Today's Quote: “We made too many wrong mistakes” Yogi Berra

There are several good books out there about trading that should be on every trader’s must read list. If you were forced to choose one and only one, the only possible pick would be “Tools and Tactics for the Master Day Trader”. We are going to run a series of excerpts from the best selling book for the next series of lessons. Now in the words of the master trader himself, Oliver L. Velez…

HOW TO FIND AND KILL YOUR DEADLIEST DEMON (Part One)

Yogi Berra was fond of saying, "I just don't want to make sure I make the wrong mistake." This is a fascinating point made by a very fascinating man. I'm not sure if this legendary baseball manager ever played the stock market, but his statement certainly applies to the challenging game of trading. Traders must forever be mindful of the fact that there are two types of mistakes or losses: (1) those that are due to the law of averages and therefore unavoidable and (2) those that are the result of the seven deadly sins and/or the faulty execution of the trading plan. Not only must traders realize this fact, but it is very important for them to differentiate between the losses that occur due to the "sins" and those due to statistics. It must never be forgotten that loss is, and always will be, a permanent part of the trading game. No matter how knowledgeable we become, losing trades will forever remain a part of our reality. Our challenge as traders is not to avoid loss entirely. Rather it is to manage our losses intelligently and make sure we are only experiencing the ones that occur simply based on the fact that we can't win them all. We also must set out to completely eradicate the wrong losses from our trading lives. In other words, we must forever maintain a "search and destroy mission" for the demons—the errors—that evolve from the "sins" and have the power to take us out of the game. We have detailed here a life-long activity that we teach and require all of our private in-house traders to follow. We are sure it will prove helpful to you as well.

To be continued…