Last week we talked about various trading personalities and profiled four characters. No doubt, there are a lot more than four out there. Many of us exhibit bits and pieces of the behavior of each personality. Depending upon our state of mind and our ability to handle the emotional stress at hand, we can lapse into the “Fear and Greed” mode at any time. Decisions that are made when gripped with either of these emotions are usually very bad decisions that we end up regretting.

We are going to delve into each of the four personalities in the next several weeks and see if we can help them be better traders. We’re going to start with “Reckless Rhonda”. You may recall that Rhonda is a person of extremes both in her trading life and her personal life. She likes to make decisions on intuition. Rhonda plunges into things without a lot of forethought. If we look closer at Rhonda, we find that she likes the adrenaline rush of trading. To be blunt, she is a gambler. Sometimes, in her heart of hearts, she wants to lose in order to confirm her negative feelings about her inability to be effective in the stock market. The due diligence that should occur before trade entry is, frankly, not being done because it’s boring to her.

So, how do we help Rhonda?? Well honestly, there may be a more deep seated reason that Rhonda trades the way she does. Maybe, she doesn’t have the patience to research company and market fundamentals. Maybe, she doesn’t know how, but more likely, she just finds it unproductive and tedious. Rhonda has some tools to be a good trader but lacks discipline. If she could develop better habits, there is a chance she could begin to experience success. My opinion is that it would take a monumental effort to change deeply entrenched bad habits and impulsive behavior that has been so evident in her trading up to this point. So, faced with the choice of continuing down the same path of unsuccessful trading, in my mind, she has two choices 1) Quit trading and go to Las Vegas to get the adrenalin rush or 2) “Outsource”. What do I mean “Outsource”? As a trader, you are a business person and as such should have a business plan. (a discussion for another article) That business plan more than likely calls for the trader wears many hats. Successful businesses have specialists with expertise in various areas such as accounting, sales, IT, and marketing. It is fairly evident to me that Rhonda can’t do it all. She needs to outsource the due diligence part of her business plan. Blasphemy you say!? When confronted with the choice of continuing to fail and yet realizing a viable alternative, I think it makes sense to get the help. It appears to me that Rhonda is miscast as a stock analyst. There are several credible subscription websites that offer market and stock analysis.

OK, so we have solved the due diligence part of the formula, what about the adrenaline junkie piece of the story. To begin with, adrenaline and trading don’t go well together. We have already pointed out that world class blunders are made when in that state of mind. Maybe what we need to recognize is that Rhonda absolutely craves the “thrill of the trade”. Once again, I see two choices, 1) Ten years of intense therapy to try and eliminate the negative behavioral patterns “LOL” or 2) accept the fact that “trade thrills” need to be part of the game plan. (Don’t fight the tape) My suggestion for Rhonda is to allocate a very small portion of her portfolio to trade as “Mad Money”. Sorry Jim C.. No pun intended. Most successful traders come to realize the importance of seeing situations as they are and addressing issues head on. In Rhonda’s case, I suggest the situation be seen “as it is”. Don’t avoid it. Adjust, modify and allow a little bit of the portfolio for foolishness. Great traders are never “all in”, they diversify, they scale in and out of trades and they adjust. That’s what we are doing by modifying Rhonda’s approach to the markets. Remember, as mentioned last week, keep a trade journal.

Well, time to head back to Sherwood. Little John told me just the other day he was getting fed up with those Naked Short Sellers so I need to try and calm him down. I’ve learned not to get Little John ticked off. It’s just not a smart thing to do.

Robin

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