Read this article somewhere before, and I find it rather useful. Decide to share it here for all to view. Hope you find this useful.
Discover the 90/10 Principle. What is this principle about?
10% of life is made up of what happens to you. 90% of life is decided by how you react. What does this mean?
We really have no control over 10% of what happens to us. In trading, we may have done all our homework - studying charts, looking at historical data, establishing support/resistant level before determining that the stock is headed up. However, for reasons unknown, it keeps headed south. We have no control over this 10%. The other 90% is different. You determine the other 90%. How?
By your reaction. You cannot influence the stock price, but you can control your reaction towards it. Let's illustrate with an example.
You are sitting in front of your monitor. You have just done all your pre-market scans, and is very confident that XYZ stock is going to gap up. You place a market order to buy before the opening bell, and BAM! The stock gaps down 10% shortly after opening, triggering your mental stop loss level. What happens next will be determined by how you react. You curse and swear. You blame market makers and big players of influencing the stock price. You nervously watch the stock the entire day and it dips lower and lower. Before the end of the day, frustration takes over and you sell the stock at a big loss. You spend the rest of the day in a semi-stupor.
Why did you have a bad day?
A) Did the money makers cause it?
B) Did the institutional players cause it?
C) Did you cause it?
The answer is " C".
You had no control over what happened with the stock price. How you reacted in those 5 seconds is what caused your bad day.
Here is what could have and should have happened.
The stock gaps down to your stop loss level. You calmly exit the trade as set forth in your exit strategy. You spend the rest of the day reviewing the trade as to what caused the gap downwards. You learn valuable lessons and gain further insights towards your trading system. You go to sleep, knowing losses are a part of trading and that tomorrow might be a better day.
Notice the difference?
Two different scenarios. Both started the same. Both ended different.
Why? Because of how you REACTED.
You really do not have any control over 10% of what happens. The other 90% was determined by your reaction.
Why get stressed out? It will just make things worse. Now you know the 90-10 principle. Apply it and you will be amazed at the results. You will lose nothing if you try it.
The 90-10 principle is incredible. Very few know and apply this principle. The result? Millions of people are suffering from undeserved stress, trials, problems and heartache. There never seem to be a success in life.
Bad days follow bad days.
Terrible things seem to be constantly happening. There is constant stress, lack of joy, and broken relationships. Worry consumes time. Anger breaks friendships and life seems dreary and is not enjoyed to the fullest. Friends are lost. Life is a bore and often seems cruel. Does this describe you? If so, do not be discouraged..
You can be different!
Understand and apply the 90/10 principle.
It can change your life.
Discover the 90/10 Principle. What is this principle about?
10% of life is made up of what happens to you. 90% of life is decided by how you react. What does this mean?
We really have no control over 10% of what happens to us. In trading, we may have done all our homework - studying charts, looking at historical data, establishing support/resistant level before determining that the stock is headed up. However, for reasons unknown, it keeps headed south. We have no control over this 10%. The other 90% is different. You determine the other 90%. How?
By your reaction. You cannot influence the stock price, but you can control your reaction towards it. Let's illustrate with an example.
You are sitting in front of your monitor. You have just done all your pre-market scans, and is very confident that XYZ stock is going to gap up. You place a market order to buy before the opening bell, and BAM! The stock gaps down 10% shortly after opening, triggering your mental stop loss level. What happens next will be determined by how you react. You curse and swear. You blame market makers and big players of influencing the stock price. You nervously watch the stock the entire day and it dips lower and lower. Before the end of the day, frustration takes over and you sell the stock at a big loss. You spend the rest of the day in a semi-stupor.
Why did you have a bad day?
A) Did the money makers cause it?
B) Did the institutional players cause it?
C) Did you cause it?
The answer is " C".
You had no control over what happened with the stock price. How you reacted in those 5 seconds is what caused your bad day.
Here is what could have and should have happened.
The stock gaps down to your stop loss level. You calmly exit the trade as set forth in your exit strategy. You spend the rest of the day reviewing the trade as to what caused the gap downwards. You learn valuable lessons and gain further insights towards your trading system. You go to sleep, knowing losses are a part of trading and that tomorrow might be a better day.
Notice the difference?
Two different scenarios. Both started the same. Both ended different.
Why? Because of how you REACTED.
You really do not have any control over 10% of what happens. The other 90% was determined by your reaction.
Why get stressed out? It will just make things worse. Now you know the 90-10 principle. Apply it and you will be amazed at the results. You will lose nothing if you try it.
The 90-10 principle is incredible. Very few know and apply this principle. The result? Millions of people are suffering from undeserved stress, trials, problems and heartache. There never seem to be a success in life.
Bad days follow bad days.
Terrible things seem to be constantly happening. There is constant stress, lack of joy, and broken relationships. Worry consumes time. Anger breaks friendships and life seems dreary and is not enjoyed to the fullest. Friends are lost. Life is a bore and often seems cruel. Does this describe you? If so, do not be discouraged..
You can be different!
Understand and apply the 90/10 principle.
It can change your life.
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4 comments:
I can honestly tell you that such calm assurance is easier to speak about than lay a claim to. Without the wherewithal necessary to maintain a calm self-individuality, any given person can easily fall into the depths of despair, or succumb to panic. The rule you so smugly rattle off is much easier to apply in retrospect, with the intelligence and 20/20 vision of hindsight. At the moment of crisis itself, it gets harder and harder to rationalise hard decisions, or even follow a pre-planned exit strategy. And ah! Therein lies the rub. For the key to staying calm and being able to think clearly and coolly, is not any exterior strategy; even a pre-planned exit strategy can be misinterpreted or applied wrongly in scenarios of varying disorder. Self-mastery is very important. A confidence bordering on cockiness is necessary to play this game.
Also, in reference to your 90-10 principle, I thought it interesting to draw a comparison to the Pareto principle, more commonly known as the 80-20 rule to the layman, as I'm sure you know. Although conceptually the ideas are different, the fact that 2 such radical ideas both base themselves upon a probability distribution, or a percentage, is highly indicative of the nature of the market. It bears thinking about, noting as how the temperament of the market, stock prices, traders, and economics in general can be so easily described by so generic and simplistic a formula.
-Thomas
Truth be told, I have been in such a situation myself. I remember entering a rather bad credit spread position around a few months back ago - it was an Oct SPX Bear Call Spread. Within a couple of weeks after opening the position, SPX (along with all the major indices) began rising day after agonizing day. I had set a stop loss level prior to that, and soon SPX was hovering around that level. I knew I should have sold then, but some stubborn part inside me told me to hold on. It kept telling me SPX will fall one day, and that this position can still be profitable. Finally, the position was closed for a even greater loss than what it should have been. Indeed hindsight is 20/20, I know realize that strict money management and enforcing discipline is what keeps traders in the game. By preserving capital to fight another day, we have a higher chance to make it in the market.
By the way, do you happen to be a Thomas Saw from Singapore? Just had a premonition.
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