Saturday, January 06, 2007

Thinking and Trading

Thinking about what you are doing is probably the most underused tool in trading. Let me give you a non-trading example of what I am getting at here.

Over this past week, I lost all my personal preferences, bookmarks, mailboxes and custom settings on my Powerbook (Macintosh G4). My first recourse was Apple Support and when that didn't help, I posted the problem at the Apple Discussion Forum. Still no relief, but I did get some insights from those two sources as to how all of this information is organized on my computer.

Thinking about the loss, and what caused it, I started a logical train of thought that led me to a misplaced Library folder, found it, put it back where it belonged and bright and early this Saturday morning, everything was exactly where it should be, problem solved.

The analogy to trading is direct. Sometimes we look to an indicator, or guru, or someone else's opinion for an easy answer for what to do. We learned this habit because sometimes it works like that. A Blog, or newsletter, or indicator leads us into a very profitable trade and we spend years trying to make that happen again. But it was a random event and since there are only two directions that a stock can go, getting it right happens, whether there is any insight there or not.

What has worked best for me in trading is thinking about why something worked and not so much searching for the holy grail, be it a guru or indicator. An example of this is our Insider Buying system. We know stocks go up when lots of stock is being bought by multiple insiders. We know where the information is made available and we know the nuances of why some of these pop more then others, and why some are have lasting effects more then just the immediate pops.

Now I have promoted the work of Eric Muathe and Jim Dines here before, so how do I reconcile those recommendations? Muathe has found a breakout pattern that works and Dines has a more geopolitical bottom down approach for finding trends in financial markets before they are recognized as trends by the masses. In both cases, they don't replace the traders own brain, they expand the potential. I can find a Muathe break-out without Eric posting the stock on his web site.

So my message is simply that becoming more self-reliant in your trading will bring a success that goes beyond the profits of any individual trade. No two paths to trading success are the same, but intrinsic to every successful trader there is an independent thought process.

Look inside, its there.


1 comment:

Anonymous said...

Happy 2007 Allan,

Since you mentioned Mr. Dines, his single technology pick, SOLM, is up on good volume today. This might just be a January effect or perhaps there is something to the patents they hold against the power train of all Hybrid vehicles. I think the court is scheduled to decide this month. Good luck to all who visit this terrific blog and especially you Allan. Warm regards, Joe