Trading Is A Business Not A Hobby, Phil Storer Says In His New Book
Each transaction needs a plan, not a horse track he advises in Chalk Talks for Traders
Stock and commodities expert Phil Storer says anyone who views their trading as a casual hobby, entering a market the way they might place a quick bet at the horse track, will probably run up losses in a hurry. Trading should not be treated as a pastime but as a business that requires a plan for each step along the way.
Hobby traders are casual speculators who often get their ideas from a friend, new acquaintance, sales person or the media. When they embrace an idea, their response is often unbridled enthusiasm and a tendency to jump into a market as soon as possible, thinking that the sky's the limit.
Investors have a different set of characteristics. They sometimes get their original ideas in the same way as speculators but they won't sign on until a plan is in place, Storer says. They want to know where to buy, or their entry level, and when to buy. Investors manage their money by addressing the issue of risk and the matter of setting a profit objective.
Trading must be conducted with strategies, not just whims, wishes and prayers, Storer says. He tells the story of a husband and wife who came to his office with money from an inheritance that they hoped to parlay into a fortune. While their enthusiasm was boundless, they had no strategy beyond placing trades and praying. Now, Im a firm believer in the power of prayer, but you still need to have a plan, he says. You have to decide how, when and where to enter, and what to do if the market moves for or against you.
During the couple's visits to his office, Storer noticed a tendency--sometimes seen in speculators--to fight the trend. They continually bought into weak markets and sold or went short in strong markets. You can occasionally win that way, but it isnt a good plan over time--especially when your plan consists of simply entering the trade, he says. It's easy to guess what happened, he adds. The couple didn't change their approach, and eventually lost much more than they should have--a situation that could have been avoided if they had been willing to work out a plan beforehand, he says.
The speculators among us often jump in feet first, Storer says. Some of them later become investors, however, with styles running from cautious to aggressive. Others decide that the trading arena is too complicated and risky, and exit the markets or decide to let someone else make their decisions for them.
Speculative pitfalls include letting excitement rule rather than thinking through transactions, and deciding everything will happen very soon so that theres no need to consider timing. Weaknesses include the feeling of euphoria and believing that a trade is such an obvious winner that risk and profit objectives don't need to be considered.
Storer says a plan won't guarantee a win, but win or lose, the trader will learn from his mistakes and be able to take advantage of the next reasonable opportunity. Hobby traders and speculators, however, are operating without benchmarks to gauge their errors.
Storer advises calmly considering a trading idea and then planning it out for better results in the long term. You'll have a much smoother ride through the markets than the roller-coaster experience of the hobby trader or speculator, he says.
Once you've learned some of the neat tools in my book, be aware that winning comes from inside and is built on discipline and consistency of purpose and seeing yourself as successful even when youve just had a loss, he says. My hope is that by reading my new book you can reach a level that will allow you to be an investor, rather than a speculator, with quality results and satisfaction beyond anything you've seen so far.
Storer is Director of Trading for the commodity division of Dillon Gage Inc., a full-service brokerage firm based in Dallas, Texas.
Store is the author of Chalk Talks for Traders Easy Xs and Os from a Proven Market Pro. Chalk Talks for Traders Easy Xs and Os from a Proven Market Pro. is available now at http://www.chalktalksfortraders.com.
by: Phil Storer
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