Being a Financial "Social Butterfly" Can Cripple Your Portfolio
Ways to resist party-hardy mentality.
As I departed for college a mentor took me aside and said, "Quint, there will always be another party. If you try to do it all, you'll fail."
I always respected this individual, so those words stuck with me as the first semester kicked off and I came to understand what he meant. Just about every night there was an event or party and I wanted to hit as many as I could.
Quickly, however, I realized I had to start staying behind if I hoped to stay in college more than one semester. It was hard at first, passing on what was always sure to be the "best time ever," but slowly, after saying no and setting my limits, I saw just how quickly these parties were forgotten as everyone focused on the next big one.
The end result was simple: I graduated with honors while many avid partygoers didn't make it through Round One.
Trading is similar in that there will always be a party around ever corner. One day the party may be in solar, as stocks like First Solar (FSLR) and JA Solar (JASO) tack on 50% moves and the next day the party may be in biotech or gold.
Traders often find themselves wanting to be involved in each and every one. The challenge is that a trader must know himself and his limitations in order to successfully navigate the trading game over the longer term. Here are a few things to consider:
1) Stick with your primary style – Over time traders develop a style they feel most comfortable with. The biggest mistake most traders make is deviating from their primary style before they are ready. If a stock or theme fits in with your style, great, but if not, it may be better to take a pass.
2) Set your limits – When markets start running, traders may end up developing their own small mutual fund as they can't seem to pass on any one stock that looks good. Setting a position limit number may be helpful and resolving to cut one before adding another will help you to focus on only the best opportunities available.
3) Understand the cycles – You can eliminate some anxiety simply by understanding that cycles come and go and come again. If you happen to miss a trade or a theme, take refuge in the fact that another one is around the corner. Be happy for those that participated but don't beat yourself up if you did not.
4) Continue learning – The difference between good and great traders is that when most people start to understand how to make money in the markets they stop pushing themselves. The learning curve flattens out and they become happy with where they are as a trader. The best traders are those that continue to improve and learn each and every day.
Remember, you can't hit every party, and if you do, odds are you're spreading yourself too thin. Refocusing on what is important will help keep your priorities in line and have you back on the straight and narrow path toward trading success.
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