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The Zipper--A Lesson in Risk Management

Interesting how an old nickname received as a high school basketball player has helped instruct me on risk management and short-term trading.
 A wonderful high school basketball coach one day bestowed upon me the nickname “The Zipper.” He explained to the amusement of the other coaches and my fellow players that I was so thin that if I were to stand sideways and stick my tongue out, I would look like a zipper.
One of the greatest challenges in trading is controlling emotions. A prudent trade plan should set a loss limit, and a profit point, and then depend on the execution of either of these objectives—whichever comes first. Emotions tend to “re-set” the trade plan objectives—i.e. “Though I’ve exceeded my loss limit, maybe the position will rebound.” or “Though I’m at my profit point, it may still go higher so I’ll wait.” The emotions—fear of loss and greed for bigger gain.
When reaching a trading objective, it takes a discipline on the emotions to simply execute the trading plan. For me—Enter The Zipper. I declare that I am The Zipper and my job for the intended trade is to execute it, close it out, put it on ice—zip it up and put it away.
The only duty to the “clean-up” of the trade is to evaluate and learn from it—then forget about it. It doesn’t benefit the next trade by mourning a loss or by voting oneself into the hall of fame for a winning one. Move on.
(Tom Fyler is President of Commodities & Securities, Inc., a Registered Investment Advisor. Mr. Fyler is also the Principal of a Futures investment management firm, “Wadsworth T. Fyler, Jr.”, registered as a Commodity Trading Advisor ("CTA") with the Commodity Futures Trading Commission ("CFTC") and a Member of the National Futures Association ("NFA"). He may be contacted at info@EssentialsInvesting.com)
Risk Disclosure: This communication is for informational purposes only and should not be construed as containing or providing specific investment or financial advice. Readers should be aware that there is risk of loss of some or all funds when investing in stocks, bonds, mutual funds, ETFs, real estate, commodities and/or currencies any of which may not be appropriate for all investors. Also, there is a risk of loss when using any particular trading or investing strategy. This information may contain statements or forward-looking propositions that should be understood as the opinion, belief or preference of the writer.
 
 
 


Disclosure: No Positions