CRAVES EXCITEMENT
What a discretionary trader loves is the excitement. He loves being “in the
markets,” playing with the big guys. He craves the risk, the excitement of trading,
and the gambling rush that he gets from calling his broker and putting in the
order to buy. He loves being able to sell Gyro Corp. based on the news story of
the health hazards of their top selling Gyrometer. He has a real obsession for
buying Cotton based on the hot tip from his broker that the upcoming crop
report was going to be bullish, and he covets the tip from his friend who called to
say that he just bought Techno Corp. because the latest quarterly earnings were
going to be a surprise on the upside.
Discretionary traders retain the flexibility of changing their buy and sell criteria
from moment to moment, and change they way they trade from minute to minute
and day by day. “Well, that last trade was a disaster, so tomorrow I will buy
McDonald’s only if it opens up from yesterday’s close.” They don’t have any
discipline, nor do they think they need any. They use their intuition and their gut
instinct, and feel justified in doing so. They think, “Making money is easy, you just have to be smarter and quicker than the next guy.”
I personally don’t know anyone who has made money by discretionary trading.
They may have been lucky and won on a few trades, but overall, over time,
discretionary traders always lose money.
It is after enough money has been lost that the discretionary trader in some way
stumbles across technical indicators. It may be from the chart book he just looked
at where there was a Stochastic Indicator underneath the chart. Or he may have
gone to the latest
Make a Million Dollars Trading the Stock Market
seminar and found out that using the Relative Strength Indicator is the sure way to stock market profits. He thinks, “So this is how they do it!” These indicators look like magic.
They add some rationality to an otherwise irrational trading style. He thinks, “This
must be how the big money players make the big money—they use technical
indicators!”