September 24, 2008 at 11:34 am | | Comments 2

Reckless Testing

Some traders are just reckless when it comes to trying out a new strategy.

From time to time, every one of us will see the need to modify our style in order to keep improving, and truthfully that’s a willingness each of us must have if we want long term success as traders. There is no shortage of tools or trading styles that might have the ability to improve your trading, so there’s certainly nothing wrong with trying them out when you recognize it’s time to change. In fact, some of the best traders I’ve ever known are willing to try new methods when they realize it could be better than their current approach. However, the key is how you test out those methods.

Reckless traders aren’t reckless because they are experimenters. Rather, they’re reckless in the way they fail to protect themselves while experimenting.

Just Enough to Feel It

Now, I’m not a fan of paper trading because no emotion is involved. Red and green numbers in a demo account somehow just don’t have the same impact on one’s psyche the way real dollars do, so naturally I don’t find it beneficial to “pretend trade.” Instead, having some real money on the line is the fastest way for the market to not only get your attention but also for you to learn quickly.

But hold your horses, because I’m definitely not advocating bold trading during a test phase. Yes, trading the actual shares with real dollars (as opposed to claiming a would-be entry on paper) gives you the best sense of how a new style really works, but go small. I cannot stress that enough.

The idea is to learn something new with minimal pain. Of course, stock market 101 requires that we pay the occasional tuition, but why tinker with different methods and invite more pain than is necessary before getting a feel for the new ways?

Just in case that tuition bill comes due, you want the price tag to resemble something from the local junior college – not an ivy-league school!

How to Test Best

So when the time comes that you find it necessary to do a little experimenting with a style that’s new to you, go slowly. You want to trade new methods so small that if you take several hits in a row you’ll still be fine. A couple of minor bruises still send the same message to your brain (‘that didn’t work‘) without requiring a broken leg to get the point across!

Don’t be reckless with new trading styles – be smart and find the best ways to get results with the least amount of risk. After all, you can always step up the risk ladder later on.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

[tags]Stock Market, Day Trading, Stock Trading, Investing, Swing Trading[/tags]

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  1. Reckless is not a description I ever want applied to me as a trader! Be sure to do your homework before jumping in on any deal. Trading is not a lottery. The reckless should stick to horse racing!

  2. I couldn’t agree more Z, thanks for your comment!


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