When Trading, Keep Your Mouth Shut

By: Stuart McPhee
Submitted: 2007-01-17 16:16:37
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In numerous traders clubs and forums, you will often find people who routinely disclose what positions they have and why. Often, the intentions of these people are innocent in that they want to help others to discover an approach that is going to work for them. They want to teach the recipients and empower them to learn more about trading. Sometimes, the person disclosing the information may have other intentions however there is always the chance that this could have a detrimental effect on the person disclosing the information.

They need to be careful that they don’t start believing too much in their position just because they have disclosed it to others.

At the best of times, taking losses can be difficult. It is probably the most single identifiable reason why traders fail. Taking a loss means that you must accept that you got the trade wrong and this can be difficult for a lot of people. Now that you have disclosed your trade to a group of people, it can make it even harder to accept that you were wrong and therefore close the trade when you should. Advocating the trade to others instills in you the positives of the trade and these may eventually subconsciously influence your decision to not exit the trade.

Traders should avoid discussing their open positions and their opinion on various potential trades because it may affect their objectivity when in that position themselves and make it harder to take a loss, even when that is their best course of action.

Confident traders rely on their own methodology and not what others are saying.

If you make a habit of discussing your open trades, there is a chance it will end up costing you money, especially if you repeat your opinions often enough, in that you might actually start believing what you are saying.

The same goes with tips. A common rule is to not give nor listen to tips. A trap that you can easily fall into with a tip, can occur when your position starts to move against you. You are more inclined to break the rules and not cut your loss because of the ‘reliable’ information you have heard about the security’s future. Have confidence in your own approach and never worry about tips of any nature regardless of whom they are from.

When you give a tip, and the position moves against you, it is possible to feel some obligation to stay in the trade because of the relationship you have with the person you gave the tip to. It is unlikely that you could face up to the person one week after the position was entered, and tell them that the tip is no good and they should exit.

In his book ‘Reminiscences of a Stock Operator’ (a fictionalised biography of one of the greatest market speculators, Jesse Livermore), Edwin Lefevre mentions how destructive tips can be to one’s trading. This is coming from a book that was first published in 1923 and is one of the most highly regarded financial books ever written. Back in 1923, tips were considered disastrous, so there is no reason to think that they are different today.

Trust yourself and have confidence in your own methodology.

Stuart McPhee is recognized as a leading trading coach and expert when it comes to developing solid and profitable trading plans.

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Article source: Expert Articles