Think Rationally And Control Emotions To Achieve Trading Success, Phil Storer Says

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by: Phil Storer
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Date: Fri, 7 Jan 2011 Time: 7:14 PM
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Stock and commodities veteran Phil Storer says acting on irrational impulses, rather than following a plan, can expel a trader from the market arena very quickly. While some amount of emotion is unavoidable in any situation, during a trade it's best to be guided by already-selected methods. If those methods prove to be faulty, however, the trader will need to change them.

In his new book, Chalk Talks for Traders - Easy Xs and Os from a Proven Market Pro, Storer says "probably the worst reason to make a trade is revenge or returning to a particular market to get even with it." He illustrates with two approaches. A rational attitude for a trade would be "I was looking at the silver market today, and the momentum is up after a recent pullback so it has a lot going for it as a buy."

That compares with irrational thinking, or something along the lines of, "I want to buy crude oil futures again today. I expect to get back what I lost in oil yesterday because the market owes me!" Storer says it is okay to enter a new trade in the same market after a losing one, but only if it fits the criteria of your already-chosen methods.

Sudden urges should not spur trading decisions, and when emotions are running high and a trader gives in to them, his next several choices will be affected too, Storer warns. To shield a trade from your emotions, he advises using protective stops--orders that are filled soon after the market reaches a specified price.

Storer recalls a period when a trading partner of his bought crude oil futures. On the first trade, the market rose a little, then dropped and his partner was stopped out with a loss. On a second trade, his partner was unable to move his stop and also took a loss. After his partner was stopped out twice, the crude market rose again, and on a third trade, the market began to move in his favor. But he decided not to use stops and chose to simply "ride it out." Shortly afterwards, crude prices sank and took him to his knees. That awful result never should have occurred, Storer said.

Storer remembers another time when two, young seminary students came into his office to learn about trading. After a month, one of them felt that U.S. dollar futures would not rise above $1.00. The other student asked me how far my measurements suggested the dollar could go, and my answer was $1.23."

The students nonetheless deposited $10,000 in their account and went short, or sold the dollar, with no protective-stop order. "After all, if you know the market can't go against you, stops wouldn't make sense, would they?" Storer asks rhetorically. That kind of thinking, he says, is pseudo omniscience, and it can be dangerous. "Eventually they brought in another $10,000 to cover their losses as the dollar continued to climb. In the end, they ran out of money entirely as the greenback rose to $1.22."

Storer says traders can easily become overconfident after a few wins, and that attitude usually results in sloppy, future performances. Sloppy performances lead to losses, and losses result in stress. The once-confident trader has lost his sell assurance--something that can be crippling enough to make him afraid to trade in a timely manner and unwilling to stay with a trade long enough to justify the risk and attain his goal.

"Some traders need to trade for the sake of trading--which I call compulsion," Storer says. They get into trouble, for instance, when a market moves into a range and stays there for a while. "The temptation is to abandon a proven method out of boredom, and that can result in a series of small losses when the best decision would have been not to trade."

Another common reason for bad trades is rushing into them, and that can happen when you're scanning the markets looking for a trade to fit your criteria, he says. "Suddenly you see something that looks good and is in the triggering process, so you decide to jump in and verify the idea later. That's seldom a good idea."

Storer says "a huge risk exists to trading outside of your system, and any time you digress from your chosen methods, your chances of long-term success are reduced." In addition to the money subtracted from your account, the psychological toll that a series of losses can exact is significant.

For someone losing confidence, it's important to stop trading immediately to analyze recent trades and what went wrong, Storer says. No one likes to admit shortcomings but failing to do so in trading expands your danger zone. "As soon as you recognize that you're trading outside of your system, you must address it," he says. "You can return to the trading arena when you believe in your methods and are ready to act with discipline."

Storer is Director of Trading for the commodity division of Dillon Gage Inc., a full-service brokerage firm based in Dallas, Texas.

Chalk Talks for Traders - Easy Xs and Os from a Proven Market Pro is available now at http://www.chalktalksfortraders.com.

About the Author

Phil Storer is the Director of Commodity Trading for Dillon Gage Inc. of Dallas. Phil began his trading career in the early nineteen seventies and has continued to trade without interruption to the present. A driving desire to win, a great dislike for loss and a strong respect for patience and discipline are the qualities that have helped him create success throughout the years. Even though he has traded stocks for many years, Phil has always had a special love for commodities as another form of investment. Having grown up on a dairy farm, his close ties to the farming community give him an "extra reason" to excel in that arena.

Although Phil stays current on the fundamental factors influencing the markets he is trading, he bases the decisions regarding entering and exiting trades almost exclusively on technical indicators. The simple, no-nonsense approaches that he uses have come from years of testing plans and methods for trading until only the most reliable are left. His suggestions for trading are consistently simple and contain a high degree of reliability because they cater to a working environment.

Phil works with speculative and hedging accounts using tools that he has developed to outsmart the futures markets. He specializes in providing custom-tailored plans and services that are efficient and effective. His willingness to work with traders' specific needs and desires is a major factor in his success. His prior experience as a teacher, author and college coach have helped Phil to effectively transfer his extensive knowledge of the markets to those who work with him.

Chalk Talks for Traders - Easy Xs and Os from a Proven Market Pro is available now at http://www.chalktalksfortraders.com.