Q: Arthur, how should a novice like me mentally approach the business of trading?

A: I got to thinking about mental attitudes and trading when I was watching the recent marathon tennis match between Todd Martin and Andre Agassi. Both players showed great traits that many traders may look to add to their arsenal.

A Serious Business
They approach the game of tennis as a business, with solid preparation and a game plan. Some part-time traders approach trading as a hobby and don't put in the hard work required to succeed. I am not saying trading is only for full-time dedicated individuals. However, trading and analysis are ongoing exercises, not something you can leave for a few months and expect to come back to as good as when you left. The less you trade, the more rusty you will become, and the greater your chances of losing. This does not mean you have to trade all the time, but rather remain active and consistent with your analysis. Once you prepare and master the basics, you should have a game plan. Part of this plan involves scenario development to prepare for different situations.

Lack of Emotion
What continues to amaze me is the lack of emotion each player showed during the match. Agassi was down 5-2 in the fifth and held off two match points to win the final set 10-8. Adrenalin and emotions must have been running high as the match went back and forth, but you could never tell by looking at the players. You (or at least I) could not tell if either player had just hit the shot of his life or just got aced. Their expressions stayed the same after each point and they moved on to the next point. Once that point (trade) was over, there was no sense getting excited about it. The best they could do is to learn from the previous point (trade) and apply it to the next. Stay with the facts and don't let emotional decisions enter into your trading plan.

Dealing with Losses
Each player came into the tournament and match with realistic expectations. There are going to be ups (gains) and downs (losses) throughout the match (trading month) and neither player expected an easy ride. It is impossible to win every point, every game or even every set. You have to be prepared to deal with lost points, lost games and lost sets. What separates the great players (traders) from the no-so-great players (traders) is how they deal with losses and adversity. Agassi was down, and by most counts, out of the match. Sure, the possibility of losing went through his mind, but he instead focused on the next point (trade) and tried to build some momentum one point (trade) at time. A few winning points turned into a few winning games and pretty soon confidence was restored. The next thing you know the match is tied up and now Martin was the one feeling the pressure. Every trader has losses. The important thing is how traders deal with their losses.

Cheers, Arthur Hill

Q: I enjoyed the discussion between Richard Rhodes and Rex Takasugi. There should be some way of recognizing who was closer to the actual events in their predictions. If they continue to get it wrong then they should be banished.
Q: Re the discussion, at what point do you admit being wrong?
Q: I must admit the discussion is thought provoking, but they both can not be right and if one of them is consistently on the wrong side of the argument then that should be pointed out rather strongly and if one of them is consistently on the right side then that should be rewarded.

A: The goal of these Discussion articles is not to see who's right or who's wrong, but to get you, the reader, to challenge your existing opinions. As you read the article, look to see how Rex and Richard are forming their opinions and apply those techniques to your own analysis. Relying on others for advice can be dangerous, but understanding how the experts arrive at their conclusions can be priceless.

Chip Anderson