Having identified those who don’t have our best interests at heart (Harry & Vic), it’s important to remind ourselves who our true friends are and what they do for us.
Our best friend, and by far the most important to us, is our ‘stop loss’. Our stop loss is always there for us, protecting us, making sure we’re safe and limiting the damage when things go against us. Sadly it’s a fairly one-sided friendship and we often take our stop loss for granted. We rarely thank our stop loss when it can be seen that it has saved us. However, we’re quick to point out, with the benefit of hindsight, when we feel our stop loss has conspired against us. The reality is our stop loss is our best friend and always has our best interest at heart. Stop loss is the kind of friend whom you only appreciate and realize what it did for you when it’s gone.
The second most important friend of the trader is volatility. Volatility is fun, exciting and unpredictable and without volatility it’s nigh on impossible for a trader to thrive. Volatility is unpredictable, we never know when it’s going to turn up or disappear, just because volatility came ‘a callin’ yesterday doesn’t mean he’s going to be around today or tomorrow. For our rules to work and work well over time we need volatility, it’s as simple as that! The good thing is this, one thing you can rely on is that no matter if volatility has been away for a day a week or a month he always returns, sometimes for a short stay and sometimes volatility out stays it’s welcome.
Last but by no means least comes ‘trends’. Many traders use the saying “the trend’s your friend” and it is very true. A trend is a pattern of movement that a market takes. That’s to say that a market is gravitating up over time or down over time. Whilst markets rarely move up or down in a straight line, trends are when markets have more upward moves than downward moves and can be seen to be moving up or down over time. Trends make it more likely that a winning trade will continue to be a winning trade and our profits from this trade will continue to increase. Conversely, a losing trade will be cut quickly and as the market continues to move ‘that way’ the importance of our stop loss will be most evident. The hardest thing about trends is to identify them whilst they are happening rather than after they have happened. It’s easy to go back over a particular move of a market and say the trend was blah blah blah because of blah blah blah but this is of no benefit to us unless we profited from it. On a positive note, predicting trends is less important than the fact that trends are there. This again comes back to the rule of cutting losses quickly and running profits, being on the wrong side of a trend will not cost you much whilst being on the right side of a trend will be highly lucrative.
In trading as in life it’s important to know who your friends are and who are those who are working against your best interests. As we have identified that the biggest challenges are psychological it should come as no surprise to us that our ‘enemies’, Vic and Harry, are in fact in our own heads. Our friends are outside of our heads. Our best friend is the one we have control over and the other two we have no control over, we don’t need to, we just need them to be there.
Life Lesson
Knowing your true friends and truly appreciating them can be one of life’s most rewarding experiences. Life is short so surrounding yourself with people who lift you up, support you, interest you and make you happy is of utmost importance. Negative people who drain your energy with constant moaning, bitching, game playing and selfishness aren’t life enhancing, we need to assess whether we really feel enhanced through these interactions or whether they bring us down, sap our energy or make us feel miserable in other ways.
Whilst I’m not advocating turning your back on people when they are going through tough times, it’s important to consider your own needs, moods and life experiences and how relationships affect them. After all, if you don’t consider your needs and value them, chances are nobody else will.
