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Never Deviate from Your Trading Strategy

Have a strategy to invest your money with. Never deviate from that strategy.

Choice, choices, and choices...what a good thing it is to have choices! But sometimes the choices are so numerous and overwhelming that we are not sure what to do. For those of you who are reading this book right now, let’s take the Stock market as an example.


Let’s just mention the S&P 500 first. The S&P 500 consists of 500 stocks to choose from. Is 500 enough choices? That seems like an awful lot to me. But we are not done yet. There still is the NYSE, NASDAQ, Amex, OTCBB, Pink Sheets, numerous regional exchanges, European Exchanges like the London Stock Exchange, the Deutsche Borse, Paris Bourse that is now part of Euronext.


Oh, so you say you are not challenged yet? Then maybe I need to remind someone about the Hedge Funds, Commodity Exchange, the Auction Market, Mutual Funds, Exchange-traded Funds, Index Funds, and ETF’s. In each of these exchanges, fund categories, and Markets, are thousands of choices all over the world. I haven’t even mentioned the Asian Markets.


The Stock Market can be likened to going into a department store like JC Penney’s. You walk through the front door and there are many different departments you can go to. Let’s say you know you need clothes so you bypass all the other departments. Well, even in clothing there are shirts, pants, dresses, skirts and so on. The choices never end.


So, as an investor, how does one start to navigate such a vast ocean of opportunity? The answer is with a plan--a strategy. One should not start trading until they have a strategy in place and they know what they are doing. Then after that, never deviate from it. That is, unless you want to lose your money.


Liken the opportunity of personal investing to a trip. You have a dream. That dream is on the other side of the country. You are in New York and your “dream” is in California. Now, if you had never navigated across country before, would you just leave, or would you get a map and directions? Most people would at least Google their journey first. Why? So they know where they are going.


There is nothing more frustrating than getting lost and having to ask someone for directions. There is nothing more frustrating than losing your money in the stock market and losing more money in the stock market without knowing how you are going to make money. If you won’t cross the country without knowing how you are going to get where you are going, neither should you start investing without a good plan.


There will come times in your experiences investing that a plan or strategy will save you! Sometimes things can get so overwhelming in the stock market with the way it reacts that you lose track of what you should be doing. A good strategy will help you keep the inner peace you need that you are making a good informed decision. It will protect you from feeling like you are in a crisis. Most investors panic from lack of direction and knowledge as to where they are going and how they are getting there. A good strategy will protect you from this.


Not only will it eliminate most fears, but it will also protect you from bad habits investors can make. Here are some typical mistakes investors make:


1.         Stubbornly holding onto losses when they are very small and reasonable.2.         Buying on the way down in price, thus ensuring miserable results.3.         Wanting to make a quick and easy buck.4.         Cashing in small, easy-to-take profits while holding the losers.5.         Not being able to make up your mind when a decision needs to be made.6.         Not looking at stock objectively These are just a few examples of the numerous mistakes we as investors are susceptible to if we don’t have a way to protect ourselves. Once you have a strategy in place, use it and do not deviate from it. The best and fastest way to lose money is to try and reinvent the wheel. If you learn a plan, the plan works! Stop trying to change something that already works! If you are driving on the highway and your map says go right and you go left, it is going to take you longer to get where you wan to go. Not only are you off course, but you also need to stop, turn around, and get back on the right course. It takes up so much wasted energy and time just to get back on course, let alone start moving in the right direction again.  I write this out of experience. I remember when I first started to learn how to trade Options. I went to a few seminars in Colorado Springs where I live and became very excited at the opportunity to make money investing on my own. I followed the principles I was taught and started to make money. It was good money and I loved it! Well, as smart as I thought I was, I decided to see if I could make this strategy a little better on my own so I started to tweak it a bit and change how I would do things.  Low and behold, to my amazement, I started to lose money...every time. Let me tell you, that was not a good feeling. It did not take me to long to go back to what I was taught. There is nothing more motivating than losing money—to take you back to following directions that work. My first Doctrine of Investing is to learn a strategy. Use that strategy and never deviate from it. If you do this you will be very successful and make money.