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Live to Play Another Day

If you can just find a way to hang in there, then the good times will come. If you can find a way to stay in the game, then you can become an experienced trader. But you have to survive. And some just can’t.

DON’T FOCUS ON MAKING PREDICTIONS

Mark Douglas in The Disciplined Trader wrote, “If you believe it likely to have a definite bullish or bearish effect marketwise, do not back your judgment until the action of the market itself confirms your opinion.” If I get caught long, spot an overly aggressive seller, the stock hits my exit prices, then I sell. I do not hold because I think that this overly aggressive seller is a putz. If I did, I would have blown up my trading account on multiple occasions by now. Once a stock hits my exit price, then I exit. I live to play another day.

New traders sometimes make the error of believing that trading is about making predictions and that they can move the market with their 1,000 shares, or worse yet, their young opinions.

 How Predictions Harm the New Trader

As a trader, even if you develop the correct bias about the direction of the market, stock, or sector, you still must possess the trading skills to capture these moves. Wasting your time on predictions is energy and time lost for what will truly make all the difference, skill development.

Derek Jeter does not spend time working on his fastball (he is not a pitcher), and you should not sharpen your skills as an analyst (you are a trader!).

Also, as a trader, you must sit and process the data the market offers with an open mind. Too many traders color the data the market offers with their own biases.

traders ask where we thought the price of oil would be in the next six months. Frankly, we had no idea and didn’t care. We were too busy making money. It’s called trading, not predicting.

traders ask where we thought the price of oil would be in the next six months. Frankly, we had no idea and didn’t care. We were too busy making money. It’s called trading, not predicting.

The Market Doesn’t Care What You Think

Trade what the market is doing, not what you’d like it to do in your nihilistic fantasies.” No one cares where you think a stock is headed.

When it’s apparent that something isn’t working out, just move out. That means just sell it and redeploy capital elsewhere. Just don’t marry a position.

if no one cares what you think about a stock, then you shouldn’t. Just trade. Watch the price action. If your stock confirms your bullish bias, then get long. If your stock confirms you were wrong, then trade your stock from the short side. Too many new prop traders never embrace this philosophy and as a result never experience the best markets.

As traders, we develop theories daily. And those are great. But our P&L is not dictated by our predictions but our trading skill. And when you develop trading skills, it does not matter whether you accurately predict the top in a sector. It just matters that that sector is active. As long as it moves.

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