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August 1996
The STOCKS & COMMODITIES interview this month is with Innergame Partners' Robert Koppel, who was a floor trader for 17 years before leaving the pit to become a proprietary trader. Besides trading, Koppel has co-authored two books, and most recently wrote The Intuitive Trader under his own byline. Koppel's formal education is in philosophy, which, in essence, is the study of how we view reality. So it's no surprise that his penned work expresses his interest in the psychological aspects of trading. There's a real fit here: When you consider how we perceive the market and the emotional responses we form as a reaction to it -- or more to the point, how well we trade the market -- it's clear how our perceptions and our feelings are tied together. Anyone who's traded financial instruments, especially such leveraged instruments as futures and options, knows full well that your feelings about trading and your perceptions of the marketplace become very intertwined.As Koppel points out, we attach feelings to any decision that has risks and rewards associated with it. Obviously, trading has its ups and downs, and as such, it is perfectly normal to experience disappointment when a trade goes sour and excitement when you're on the right side. But it is these very feelings, these changes in your emotional states, that can ultimately lead to your failure. These emotions can lead you to not entering what is obviously a good position when you believe you should, abandoning a good position too early or letting a bad trade carry you away. How can you combat this? How can you avoid letting your emotions affect your ability to apply your trading skills? The answer, as always, comes down to having a good game plan. Koppel explains the necessity of a detailed and well-researched plan. And it can't be just any plan. No, the plan should fit your personality, so that you can implement it effortlessly. And that is the key. If you can take your trading methods and evolve as a trader to the point that you can execute without thinking, then you should be on the right track to succeeding as a trader.
Try this experiment. Have someone supply you with a chart of a market that has displayed everything you need to trade it. Cover up most of the chart with a piece of opaque paper and then visually expose each bar of the chart, one bar at a time. Now, here's the important part: You should be able to state clearly, in no uncertain terms, what you would do as each bar is presented -- buy, sell, hold, change your stop level or liquidate your position. Can you do it? If your trading plan isn't at this level, then you should reconsider risking your capital until your plan can pass this test. Having a plan you know inside out and can execute is key to avoiding the emotional pitfalls of trading. Once you read our interview with Koppel, you'll see what I'm talking about.
It comes down to this: Everything in life that requires you to go from point A to point B is easier to do if you have a plan. It has to be a plan that gives you direction, has the steps outlined using a task list, lets you know if you have deviated from it, and gives you a sense of where you are regarding your goals. It's simply good business to have everything thought out well in advance.
