The biggest challenges traders face constantly are the emotions of fearing losses, making the wrong decisions and missing out on trades. What better way to deal with these challenges than to let a trade run its course without interference.
Think back to the all the trades you’ve made since being involved in the financial markets. How many of those do you recall would have worked (produced a profit) if only you had left well enough alone? For the newer trader, I would venture to guess that there are too many to mention. Now that’s not to suggest that seasoned professionals on occasion exit trades prematurely. In trading there is no such thing as perfection; however, the difference is that Pros exit early less as they have learned to embrace the uncertainty inherent in any speculative undertaking.
One way to avoid this trading pitfall is to fully program the entire trade. This means, once the trade is on, the entry, the stop, and target are in place. The best course of action (or in this case, inaction) is to “leave it alone” or Laissez-faire. After all, aren’t the emotional reactions of micromanaging trades the primary cause of early exits out of perfectly good trades?
When I bring up this topic to students, I frequently hear that their biggest winning trades were the ones they just “let go.” In other words, they keep themselves detached emotionally from the trade, and just let the market do whatever it is going to do. If this way of trading seems to produce better results, then why is it that more traders don’t implement this Leave it alone approach to all their trades?
Part of it may just be due to the fact the new traders aren’t aware of all the capabilities of their execution platform. In addition, I’m sure there’s a segment of thrill-seeking traders that probably think it’s no fun to have the computer do all the work. Another reason might be psychological. As I mentioned earlier, stifling the fears of losing and giving back profits are challenging when first starting out. That’s why I encourage students to systematize the entire trading process. With the advent of technology, that’s very easy to do nowadays. Most direct access trading platforms have features that are well-suited for traders to simply place the trade and walk away. This can only be done after the trade is well thought out and meets all the rules set forth in a trader’s strategy
For example: A trader wants to go long 1 ES (E-mini S&P) at 1095 limit with a bracket order attached, which simultaneously places a sell stop market order to sell 1 contract with a 2-point ($100.00) stop. This sets the stop price at 1093.00 and a target which would be a sell limit order 10 points higher, or 2003.00 for a profit target.
As with anything, there are pros and cons to this type of order. The positives are that you have a specific entry price, stop, and target. However, because the entry and target are both limit orders, there are no guarantees you will be filled. This is where the strategy comes in. The entries, stops, and targets have to be placed based on a set of high probability parameters. What’s important here is that once the trade is placed a trader must let the trade unfold. This means being OK with whatever the outcome.
To conclude, it’s clear that emotions along with poor planning and a lack of preparation play a big role in a trader’s lack of success. So why not then utilize the tools available to mitigate some of these issues? After all, trading should be logical and methodical, not irrational and emotional. But I think you already know that. And to that end, here’s an idea: In the New Year, I challenge everyone to commit to making the necessary changes to becoming a successful trader. Perhaps one of those changes could be to start taking a Laissez-faire approach to trading.
Written by Gabe Velazquez, Online Trading Academy Instructor. Gabe got his start in the markets as a broker trainee for Paine Webber, a mere 3 months before the market crash of 1987. He witnessed the gut wrenching fear of investors during that time period and the wild speculative euphoria of the late 90’s. That experience brought to light the importance risk management plays in trading and investing. In fact, it’s greatly influenced the way he trades today. He spent 15 years as a stock and commodities broker, conducting technical analysis seminars through-out Southern California. After many years of managing other people’s money, Gabe now concentrates full time on trading his own portfolio and teaching. Students will benefit from his first hand experience of daily involvement in the market. He brings with him an acute awareness and understanding of how the markets really work. Articulating this knowledge clearly, succinctly, and with enthusiasm is something students can appreciate. This gift for communicating was honed through many years of public speaking. He currently holds a series 7, 63, 9 and 10 (securities and options principals license.)