality or other, the most important traits you need to achieve your dreams are commitment and discipline.
In the markets, you may feel as though you are committed to achieving superior results, but beyond wanting to do well, what rituals do you have in order to achieve the success that eludes so many participants? Besides reading this column or other websites on a regular basis, what are you doing to find the ideas that are aligned with what you want from the market?
Unfortunately, reading this column or any other for profitable ideas is not the ideal way to approach the market. Try as I do to provide ideas I believe will make money, if you read this column with the sole intent of finding profitable ideas week after week, the expectations you place on me are too high and your approach to the market needs work.
Every participant has a different method to making money in the markets and there is no one service that can meet the goals of every investor. Some of the variables that mandate each person approaching the market with their own plan include: amount of capital available to commit to the market, amount of time available, risk tolerance, level of patience, etc.
Because of the great number of influences on the decision making process, you need to customize your own plan which considers these variables plus any other unique situations that may apply to you.
Over the last year I have given numerous ideas that have gone on to be very profitable. There have also been some losers, that is the nature of the market. No one is right all of the time and I do not expect to be (although I wish I were). But I do know that armed with good ideas and the disciplined implementation of a well thought out plan, I will continue to be a net winner in the market. If I waiver from my risk management and money management principles, the results will most likely be unfavorable and it is my firm conviction in these views which keeps me unemotional and disciplined.
Conviction in my approach to the markets comes from years of fine tuning the way I choose to interact with the markets. If you are not trading your plan, where does your conviction come from? The answer is that unless you approach the market on your terms, you are unlikely to experience consistent positive results.
Looking ahead to 2006, if you are going to achieve the results you know deep down that you are capable of, you need to have a plan.
This plan should be based on realistic assumptions and must also leave room for fine tuning as the market dictates. It is unrealistic to think you can come up with a list of stocks that you can buy on January 1 and then sell at a profit on December 31. The market is dynamic and things change which is why you always need to have a backup plan in case the market does not agree with your analysis.
That backup plan has to come in the form of managing the risk inherent in the market regardless of which instrument you use (stocks, options, futures, etc.).
Risk is not a static measurement; we cannot simply look at historic volatility of a market and assume that is the way it will always be.
Historical measurements can give us a guideline of how the market should behave if things remain as they are, however as Heraclitus stated about life in Greece over 2,500 years ago "Change is the only constant" Nowhere is that quote more relevant than in supply and demand markets where emotion rules the decisions of the vast majority of participants. Emotions are the enemy in trading and in order to be truly objective about your market decisions you need to separate emotion from the decision making process. Emotional detachment from market decisions will free your mind to focus only on the facts, prevent untold errors, and ultimately bring about better results.
This year, along with your other resolutions, make a commitment to take full responsibility for your market results, this means that regardless of where you come up with your ideas, when you implement them, do so on your own terms and be steadfast in the discipline of managing those trades and investments.
