ZF Capital

There are certain time periods when the most important factor in your trading– you, the human being– is nowhere near 100 percent. These are the times you should just consider getting out of the market.

The times that almost predict certain disaster are (1) when you are going through a divorce or separation from a significant person, (2) when a significant person in your life dies or is in the hospital, (3) when a child is born, (4) when you move your home or office, (5) when you are psychologically exhausted or burnt out, and (6) when you are so excited about the market that you see your position doubling overnight– even when it hasn’t moved. These are probably periods when you should just close down all your active positions.

– Van Tharp, Trade Your Way to Financial Freedom

You get a sense of control with entry signals because the point at which you choose to enter the market is the point at which the market is doing exactly what you want it to do. As a result, you feel like you have some control, not just over your entry, but over the market. Unfortunately, once you are in a position in the market, the market is going to do whatever it wants to do– you no longer have any control over anything except your exits.

– Van Tharp, Trade Your Way to Financial Freedom

You get a sense of control with entry signals because the point at which you choose to enter the market is the point at which the market is doing exactly what you want it to do. As a result, you feel like you have some control, not just over your entry, but over the market. Unfortunately once you are in a position in the market, the market is going to do whatever it wants to do-you no longer have any control over anything except your exits.

– Van Tharp, Trade Your Way to Financial Freedom

Almost every successful investor that I have encountered has realized that success in the markets comes from internal control. This is a radical change for most investors. Internal control is not that difficult to achieve, but it is difficult for most people to realize how important it is. For example, most investors believe that markets are living entities that create victims. If you believe that statement, then it is true for you. But markets do not create victims; investors turn themselves into victims. Each trader controls his or her own destiny. No trader will find success without understanding this important principle at least subconsciously.

– Van Tharp, Trade Your Way to Financial Freedom

One of the basic problems that most traders face is dealing with risk. For example, two primary rules to successful speculative trading are: Cut your losses short and let your profits run. Most people cannot deal with those two rules. For example, if making money is important to you — as it is to most people who play investment games — then you will probably have trouble taking small losses. As a result, small losses turn into moderate losses, which are even harder to take. Finally, the moderate losses turn into big losses, which you are forced to take — all because it was so hard to take a small loss. Similarly, when people have a profit, they want to take it right away. They think, “I’d better take this now before it gets away.” The bigger the profit becomes, the harder it is to resist the temptation to take it now. The simple truth is that most people are risk – aversive in the realm of profits — they prefer a sure, smaller gain to a wise gamble for a larger gain — and risk seeking in the realm of losses — they prefer an unwise gamble to a sure loss. As a result, most people tend to do the opposite of what is required for success. They cut their profits short and let their losses run.

– Van Tharp, Market Wizards by Jack Schwager

We typically trade our beliefs about the market, and once we’ve made up our minds about those beliefs, we’re not likely to change them. And when we play the markets, we assume that we are considering all the available information. Instead, we may have already eliminated the most useful information by our selective perception.

– Van Tharp, Trade Your Way to Financial Freedom