At the weekend I heard a definition of ‘hope’ that I’d like to share.
I was attending a Sunday church group where the speaker touched on a number of areas, among them his thoughts on hope. By way of defining it, he related a quote from a technology group head he knew, that despite the fact it ran counter to his position, I thought was eminently applicable to the world of trading. It was:-
“Hope is a poorly constructed shelter for the unprepared.”
Marvelous, and so true.
We’ve all been there. Staring at the screen watching the price plummet, it’s approaching those levels, the ones where we promised ourselves we’d obey our stop and cut our losses. Levels that took weeks to attain are now being taken out in seconds, price is paying no regard to any logic or rational argument we applied to its likely course, and it’s our biggest position of course, because we’ve been adding to it on the way down. There’s no support below this, it has to hold, it if cracks instead and plummets lower still, there’s only one thing left.
Hope is talked of in religious terms because it’s a word used to encourage, to inspire faith, and what is faith? Faith is belief without proof. Have heart. Don’t give up hope.
In trading we call that being subjective. Feelings or opinions are subjective. We follow signals from price, volume, things that are factual, they are known, they can’t be adjusted or restated, they are objective.
Hope is also a politicians word, used by every charlatan who would seek to appeal to your innate need to better yourself. But hope has no place in trading. In trading, hope is a four letter word. Remove it from your vocabulary.
Hope is a last resort. It’s a ‘poorly constructed shelter’ because it’s put together at the last minute as chaos unfolds around you. It’s a refuge for those that have no other place to go, and there’s always room at the inn.
If you’ve ever found yourself in a trade hoping, then you were unprepared and need a better trading plan. The technology manager was right. Be prepared. You need a plan of action for every eventuality. Imagine every possible scenario for every position. And then imagine they’ll all happen at once.
What would make me exit this position today? What would need to happen, where would it need to go? Is my stop intraday, or is it on a closing basis? We need to know all these things before we ever enter the position.
If you don’t you are assuming, dare we say hoping, that the circumstances under which you’ll exit will be as calm and pleasing as those under which you entered.
Don’t bet on it.
Having to activate a stop can often occur at the very moment something appears likely to turn your way, as if your stop is the low. Develop a system that you know works, that suits you, that you know you’ll follow under any circumstances, and you need never hope again.