You Know You Shouldn't Be Trading When...
As a follow-up post to the one I did last week on How Big Should I Trade, I want to focus on "When I Should Not Be Trading". This is a little bit more straight forward that will focus on the more subtle traits for when you know you should just 'hang it up."
First and foremost, across the board - the main characteristic involved in every case a person shouldn't be trading is when it is done out of desperation.
What does this desperation look like?
Desperation is what lures so many people into the stock market - much like the flashing lights of Vegas that offers the promise of a better life as well. In both cases it just leaves people further in despair and a lighter pocket too.
Often times the position sizes that we choose to trade is often a direct result of what we'd like to make from the market on a regular basis. Some people won't trade $1,000 or $2,000 in a single trade because they just don't feel like it offers enough in returns.
Some folks will trade larger sizes because they figure that if they can make $X.XX doing so, that will enable them to quit their day-job.
And then of course, there's the person that 'desperately wants to be a millionaire' and as a result creates a nifty spread sheet that calculates "If I trade "X" dollars and make "Y" return, over the course of "Z" years, I will be able to retire.
But let me be frank - Trading is about developing a craft, a skill set, a TRADE that will allow you to consistently extract income out of the market outside of all external forces, opinions, people, and influences. Trading is not about making money and winning. That is the result of developing your skill set.
You create the skill set and the ability to trade with discipline and accuracy, then winning will be an afterthought.
But by trading out of desperation, it causes you to take short-cuts and circumvent the path to developing a long-term career in trading. It will cause you to trade larger than you should, more frequently than you should, and more often with out any reason for doing so.
So learn to trade smaller dollars, amounts that you can withstand to lose. Amounts that if the trade goes horribly wrong, you won't be dreading telling your spouse about what happened.
Here's the rest of the article.