This Group Typically Fails At Trading… Are You In It?

Portrait of a depressed young businessman
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I’m going to show you two word sets.

Take a moment to think about them. I want you to consider which words best describe trading.

Here they are…

Group A Group B

Exciting

Thought-provoking

Emotional

Calm

Instinctive

Strategic

Need to be right

Goal to make money

 

Both groups contain a collection of human traits and desires. They all have a time and place. There is nothing wrong with any of them, in the right situation.

Let’s say you require a medical specialist. Do you go with someone whose goal is to make money? I know I wouldn’t. In this case, you want a person with the desire to be right.

Suppose adrenaline sport is your thing. I’m guessing ‘thought-provoking’ is not a term you’d use when doing a Google search.

Trading is no different. There are certain clusters of words that best fit the action.

Many people link the words from Group A with trading. And I can understand why. These words describe the typical image of a professional trader — a loud, Alpha-type personality.

But that’s a mistake.

Emotions like ‘exciting’ and ‘instinctive’ are more fitting in a casino than a professional trading floor. In fact, a bank’s dealing room can often be surprisingly quiet.

Group B is the one that matters. This is the special blend that makes successful trading possible.

When less is more

Quant Trader doesn’t have a buy quota. It also won’t create activity without good reason. The aim of the system is to make you money…pure and simple.

On average, there’ve been 4.4 buy signals per week since January 2015. But, as I said, it varies. The average this year is 2.7…for the same period last year it was 6.2.

Market conditions have a big influence. Buying opportunities will naturally be greatest when the All Ordinaries is rising. And this is typically when you’ll see the most signals.

I view markets like a giant puzzle. I’m always thinking of ways to put the pieces together. I’d describe this as an intellectual experience, not an exciting one.

You see, ‘exciting’ doesn’t help you make money. It’s actually counterproductive.

Good trading requires patience. You need to wait for the right trade set ups. And then you need to give them time. If anything, good trading can be a bit dull.

A big part of Quant Trader’s job is to get you in and out of trades. That’s obvious.

But there’s another roll. Quant Trader also aims to keep you out when conditions aren’t right. There are times when the sideline is the best place to be.

Few things are certain in financial markets. But I can say with confidence: creating activity for the sake of it is a losing proposition.

Constant buying and selling may be exciting. But that’s not the purpose of Quant Trader. There are far less expensive ways to get a buzz than playing the markets.

Private trader’s edge

There’s another point I want to make. This is something you may not have thought of before.

Private traders have an advantage over many professions. That is, they can decide not to play when conditions don’t suit.

Think about it. Investment banks pay their traders six figure salaries…or more. This often leads to constant pressure from management to trade.

You see, these traders have budgets to meet. And they can’t make budget as an observer.

Waiting for the right trade is a luxury many traders don’t have. The need to make something happen pushes many into marginal trades. And this often leads to trouble.

I’ve seen a lot of money lost trying to force a trade. Sometimes, the smart play is to walk away and come back another day…but this can be difficult on the trading desk.

There’s an excellent quote, from Wall Street legend Jim Rogers, I want you to read:

‘I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.’

Rogers’ nails one of trading’s most important concepts in just a few words…only trade when conditions are right.

I read this early in my career and it stuck. It made me resistant to entering trades for the sake of it.

So don’t be in a rush to jump on any old trade. Building wealth takes time. It will likely take longer if you start making trades that don’t stack up.

There’ll be times when buy signals are infrequent. And that’s okay. You don’t have to do something every week. A big part of good trading is only taking action when conditions are right.

Until next week,

Jason

Editor’s note: Quant Trader has closed out eight short trades in recent days. Most have been in the portfolio for many months, and have sizable profits. A rally in oversold stocks is largely driving the recent market rebound. This could be nothing more than a short covering rally. But it could also be the early stages of a broader trend change — time will tell.

Quant Trader will, of course, be scanning for opportunities. Interesting times could lie ahead. Click here to learn how Quant Trader could help you get on board the next big trend.

All graphics produced by Quant Trader unless otherwise noted.

Jason McIntosh

Jason McIntosh

Jason is a professional quantitative analyst. Before he graduated in 1991 he joined Bankers Trust — a Wall Street investment bank — to be a trader. After Bankers Trust was taken over in 1999, Jason, already financially independent, co-founded a stock market advisory and funds management business called Fat Prophets. At 37 he sold his part of that business and retired. These days, he’s a private trader and system developer. In 2014 he launched the wildly successful trading service: Quant Trader.
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