I USED TO BELIEVE that being a good trader meant that I’d always be correct in my analysis of the market. Now, after trading everything from stocks on the screen to futures on the floor, I know better. As I’ve learned, just about anybody — from pundits to politicians to portfolio managers — is willing to chime in with an opinion of where the economy or the stock market might be heading which is all well and good. But while the talking heads will yak for hours about corporate scandals and Saddam Hussein, they are conspicuously silent about the act of trading itself. There’s a reason.
Trading isn’t black and white, it can’t be bundled up into a nice package, and it rarely makes for a good sound bite. Let’s be frank, no matter what size account you’ve got, trading it is filled with uncertainty. But while investors might hate uncertainty, markets can’t exist without it, plain and simple. Although we attempt to put the odds a little bit in our favor through diligent analysis, we can never eliminate the risk involved in any investment decision. After awhile, even when you’re right, it can really start to get on your nerves.
Up until a couple of years ago, the biggest risk in the market seemed not to be losing money, but losing out on the seemingly limitless upside of growth stocks. Like a roller coaster, many were expecting a bumpy, albeit ultimately profitable, ride. Then the bubble burst and the major averages nose-dived. Reality reared its ugly head in a painful reminder of the market’s inherent uncertainty. (more…)