February 14th 2008
Trading Like I Don’t Care
Want to know how I trade the same setups day in and day out? How I consistently execute my trading plan? I trade like I don’t care.
It’s really easy to do. All you need to do is trade small.
So you say, “Well wait a second, I need to make money”.
If you can’t consistently trade your plan, you are never going to make money. If you are learning, you need to trade the smallest lot your broker will allow. It shouldn’t be about making money. It should be about learning. How can you make any money, if you blew your bankroll before you knew what you were doing?
So you say, “The commissions will eat into my equity!”…Big deal, call it tuition. I’d rather pay my tuition in commissions than losing trades.
You might say, “That’s boring”. Exactly! Trading should be boring. The only reason I have been able to trade over the long term is because it has become boring. I don’t get excited from the risk or price movement because no one trade will make or break me. I do get excited from the research and from talking about it, hence the blog about trading ideas.
Imagine yourself trading one share of stock each day for a year. You might end a couple pennies down or up each day. But over the course of a year, the fluctuation in your account is minimal. I don’t know anyone who would give a damn about making or losing a few pennies. When you’re learning that’s how it should be. You become emotionally detached from your trading and you don’t blow your account balance.
I do want to clarify one thing. Trading small doesn’t mean being careless. A trader once told me that I should be the hardest boss I’ve ever had. It’s true. I spend an inordinate amount of time on research and analysis. Trading like you don’t care doesn’t mean slacking off. Even though one bad trade may not break you, a hundred bad trades will.
You become a good trader with experience. You get experience by staying in the game. If you’re not getting the results you need to stay in the game, you need to trade small so you can.
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6 Comments »
Rule One Investing on 14 Feb 2008 at 9:00 am #
This is great advice. I especially love the ‘tuition’ part. Great post!
Jonathan on 14 Feb 2008 at 5:38 pm #
Thanks Rule One. I traded 1 share for several months. It was a good lesson.
David Bradley on 14 Feb 2008 at 5:52 pm #
I’m a big believer in trading small, too. My initial position is usually very small, and if the stock does what I expect it to, I add more, if it doesn’t I get out and take a small loss. The commissions do add up, but the lower risk makes up for it.
Options Strategery on 16 Feb 2008 at 1:20 pm #
This is exactly why traders with small bankrolls should avoid options. The minimum size is too big and it is all too easy to wipe out a trade. I tell people this and no one listens. At least now I have another resource to point them to.
John Hunter on 21 Feb 2008 at 3:40 pm #
Good advice. Not everyone can follow it though
Warren Buffett for one doesn’t do it. Here is a great quote from on his thoughts:
Buffett cautioned, though, that the difference between investing on paper and investing with real money is like the difference between reading a romance novel and, as he delicately put it, “doing something else.” “There’s nothing like having a little experience in investing,” he said. Once you’ve done that, you can decide whether, as Buffett said, “it turns you on.”
Jonathan on 21 Feb 2008 at 6:16 pm #
@David Sounds like my strategy. I scale in quite a bit.
@Options Strategery Do they get blown out buy writing options or nickled and dimed by buying way OTM puts/calls. I would think it would be tempting to swing for the fences by buying options and lose your bankroll over time.
@John I agree with Buffet too. I would not advocate paper trading as a proxy for paper trading. I do think there is value in putting some money on the table. Just not most of it.
Of course who am I to argue with Buffet. His bankroll is probably 2 or 3 times mine