Most individual investors seem to feel it isn't cool to talk about exits before even buying an equity. Institutional traders know that it's uncool not to do so. Who is right? As is my norm, I’ve looked to my Trading Journal to answer that question, and the the winner is...
My journal is a cornucopia of reminders. In the past, when my charts told me I was wrong, I then had to convince my ego to accept that fact before being able to pull the sell trigger. Precious time was lost in this little negotiation, and invariably the sell executions were less profitable. The markets are always great teachers if you are willing to embrace the lessons they have to share and then adjust your trading plan accordingly. I listened carefully over the years and now I convince my ego beforehand – and preferably while the markets are closed – to recognize what ‘wrong’ looks like. I am willing to take a new position if and only if my ego is on board and we can charge ahead being on the same page.
A trading buddy of mine likes to joke that "you are never alone with a schizophrenic". It is his way of reminding us both that a stock market trader needs to cultivate two separate personalities: one for dealing with the investment world, the other for family, friends and everyday life. The reality is that the inner personality most appropriate for taking profits out of the stock market is very different than the personality one should cultivate to lead a rich well-rounded life in after-market hours. Herein lies the dilemma: how best to prosper in both worlds. Some extraordinary traders clearly lead a very rich inner life and choose to live life wearing their market hours personality 24/7. For myself, my natural personality may give me a balanced life in my everyday family world but by necessity I’ve devised quite a separate personae to be successful in my stock market world.
As individual investors with very unique individual personalities, we can devise individual solutions. I’ll share with you my own particular solution as a way to get you to consider what might work for you, but you first have to agree not to call me ‘bizarre’. If we cross paths someday – and chances are 99% it will be after market hours – you must promise not to mention my ’market hours personality’. Agreed? Okay, then.
When I trade the market, I slip into my market personality by physically putting on my battle-scarred trading vest (yes it's an actual vest) which empowers me with the appropriate stock market state of mind. On peaceful market days, I’ll answer my phone at the office and friends tell me they know I must be wearing that trading vest because they can hear my market personality voice. Long ago, I named this so-called market personality “Jesse” after the famous trader Jesse Livermore. Invariably, friends on the phone will ask me to kindly remove my vest before the conversation so they won’t have to talk to Jesse!
However you choose to embrace your own market personality as an individual investor, you will find that you have immense advantages over the big institutional investors. As individuals, we don’t need to discuss our trades with investment committees or orchestrate complex selling campaigns lasting days just so we can liquidate our holdings without moving the markets. Instead, we have near "X-ray" vision with one-minute charts (see below) that will show us the true intentions of institutional sellers as they leave their footprints all over our charts. Those are the mechanics. Once you've adopted your own market personality, you will have the confidence to act decisively and to do what is appropriate and profitable since you will have already agreed upon your sell scenario with your ego. When the charts tell you to sell, you won't freeze; instead, you'll react appropriately based on your sell scenario. You’ll find it is less stressful and less exhausting to follow your own plan.
The bottom line: pick a chair close to the exit before you buy an equity and then sit down. As they say in the movie MARGIN CALL, "it's not panic selling if you are first out the door.”
A trading buddy of mine likes to joke that "you are never alone with a schizophrenic". It is his way of reminding us both that a stock market trader needs to cultivate two separate personalities: one for dealing with the investment world, the other for family, friends and everyday life. The reality is that the inner personality most appropriate for taking profits out of the stock market is very different than the personality one should cultivate to lead a rich well-rounded life in after-market hours. Herein lies the dilemma: how best to prosper in both worlds. Some extraordinary traders clearly lead a very rich inner life and choose to live life wearing their market hours personality 24/7. For myself, my natural personality may give me a balanced life in my everyday family world but by necessity I’ve devised quite a separate personae to be successful in my stock market world.
As individual investors with very unique individual personalities, we can devise individual solutions. I’ll share with you my own particular solution as a way to get you to consider what might work for you, but you first have to agree not to call me ‘bizarre’. If we cross paths someday – and chances are 99% it will be after market hours – you must promise not to mention my ’market hours personality’. Agreed? Okay, then.
When I trade the market, I slip into my market personality by physically putting on my battle-scarred trading vest (yes it's an actual vest) which empowers me with the appropriate stock market state of mind. On peaceful market days, I’ll answer my phone at the office and friends tell me they know I must be wearing that trading vest because they can hear my market personality voice. Long ago, I named this so-called market personality “Jesse” after the famous trader Jesse Livermore. Invariably, friends on the phone will ask me to kindly remove my vest before the conversation so they won’t have to talk to Jesse!
However you choose to embrace your own market personality as an individual investor, you will find that you have immense advantages over the big institutional investors. As individuals, we don’t need to discuss our trades with investment committees or orchestrate complex selling campaigns lasting days just so we can liquidate our holdings without moving the markets. Instead, we have near "X-ray" vision with one-minute charts (see below) that will show us the true intentions of institutional sellers as they leave their footprints all over our charts. Those are the mechanics. Once you've adopted your own market personality, you will have the confidence to act decisively and to do what is appropriate and profitable since you will have already agreed upon your sell scenario with your ego. When the charts tell you to sell, you won't freeze; instead, you'll react appropriately based on your sell scenario. You’ll find it is less stressful and less exhausting to follow your own plan.
The bottom line: pick a chair close to the exit before you buy an equity and then sit down. As they say in the movie MARGIN CALL, "it's not panic selling if you are first out the door.”
Trade well; trade with discipline!
-- Gatis Roze
About the author:
Gatis Roze, MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today.
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