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while another trader would not even be slightly perturbed. The reason is that the internal representation of what $500 means is vastly different to the two traders. Likewise, if you believe that a loss is caused by the failure of the market to behave in the correct manner, you will get extremely upset when it behaves unexpectedly. However, another trader who believes an occasional loss is unavoidable, and is the cost of finding out the validity of his or her perception, will not get upset. |
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When I first started trading commodities, my younger brother Frank (who had been trading natural gas for years at various companies in Houston) posed the following situation to me: There are two day traders in natural gas. During the day one trader goes short and the other goes long. At the end of the day the long trader has made money, and the short trader has lost money. Who has the right methodology? My answer was, naturally, the profitable trader. His answer was that, based upon one trade, it was impossible to say which trader was correct; only the market was right. The response bothered and confused me for quite a while. Frank explained it this way: The long trader went long for his reasons, and the short trader had her reasons. Both traders in all probability had the wrong reasons. The market was the only player who absolutely knew the correct reason, and the market always does the right thing. The long trader, although profitable, was able to hitch a ride in the profitable direction possibly because of his ability to see the market action correctly, but this didn't validate his methodology based upon the one trade. |
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I argued that the long trader was profitable because he was able to see the market correctly, and profit accordingly. Frank's response was that it was more luck than skill in that one particular trade. The key word here is "particular." An outstanding trader with the "right" methodology will consistently make money over a sample of many trades. Please let me repeat this with emphasis: An outstanding trader is consistently profitable over many trades. Remember that novice trades will determine their success in a very myopic way. |
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If outstanding traders are profitable over a length of time, how do you think they will represent a losing trade? What emotions will they experience when they have a loss? What will they feel, and what will their inner voice be saying? Now for the kicker, what will they feel after several consecutive losing trades? I will answer these questions shortly; however, I suspect that many of you already know the answer! |
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Here is another situation. Let's say you are watching wheat being traded, and if we could stop time for a minute, what does the last traded price (say, 209.25) represent to you? A successful trader will answer that it |
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