Identity and Greed

Every trader has a certain identity when it comes to trading based on their personality. Short-sellers and bear players are pessimists, value-traders in bull markets are optimists, and day/swing traders hope to capture the momentum generated from information hysteria (pumps on popular outlets like SeekingAlpha or MotleyFools) as well as institution movers.

Determining your personality type and what kind of trading best suits you is very crucial. On a larger scale, knowing oneself is critical for success in life. For instance, I am much better at being a shortseller and playing down stocks than up. Value investing has a place in the Roth IRA but in the active account it benefits me very little. I'm a market pessimist. With the mounting competition, AAPL climbing in price with even higher price targets makes no sense. But people buy into irrationality and institutions keep providing positive feedback to the industry to invite more buyers to further drive up the price and realize their set targets.

Buying, hold, and hope is not a good investment strategy without a clearly defined exit strategy. Stop-losses can be a bad insurance policy when the markets are shifting quickly and the limit order is not filled. The only guarantee is paying/selling premium for Options which provides a more definitive risk/reward for committing capital.

Instead of trying to be well rounded at every type of trading possible, be great at your own type of trading. There was a TastyTrades interview done with Timothy Sykes, one of their videos with the highest views, where Tom asks Tim about his trading strategies and so forth. Tim is a popular small-cap shortseller. He shops for companies with phony finances, looks for pump signals, occasionally participating in the rise, and then shorts when the price is about to fall. Tom says that the strategy cannot be taught, Tim is an outlier, and that the whole strategy would be more complete with Options. Tim expressed no interest in doing paired Option strategies for his method of trading because the stocks that are traded are thinly traded regularly, only drawing volume during pump and dump phases, and the securities rarely have an volume on the Options front if they are Optionable at all.

Tim is good at doing what he does but he doesn't need to focus on nor does he need to be good at being a different type of trader. Relocating resources away from his subscription based education system and the publicity would not benefit him much or he would of done it already. It would also be silly for Tom at TastyTrades to quit Options trading and jump straight into Tim's style of shortselling stinky companies. Each works towards their respective strengths in order to achieve success.

Greed often dances with arrogance. Arrogance can cause a person to lose out on small short-term profits and suffer larger long-term losses. Likewise, instead of taking a small loss the investor hopes for a rebound and nets a larger loss! Greed is the driving factor behind arrogance and the main reason people choose to invest in the first place. No profit is too small and no small loss is too little to teach a lesson. The river will flow where it needs to go. Just know where you want to get on and off to make your journey possible.

Good reading: http://www.amazon.com/The-Number-Quarterly-Corrupted-Corporate/dp/0812966252