How to Trade Less and Achieve More

05/29/2009 12:01 am EST

Focus: STRATEGIES

Many of you know that I have a background in stock car racing. The more I think about it, the more I see similarities that racing and trading the markets have in common. Particularly, that they both require intense focus.

I was thinking back on my racing days and I remembered a statement that my crew chief made to me. That statement not only gave me the edge in racing, but virtually in every other venture that I was a part of. Are you ready for that magic set of words? Well, I think it would be prudent for me to explain a few things first.

You see, in racing, you are rewarded for being fast, having cautious aggressiveness, and being the most consistent. In addition, everything is measured in fractions of seconds. In some cases, the decisions you make—or don’t make, for that matter—could injure you, or even worse, could be fatal. When you hear these words that I am going to share with you, it may not make sense at first, but experienced individuals know how important this is. OK, are you ready?

My crew chief said to me, “Jeff, if you want to go fast, you have to slow way down.” Now you can just imagine the confusion on my face when I was told that! I think my exact response was, “Huh?” He went on to explain to me that to be fast, you need to slow down in the corners so that you can set up the car for the exit. Most people drive off in a corner and manhandle the car, and as a result, they have a poor exit.  By simply rolling into the corner rather than driving 100% into the corner, you will have more momentum in the majority of the track, which is in the straightaway. I finally began to understand this concept, and since then, I have applied it to many things in my life.

So, here is the big question: How does this apply to trading the markets? Many people who are embarking on a new career want the experience of success, and they want it yesterday! They “rev up” their trading account and go full speed into the corner, not giving any consideration to consistency. They don’t even know what their car has under the hood.  They start buying and selling stocks as if they were selling tickets to a Broadway show. No strategy, no plan, just pure adrenaline and emotion.

Most new traders feel that if you are in the trading business, you should be trading, not sitting and waiting. Unfortunately, a very high percentage of new traders never make a proper exit off the corner. Manhandling their trading eventually causes them to end up in the wall, and I don’t mean Wall Street. If they would just learn how to roll into the corner (paper trade) and set their car up for the exit (proper education first), they would learn how to pass the majority of people down the straightaway.

I once had a conversation with racing legend Bill Elliott, who has gone down in history as one of the most winning drivers on the NASCAR circuit. This is basically what he told me: “Jeff, if you were to paint a line around the track where your front tires are tracking, the goal would be to only focus on hitting your marks.” He went on to say “Sloppiness or inconsistency of your line around the track is one of the most damaging things a racer can do.”

That made so much sense to me the more I thought about it. So many people spend so much time looking for the better way around or a better system that they lose the peril and momentum of consistency. By the time they find their “line” (the Holy Grail that does not really exist), they have already used up their equipment. You do not need to trade 20 or even 100 trades per day to be a trader. The professionals are not trading the majority of the time, but instead, they are just following their line, only taking their setups, and not looking for the newest, “better way” to make a lot of money in the markets.

The sooner you learn and understand that taking fewer trades with more consistent setups is really the only way to achieve financial rewards in daytrading, the sooner you will be on your way to more consistent profits.

By Jeff Yates of Pristine.com

 

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