Friday, February 29, 2008

Gut or Discipline

Earlier in the week we were inundated with bleak economic news. Consumer spending is down, inflation is creeping up, oil is trading above $100/barrel, housing prices drop 10% ... But the market kept rallying.

My gut told me that the market had to correct. This rally was going to end and end badly. So I shorted the market. My trade was small because I have a trading rule that limits my downside exposure. In other words I don't ever want to be wiped out by one trade. It is a risk management strategy.

And therein lies the dilemma. My gut was right and the market did correct yesterday and today. My trade was profitable but profits were limited. Had I gone with my gut and bet bigger - I would have made bigger profits but also taken a bigger risk.

In the end I stick with discipline over gut. I was right this time but there will be situations when I will be wrong. Consistent and disciplined trading has kept me profitable so far - I am sticking with this approach.

What is your trading philosophy?

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