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If you've ever had the good fortune to lose yourself between the covers of "The Adventures of Sherlock Holmes," you remember the contrast between Holmes and his trusty sidekick, Dr. John Watson. All the movie and TV adaptions, good though they may be, can't do justice to that wonderful literary partnership.
As you'll recall, Watson was a romantic – enchanted by mysterious adventuresses and improbable tales, and always ready to go on a wild goose chase or rescue a damsel in distress (like the fetching Miss Mary Morstan in "The Sign of The Four," whom he later married).
Holmes, on the other hand, took emotion out of the equation entirely and looked only at logic. (Analysts differ on whether he was a psychopath or a sociopath.) He saw people only as problems, and situations only as cases, and never, never allowed feelings to cloud his judgment.
He sums up his personal philosophy in a rather chilling paragraph:
"It is of the first importance… not to allow your judgment to be biased by personal qualities. A client is to me a mere unit, a factor in a problem. The emotional qualities are antagonistic to clear reasoning. I assure you that the most winning woman I ever knew was hanged for poisoning three little children for their insurance money, and the most repellent man of my acquaintance is a philanthropist who has spent nearly a quarter of a million upon the London poor."
While that perspective makes for a lonely life (Holmes, as far as we know, never found true love), it works wonders when solving mysteries.
Incidentally, it's a great trading strategy as well.
My personal sympathies lie with Dr. Watson, of course… but as a trader, I've had to train myself to think like Holmes. It's served me excellently and will serve you well, too.
Here's how to take emotion out of your trading – and why that could save you from some very costly mistakes…
Stick to "The Plan" Even When Your Heart Tells You Not To
"Follow your heart" works well in Disney animated movies, but in trading, it's simply disastrous advice. Your heart is frequently wrong. Your "gut" is frequently wrong.
The charts, on the other hand, are frequently right.
Investing is hard work. It takes patience, it takes research and it takes a steady hand. And everyone is going to have a few losers as the market is always imperfect. The key is to not get emotional and to have a plan before you enter a trade.
BIG, FAST PROFITS: One pick paid 100% in seven days, then 205% the next day, and 410% by the next week. You've got to see how it's done…
I know that it's a hard thing to do. After all, you worked diligently for your portfolio money and you want it to work – not head down the proverbial drain. I have a plan for how to get you to the first million and more to follow… and at the core of the plan is to check your emotions before you go to work on your next trade.
Emotions make traders make mistakes. They buy a position with excitement and enthusiasm and if it starts going their way, the excitement can build – clouding the thinking and the expectations of the trade. And if the trade unexpectedly heads south, too many will get nervous and fret about failure.
About the Author
Nationally recognized technical trader. Background in engineering, system designs, and risk reduction. 26 years in the markets.