Don’t Trade in a Closet
To relax, Catamaran Corp. CEO Mark Thierer spends evenings cataloguing his 50,000+ sticker collection in his Illinois basement, CEO.com reports. Hawker CEO Robert “Steve” Miller built a 2,000-square-foot model railroad in his underground workshop.
What do these CEOs have in common with traders? Like you, they choose to spend hours alone in small, enclosed spaces pursuing their passions. The difference is that Thierer and Miller also get to bound ideas off of like-minded clients, colleagues, and fellow enthusiasts outside their dens. If you’re trading on your own, you don’t get the benefit of outside perspectives.
Without the benefit of peers, individual traders are susceptible to marketing campaigns by large firms and investment tips planted in the media, leading to losses, financial researchers found, after following traders’ returns and habits for three years.
It’s a Lonely Business
Trading can be a lonely business, spending hours in darkened rooms squinting into computer screens. You may become so captivated that you shun distractions and human contact, scrutinizing every tiny blip for glimmers of profit.
But this doesn’t have to be the case. One of the classic rules of Wall Street is don’t trade in a closet. You don’t literally have to be sitting in a closet, although some traders do. It just means that you need a trading partner or community to bounce your trading theories and strategies off of, so you don’t become too isolated, infatuated with your own ideas, or vulnerable to seductive advertising.
“If a big company releases a new product or is running an impressive advertising campaign, this tends to sway the retail investor,” study author Dr. Annica Rose says. Failing to cut losses and selling profitable stocks before their run is over are more common mistakes solo traders make, Rose reports.
How to Find a Trading Partner
Your ideal trading partner would be someone who shares your commitment to a trading philosophy, It could be a relative, mentor, or local community trading club member. Beware of online trading soundboards, especially considering the vast majority of them do not use their own material to trade their own money.
Not ready to come out of the trading closet? fractalerts can be a check-and-balance system against which to compare your own research. Our software uses complex algorithms to detect mathematical patterns and predict market behavior; if our signals conflict with a trade you’re about to make, it may warrant a second or third look.
By checking your own hunches against other traders and indicators, you can make more informed trading decisions.