A TYPICAL BAD TRADER

So how does this relate to trading? Let’s say John, the really bad trader, has
been long crude oil for two days now, and is up $2.00 on the trade. He got
long because all he hears about on TV is how crude is going to the moon
and because he just paid $3.00 a gallon at the pump last week. Now two
days later, it opens 20 cents lower and sells off a bit, and he fears the worst
and sells it at the market. By the end of the day however, it has rallied up a
dollar and a few days later it’s up four bucks from there with barely a down
move. Not only did he never get back in, in fact he shorted it, because he
thought it would retrace a bit giving him a chance to get back in on the
long side. By the end of the week he’s lost $4,000 on a trade that should
have made him $4,000.
Why? Because he never had a trading plan for the trade or a game plan
for what to do with it after he got in. He threw a bad pitch because he didn’t
do his homework and then threw a few more as he wasn’t prepared and let
his emotions get the better of him. His reasons for getting into the trade
were not thought out. High gas prices alone are not a good reason to buy
oil impetuously. You need to thoroughly think out a trade before jumping
in. And then, once in the trade, John had no idea what he wanted out of it.
You cannot trade this way and expect to make money. You should always
have a plan for your trades if you want to make it as a trader, as trading on
impulses will not get you very far.