Last week, we took a look at a hypothetical scenario, where a rich acquaintance of yours needed help deciding between two traders he's thinking about staking. This led to the question: "Who would you stake?".
This post will continue right where that one left off.
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After getting the contact info, you reach out to interview the two traders.
You speak with Trader #1, and he appears to be quite intelligent, with wide and deep market knowledge. Heâs shown you a few market predictions that heâs already gotten correct, and walks you through how he finds opportunities. Youâre impressed.
You speak with Trader #2, and he also appears to be quite intelligent, with broad market knowledge, in addition to a history of profitable investment/trade ideas. He walks you through how he finds opportunities, and, similar to Trader #1, youâre quite impressed. In addition, he also presents you with written details about how he plans to manage risk, his maximum drawdown, and a whole litany of other clearly defined rules that keep risk under control and quality trade ideas coming.
Assuming we are still in the position of choosing which trader to stake, most, if not all, individuals in this situation would pick Trader #2 because of his attention to preparation and risk control, in addition to having a âbusiness planâ. Trader #1 may be smart and highly capable, but heâs shown no evidence that he has a process to continually generate good trade ideas while ensuring that he doesnât lose everything. Trader #2 has âdone the workâ, and proven that heâs worthy of the capital.
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Whether they know it or not,anyone who manages their own money is constantly faced with the same decision. If you step outside of yourself, are you more like trader #1 or #2? Is your trading plan worthy of investment? Would you invest in someone else whoâs taken the same trades that you have? Does that person have a plan? Have they âdone the workâ?
Keeping yourself honest about what is working and what isn't is a superpower!
Hopefully, this emphasizes the importance of building a trading plan. Next week we will take a look at what factors are typically needed in order to build an effective one.
If youâre not like Trader #2, comment below about the steps youâre taking to become better prepared for what the market throws at you!
-Team TradingView
If you missed last weekâs post, you can catch up here: