To Thine Own Self be True

Charles Kirk offers the following at (The Kirk Report):

Each of us have our own skills, strengths, weaknesses and personalities, and matching those with a strategy you can use and develop over time, is the closest key to your future success that I can help you with. Bottom line – don’t be like me or anyone else for that matter, but instead just be yourself. Use this time in your life to find ways to take full advantage of your own God-given talents and skills as you develop them. While it is ok and, in fact recommended, that you try to learn as much as you can from others (I know I have), at the same time you must also understand and come to really appreciate that the true key to success is to find your own path just like every trader and investor who you so admire right now has already done.

It is so tempting to follow. This is especially true when it comes to money. People make the assumption that a blogger, financial columnist, author, professional trader etc. knows what he/she is doing and is making piles of money from the markets. Thus, any time a trade is suggested, many copy that trade with nary a thought.

Most of the time, the recommended trade turns out to be unsuitable for the reader, and blindly following is not a smart move.

Early in my blogging career, I was stunned to discover that a reader latched onto a trade I mentioned – even when I made it clear that it was chosen at random, and only to make a point. That trader has come a long way, and is making much better trade decisions these days.

People hunger for clues on how to win at the investing/trading game. They seek pundits. They buy newsletters. They watch the talking heads on TV. All in a attempt to find winning trade suggestions from the smart money. The problem is, there is no reason to believe any of these sources represent smart money.

Even when those trade ideas are good, trade management is far more important than trade entry. One thing is certain, whoever mentioned the trade initially is not going to be available to offer guidance. The copycat trader is left to manage the trade alone, and must be able to do that skillfully – on a consistent basis.

Charles’ advice is right on. Sure you want to learn from people who offer something of value. However, the best value is some piece of information that you can use repeatedly in your trading career. It’s not a winning trade. If I had to pin it down to a single item, the one thing I hope to have my readers understand, it’s the importance of risk management.

The solution

The fix for this problem is not to depend on others. Do not assume others are any smarter than you. Sure, they may be more experienced, but if you want to make money as a trader, you must develop your own skills. You must find your own path. If you doubt your ability to do that, there is no shame in hiring a money manager. You can own index funds with a portion of your assets, use the services of a (fee only) financial planner etc. If you discover that you have what it takes to invest /trade and prosper – congratulations. But don’t try to get there by following trade ideas of others. Learn tactics, ideas, trade management skills. Don’t depend on others to feed trade ideas.

Analyze any trade suggestion. Tear it apart. Come to one conclusion or another: you do understand the trade and its purpose. You believe the concept is sound. You recognize what you may have to do if and when an adjustment becomes necessary. The risk profile suits you. Then fine – go follow and make the trade in the proper size.

On the other hand, if all conditions are not met, this trade is not for you. Exception: follow it in a paper trading account and see what you can learn by tracking that trade.

Education is important for the options trader. Read, practice, ask questions. Practice some more. Determine whether you have what it takes. If you do, then follow your own path, wherever it takes you. Just remember that trading is not for everyone, and you cannot expect to find success by copying someone else.


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One Response to To Thine Own Self be True

  1. Jeff 02/23/2011 at 6:17 AM #

    Thanks for this excellent article.