Today's Quote: “Only the curious will learn, only the resolute overcome the obstacles to learning. The Quest quotient has always excited me more than the intelligence quotient." Eugene S. Wilson.

“You’ve got to know when to hold them, know when to fold them.” These may be just lines from a famous song, but perhaps Kenny Rodgers was a better than average trader as well. The second part of that statement, know when to fold them, is the number one problem for most traders. In real trader talk, that means having planned for and having executed in a timely manner a stop loss on any trade that did not work out. Sometimes a trader will ignore a stop, because somehow that trader felt they ‘knew better’. If ignoring the stop turns out to be beneficial to the trader, this may be the beginning of the end of the trader’s career. As described in the book, “Tools and Tactics for the Master Day Trader”, this is called winning the wrong way. This positive reinforcement of a bad act will cause the trader to continue doing the same thing. Then the trader is operating without an ‘insurance policy’, and without a plan.

The first part of the song’s line, knowing when to hold them is another way of stating the number 2 problem most traders have. Letting their winners run. Fear steps in and any small profit is taken regardless of the target. This act when done on a regular basis almost guarantees failure by ‘locking in’ a losing system. If you have a plan, and you have taken a trade based on that plan, why interfere in most cases? Too many traders get ‘wiggled out’ of a day trade or swing trade because of small acceptable pullbacks, or because they are reacting to something inappropriate, like ‘selling’ on a Level 2 screen.

The market has been in a downtrend for a while now. Do you have longer term holdings? If so, did you follow your plan in managing them? It is possible you did just fine. But every holder of a 10 dollar stock that was purchased at 90 dollars felt like they were doing fine at 80 dollars also. Follow your plan, manage positions, don’t be caught in hope mode.