- 1997: Volume 6, No. 1 Trader's Coach

Dear Coach:

I've been trading in metals for awhile and not making money. Are there markets that are especially profitable? Because, if I make a change again, I do not want to make a mistake.

Looking for a change

Dear Looking:

What?!! You're not eagerly anticipating the pain associated with learning from making mistakes? In that case, you'll need to know that whenever you take on a new market, it's like starting from scratch, and all markets can be especially profitable for those who have developed the skills necessary to be profitable in that particular market. Find a model of a good trader in any market and elicit from him the way he thinks, behaves and the strategy he uses to make himself successful. This is easier said than done, but that's the fastest way of becoming successful at anything. And, the "ouch factor" will be negligible.

Dear Coach:

I'm having trouble dumping losing trades. Yes, I do have a system. But, even with my system, I have trouble. Sometimes, I second guess my system because I see that I can do better and the trade turns and then I don't have a way out.

Second Guesser

Dear Second Guesser:

Well, obviously you can't do better, so stick to your rules. But if you don't believe in your rules go back to developing them. Knowing when to get out is where you make your money in trading. You have to be consistent about the choices you make and stick to them. Otherwise, you'll be done with second guessing and on to second-careering.

Dear Coach:

I'm moving into trading from an insurance company where I was a VP. I'm used to working from goals. What are the kinds of goals that successful traders use?

Ex-VP

Dear Ex-VP:

First, you have to remember that whatever your status was in another field, you're a total novice when you come into the world of trading. The prime goal of a trader is to enjoy the process of making money. Most people think that the primary goal is to make money, but I have found that if you don't enjoy the process of making money you will end up giving it all back. If you don't believe me about the necessity of enjoying the process, ask yourself how much you enjoyed the process of working for an insurance company.

Dear Coach:

I am currently trading in only one market. How many markets would you recommend that I trade in for the right balance of diversification?

One Market Guy

Dear One Market:

One market can be enough for some traders and it can be too much for others. If that sounds like double-speak, you have a good ear for language. As far as diversification is concerned, it depends on how much money you have and how much ability you have for those other investments. While diversification can be a protection, it can also be a way to lose your shirt if you don't know what you're doing. So, make certain you know what you're doing or find someone who does know.

Dear Coach:

I will be coming into some money from an inheritance and will be using all or part of it as my trading capital. How much do I need to get started? How much should I be using as trading money, and how much will I need to set up my trading operation? How much should I be spending each month on overhead, trading services, etc.?

Curious in Ohio

Dear Curious:

Don't waste your inheritance on trading-I've got some great ocean-front property in Kansas for you. The fact that you ask the question would lead me to say that you should not put anything into trading capital or start any trading operation because you clearly have not read the books that are necessary to get into this business. Now, if you were to just set up any office, you would have to consider the rental space of that office, the machines necessary to operate that office and any other overhead such as utilities and personnel. Trading services vary depending upon the type of trading you are looking to get into. Trading accounts vary depending upon how much you need to be profitable and how much you have from your inheritance. If you are talking $10,000, that's one thing; but, if you're talking 10 million dollars, that's another thing. Work backwards: How much profit do you need or expect to make? And then see if it's really worth the effort. If you don't have a tremendous passion to get into this business, then you should go into another business. Many people look at trading as an easy way of making a lot of money. It's easy for a very few that have done a lot of work to make it easy.

Dear Coach:

My system is now generating 26% correct calls on my trades. Personally, I think this is outstanding, but for the record, what is a reasonable percentage of correct calls?

Modest in California

Dear Modesty:

Don't think about percentages of correct calls; think about the profits you make from that 26%. If your profits on 26% of correct calls can be double or more the profits that someone makes on 56% correct calls, you are doing very well, indeed. It depends upon how you handle your money management and exits. If you think it's outstanding, then it is. Just remember, it's what you do with what you have that counts (at least, that's what I've been told).