Cheap Education

I am in a scramble for time today. This is what happens when you spend the morning and afternoon golfing. I am hammering out a topic for Master Talk this evening. Of course, I need to provide an offering to the faithful participants of my trading blog, and I decided to share a quick story I read a while ago from a Professional Trader...

"Back in 2004, I joined Kingstree Trading, LLC, a proprietary trading firm in Chicago. There, I had the good fortune to get to know--and observe--many successful traders at work.

One lesson particularly stands out in my mind. A trader saw buying come into the market, and he quickly jumped on board. He saw that the odds of taking out a recent high were good, given the size of the buying. To his surprise, however, the trade stalled out before the target and reversed. He quickly exited with a tick loss.

He turned to me and said, "I just paid for information."

When the market bounced higher a few ticks several minutes later, the volume was weak. No big players were taking the long side. He aggressively sold and quickly made a couple of points.

He placed a good trade, and it didn't work out. He didn't view that as a threat, as a loss, or as a failure.

He viewed it as information. The market was telling him that we weren't going to take out the recent high.

How he entered the first trade and exited it and how he used the loss to prepare himself for the winning trade: *There* was a clinic in trading psychology.

If your setups are valid, there are only two kinds of trades: Those that make you money and those that give you information."

The same applies to all traders. There will be trades that profit, and trades that teach you lessons. Keep records of each of your trades and be very detailed in your description of why you are taking the trade. If something does not go as planned, revisit your line of thinking to criticize your approach, rules, or system. This will help to build a better trader out of you.

I like this story for a couple reasons. First, the trader saw a trade, and instinctively took it. Be willing to put it on the table when you see the opportunity. Make sure you are ready and willing to take a chance, but be even quicker to admit if you are wrong. That's the other element I liked about this story.

Wow! This helps straighten out my twisted thinking. Thanks a bunch.
I also have some information or possibly misinformation: Several months ago I called my broker frustrated that my options were always closing well below my stops. He told me that sell orders are triggered by the stop at the ASK price and then sold at the BID. Hence I now pad my stops by the amount of the spread. Whadaya think o that?

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About me

  • I'm Option Addict
  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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