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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 10 January 2007 Table of Contents (1) Quote on Setting Goals (2) Article - Endowment Theory (3) Webinar with Dr. Doug Hirschhorn - Thursday 11 January 2007 (4) Coming Soon - Trading Interviews ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Stay up to date with all that is happening at Trading Plan, by subscribing to our 'Trading Blog' (no email address necessary). I am continually adding content and every update of this site is announced here, including minor content updates, page additions, and product releases. So stay plugged in by subscribing to this site's RSS feed. Copy and paste the address below into your RSS reader to receive the Trading Plan RSS feed... http://www.trading-plan.com/Trading-Plan.xml Not sure what RSS is? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Previous Issues Only just joined the mailing list? That's OK - you can read all of the previous issues of the Trading-Plan ezine. Visit http://www.trading-plan.com/ezines_previous.html to access the archive. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Filtering software may prevent you from receiving Trading-Plancommunication, including my ezines. To ensure that you never missan e-mail from me, please follow these tips... http://www.trading-plan.com/whitelisting.html ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Online Trading Forum Do you want to learn from the experiences of others in a friendly online trading forum? I now frequent and contribute to the online trading forum called Stock Meeting Place. Membership is easy and free. You can come along and ask any trading question in one of the numerous sections of the forum and receive a helpful response from one of the many members (approximately 2000). This forum is the only place online where you will also find Daryl Guppy, the well known trader and author. Remember, there is no such thing as a silly question so visit, sign up and ask a question. Visit http://www.trading-plan.com/trading_forum.html for more information. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -- 1 -- Quote on Setting Goals “The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.” Michelangelo -- 2 -- Article - Endowment Theory It is amazing how many people I speak to about trading and how often the conversation eventually makes its way to the topic of cutting losses and exiting trades. It is almost as if most of your trading success boils down to this single clearly identifiable task. Whilst trading routinely involves decision making, there are not too many more important decisions you have to make than when to close positions. It is one of the items that you wish you knew when you first started trading – as a beginner, it is incomprehensible that your exit is so important to making money. Many traders often overlook this part of trading or underestimate how important that it is. It is selling that impacts directly on whether or not you make any money trading. Entering trades is simply a means of putting yourself in a position to make money from trading. There is a typical experiment which is conducted in Economic and similar classes, which relates well to selling stock. It involves dividing a room of people into two groups. Everybody in the first group is handed an imaginary coffee mug. People in the second group receive nothing. Everyone receives a small piece of paper and everybody in the first group is asked to write down how much they would be prepared to sell their coffee mug for. Everybody in the second group is asked to write down how much they would be prepared to buy the coffee mug for. All paper is passed forward and the amounts from all people within each group are compiled and an average calculated for each group. Generally speaking the average amount from the owners of the coffee mugs will be double that of the average amount from the potential buyers of the coffee mugs. This observation supports the Endowment Theory. The Endowment Theory suggests that people who own something place a greater value on it than those who do not have it. If you think to yourself now, this may apply to a number of material items that you may own. You know that no one will pay you an amount that reflects the value you place on it. This theory is very applicable to trading and sadly, it can directly affect your decision making when deciding to sell stock that you should be selling. Often you will find yourself owning stock where you believe that they should be worth more than what the present price is. The only unfortunate thing about that is the real price is what it is presently trading for on the stock market and not what you think they should be worth. Its practical application to trading is as follows. Let’s say that you have entered a trade and bought some stock at $4.00 – you have placed your initial stop loss at $3.50. In the couple of weeks after you enter, the price drifts down slowly and eventually moves down to your initial stop loss level. Guess what? You have just received an undeniable clear signal to exit the trade – the price has traded down to your previously identified stop loss price. Here starts the self doubt, negative talk and the emotions begin to flare – perhaps frustration, or annoyance. Thoughts begin to enter you mind about how it was only a couple of weeks ago that you paid $4.00 for them and how you think they are still worth that. Especially when you consider the report they released last week concerning future growth, for example. The Endowment Theory now subconsciously kicks in – because you own the stock (remember, you made the conscious choice to purchase them with your money under no coercion), you deep down think they are worth more than the $3.50 presently being offered for them. Due to this, you decide to not sell because you don’t agree with the present price. It is fair to say that our emotions also play a part in this thought process. The bottom line is however, no one cares what you think the price should be. Nor does it matter what the price should be. The indisputable facts are that you purchased stock at $4.00 and now they are trading at $3.50 – your initial stop loss level. Any subconscious thoughts can paralyse you to take no action and not cut your losses and consequently have you breaking one of the most important time tested rules you can follow. Don’t let this happen to you. -- 3 -- Webinar with Dr. Doug Hirschhorn - Thursday 11 January 2007 Subject: Setting and Achieving your C.H.A.M.P. Goals for 2007 2007 is the year you will take your game to the next level. Dr. Doug Hirschhorn who is an author (The Trading Athlete), columnist (Trader Monthly Magazine, Traders Journal) and trading coach to the elite (Deutsche Bank, British Petroleum and Billion-Dollar Hedge Funds) will be presenting a value-packed webinar on his C.H.A.M.P. Goal Setting process. Most people do not achieve their goals because they set themselves up for failure. In this exclusive Webinar, Dr. Doug will walk you through his C.H.A.M.P. Goal Setting Process so you can set yourself up for success in 2007! Day/Time: Thursday 11 January 2007 at 4:30pm EST (New York Time) - Friday 12 January 2007 at 8:30am ADST (Melbourne time) Click here to reserve your spot - http://www.tradingdr.com/web/catalog.aspx?group=15 Important - To receive a 10% discount, please enter code: TradingPlan -- 4 -- Coming Soon - Trading Interviews Over the last month or so, I have been receiving suggestions from you of questions to ask high profile traders. I am happy to report that these questions have been compiled and the first of many traders planned, have already received their interviews and are responding to them. The first interviews should be arriving back shortly for publishing on the website. I am confident they will provide powerful insight into the minds of successful traders and will be beneficial for all of us. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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