Janice Dorn, MD, PhD
Neuropsychological Trading Coach
Janice Dorn, M.D., Ph.D., has been a full-time futures trader since 1994. Doctor Janice holds an M.D. in psychiatry and is board-certified by the American Board of Psychiatry and Neurology in general psychiatry and addiction psychiatry. She holds a Ph.D. in brain anatomy. A graduate of Coach University, she is a pioneer market psychiatrist and financial neurobehaviorist. Doctor Janice has written over 500 articles on the financial markets and coached over 600 traders worldwide. She is the Global Risk Strategist for Ingenieux Wealth Management Group, Sydney, Australia.
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If you don’t know where you are going, you will probably end up somewhere else...Yogi Berra
Last week’s true story of Peter, Paulie and Mary continues to be a convoluted and cautionary tale. You may recall that Peter bought a stock and then watched for five years while it lost 50% of its value and then came back to break even. Mary was outraged when she learned about this, and felt that she could no longer trust Peter.
According to Mary, the challenge was not with Peter's actions. She accepted that he bought the stock and refused to sell it—she was fine with that part. What she could not get out of her mind was that Peter hid this from her for five years until the stock was back to where he bought it. It became a trust issue, and Mary felt betrayed and hurt. In fact, she was so hurt that she told Peter she would never again trust him where money was concerned and that he must discuss every investment with her before he took action.
Peter was speechless. He thought Mary would be so proud of him that he held on and did not get frightened out of the stock. Peter was a hero in his own mind, and he wanted Mary to see him that way. Instead, Mary saw him as a weak coward who could not tell her the truth.
Things have not gone well for Peter and Mary. Without Peter's knowledge, Mary called the broker and instructed him to sell the stock. She told Peter about it the next day, and he flew into a rage. This was the stock that was going to make them rich and comfortable for the remainder of their lives, and Mary sold it behind his back!
Peter could not take his eyes away from studying the daily movements of that stock. He saw it go up a little bit from where Mary had sold it and could not hold back any longer. Without discussing it with Mary, he called the broker and immediately bought back all of the stock that she had sold. Granted, it was a little bit higher than the sale price, but this was their lottery stock, and it had nowhere to go but up.
One month later, the stock dropped from 14 to 10. Three months later, it was at 7. Peter told Mary this time. She begged him to sell. He has not done so, and she won’t do it now. It’s too late for her and too early for him. The saga of Peter, Paulie and Mary continues, and I will tell you more in the passage of time, including lessons learned by Peter, Mary and me (as their coach).
This story is as much about not knowing as it is about knowing. We don’t know what we don’t know, and there is no way around that. When it comes to selling, this fact becomes increasingly apparent. Sell is a four-letter word with many mixed responses. Selling at the “wrong" time (and that means just about any time except for those fortunate enough to get the once-in-a-lifetime chance to sell at the exact top) is probably the most common complaint I hear from traders and investors. On a daily basis, I listen to stories from traders about just missing the big one by getting out too soon or seeing profits evaporate by getting out too late.
There are many books written about buying but very few written about selling. The reason for this is because the easiest thing in the world to do is buy, and the most difficult is to sell. No trader will ever be able to reach a level of trading mastery without a disciplined method for selling winners as well as losers. In order to do this, one must have a profit potential (and a stop-out point—but that is for other Trading Wisdoms) that is determined at the time of the buy. The reality is that every trade comes to an end, and at some point you will liquidate each and wait for the next one.
The most important time to decide where you will exit is at the same time you enter. Developing a trading strategy that incorporates profit potential helps in many ways, not the least of which is the cultivation of discipline and focus. If you have a profit potential clearly in your mind at the beginning of the trade, you have helped your trading progress in several other significant ways.
First, you are able to focus on and maintain risk-reward ratios that suit your personality. The mere knowledge of your upside objective will, if you are disciplined, keep you out of lower-probability trades and focus your eyes on the prize. It also brings you closer to understanding and implementing probabilities into your trading.
The second benefit of having a profit objective is that it helps you fight off the temptation to sell your winning positions too quickly, thus cutting your profits short. Profit objectives teach patience in that they afford you the ability to “sit on your hands” while the trade works for you. Sitting on one's hands is a discipline that many traders understand intellectually, but very few are able to implement emotionally.
Trades take time to develop, and knowing your time frame and profit potential will help you avoid falling victim to the lethal disease of tick-itis. I often tell my coaching students to sit calmly and breathe in and out gently while waiting for a trade to mature. The market breathes in and out, so just allow yourself to breathe with it. Keep your eye on the prize, and relax as you listen and watch the ebb and flow of the market ocean as it winds its way to your profits.
There is a way that nature speaks, that land speaks. Most of the time we are simply not patient enough, quiet enough, to pay attention to the story…Linda Hogan
Until Next Time,
Good Trading and (Revitalized) Brain On!
Janice Dorn, M.D., Ph.D.
janice@thetradingdoctor.com
P.S. Every week, I send you a Trading Wisdom designed to make you better, smarter, more balanced traders. Today, I want to ask you, “How are you doing?” Please join me and your fellow traders at the message board and tell us which of my Trading Wisdoms have been most helpful in getting you on a path to profitable trading. How have you used my methods and insights to make big money or avoid huge pitfalls? Tell me what you think, and your favorite Trading Wisdom may be featured in my upcoming book! Stop by today!
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