Feels Like All Of My Trades Are Turning To Gold…Danger ahead?

By: ispeculatornew
Date posted: 08.04.2011 (5:00 am) | Write a Comment  (0 Comments)

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Trading is about many things but rarely is letting emotion come in to play seen as a good thing. I’ve gotta say, I’m trying my best to avoid getting overly excited. Why so? My technology trades so far this year have been incredibly successful. How so? The average trade has returned 18.19% which is well above returns achieved in the past. I still think that returns in 2009 and 2010 were very solid but this year,, things are just out of the park.

What is causing this? There are probably many factors including some of the recent decisions I’ve made regarding how I do trades, which stocks I short but also an increased number of stocks to choose from. That being said, I’d also be the first to admit that luck has also played a part. How so? The market has its ups and downs and a lot of it is not driven by fundamentals making the type of trading that I do much more difficult to perform.

On Tuesday morning, I opened a trade going long Travelzoo (TZOO)and short Demand Media (DMD)… given how things are going, should I be surprised that Travelzoo has increased 4.54% while Demand Media lost 7.16%… In 2 days? If this was the first time this had happened lately it could be seen as just a trade that turned out well. But these have happening very frequently lately. It seems too good to be true….and probably is.

The Challenge In Moments Like These

I think that all traders always fight to some degree the temptation of trading “emotionally”… What do I mean? The day that I start trading based on how my last few trades have gone is the day that things start going south. Having a losing streak? Risky trades that could help you make up for them quickly look awfully tempting. In the same way, when things are going as well as they currently are for me, it’s tempting to try to find safer, less volatile trades. The day that I start changing my stlye is the day I know that things will go badly.

However, even when you know about this danger, it’s still very much a challenge to avoid failling in the trap. I have to remain disciplined because I know that the next streak might just be a losing one. It probably will not happen this year simply because as I’ve stated before, I will stop entering new trades after the end of August. But it will happen: A bad month, maybe even a bad year.

How about you, how do you react to both good and bad trading streaks?

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