Opening Position

August 2010

Weak home sales data for May was enough to intensify the already negative sentiment prevailing in these tumultuous markets. Signs of a mild recovery in housing sales in earlier months stirred up a little optimism, but that could very well have been a temporary boost provided by the tax credit. Now that the tax credit has expired, we are hit with reality: The housing market is still sliding.

The correction in the markets that began in mid-April has attracted the attention of technical analysts, given that the market’s behavior has given rise to patterns, adherence to Fibonacci retracement levels, and clear wave patterns. Although this is not the environment for the buy & hold investor, it is a boon for short-term traders presenting opportunities to go long and short. However, in order to trade profitably in this type of market, you must have a very systematic approach, which is why it’s always worth your while to spend time strategizing how you are going to manage your positions. The challenge is to remain objective even when your emotions come into play. We are human, after all, and regardless of whether we are retail traders or professional traders, we will always be faced with the challenge of being confronted by our emotions. But it’s how you deal with those emotions that will give you an edge in your trading.

It is often said that the easiest part of trading is entering a trade and the most difficult is exiting a trade. If you have no position open at all, then you’re not going to have that adrenaline rush you get after you open a position. The very second you hit enter, you enter a world that is everything about emotions. You so desperately want to be right. You want things to go your way. But the reality is that more often than not, things will not, and you’ll end up trading based on your emotions.

I challenge you to go back to all the trades you have made, say in the past year. Look at your winning trades and your losing ones and then try to identify the reasons behind those wins and losses. Recognize your strengths and your weaknesses and use them as learning tools.

Managing your positions is a lot more than designing a trading system, determining where to place stops and what your position sizes are, and if you are going to scale into positions. It is all about how you handle your emotions. Once you get a grip on them, no matter what kind of market you are in, I guarantee you will see positive results.

Jayanthi Gopalakrishnan, Editor

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