Trading the Markets, Part 1: Feeling the Pressure

There are many traders who do it for a living because they have a formula for success.  Each one has their own concoction of methods and a particular style that works for them, but I will tell you that most winning traders have a good plan but are flexible to change if needed.  Further, the most successful traders do not let outside factors influence their daily actions or routine, as they will add to the already difficult challenge of trading.  Success to me is not necessarily gaining a big stack, rather it’s about longevity and persistence.

Markets do not move in one direction, and the shorter your timeframe the more volatility we see.  Over time markets tend to rise but this is not like the ‘old days’ when a buy/hold strategy was best served.  This is not your ‘fathers market’ any longer, being rational, realistic,  nimble and flexible often pays better than being patient, sitting and waiting (still a good investing strategy, but we’re talking about trading here).

So, if you’re trading this market you deal with uncertainties, fear and greed.  But are you prepared to buy dips and sell rips when they come at you?  Further, are you capitalized to the point where if you make a bad move your account won’t be severely crippled?   Many feel the pressure to succeed each day, week and month so they can make their mortgage payment, pay bills or put food on the table.  Those are perpetual expenses, they occur all the time and just never end.  But, your gains are not perpetual, you will have setbacks – and then what do you do?   If the market were always going in one direction and we could ride it out and never worry, then it would be easy to do – but as we know, that is just not true.

This approach is a recipe for disaster because of the uncertainties is markets. Anyone can get lucky, but that is not sustainable nor a wise strategy.   The pressure you will feel to be perfect in your timing and selections is extremely intense.  There is nobody who can make a sustained living trading if they are under-capitalized.  You have to have room for market changes, shifts, uncertainties, errors and unfortunate situations.  Hedging is a great way to approach the trade but the returns are reduced.

I suggest being well capitalized to trade your account.  It is said that a trader should have a year’s worth of expenses ‘on the side’ – and then a big stack to work from.  I would agree but perhaps eighteen months worth  of expenses, a good-sized stack and a PLAN of action.  There is nothing more important than the plan – which is a topic we’ll cover next time around.

Bob Lang,  Explosive Options. He is a regular contributor to TheStreet.com. You can find him on Twitter @aztecs99.