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Robert
Deel Stresses Importance of "Trading Psychology"
By
Jim Wyckoff
(Note:
I wrote this story a few years back, when I was a journalist with
FWN.)
New
Orleans-Nov. 18-FWN--THE FORMULA FOR TRADING success, according to
Robert Deel, is: Self-Discipline + Knowledge + Experience + Skill =
Success. Success = Profits.
Risk
management and money management are key to achieving any success in
a market, said Robert Deel, a registered investment adviser and
portfolio manager for Strategic Management Decisions, based in
Duarte, Calif. He was speaking at the Dow Jones Telerate Technical
Analysis Group (TAG XVIII) meeting in New Orleans, held late last
week.
A
main precept of Deel’s presentation is that traders must maintain
the proper psychological mindset to be successful.
Traders
should never “over-trade,” and should establish “risk
tolerance,” said Deel. A successful trader quantifies, analyzes,
and truly understands and accepts risk. “Emotional and
psychological acceptance of risk is what determines your mental
state in each trade,” he said, adding that 90% of traders don’t
have an idea of their risk tolerance.
As
a trader, you “must select a trading methodology that reflects
your timeframe and risk tolerance,” he said.
“Risk
management seems like a contradiction in terms. The mere mention of
the word conjures up demons of fear and panic. Risk properly defined
is the measurable probability of loss. The key words, of course,
being ‘measurable probability.” Most people think of risk as
uncertain and not quantifiable. This is not the case,” said Deel.
Deel
said futures traders should select trades with a 4.0 or higher
risk-to-reward ratio. For example, a trade that creates a maximum
loss of $1,000 (via placement of stop), should be able to yield at
least $4,000 in profit.
“Your
ego and money can make you broke,” Deel told the trading audience.
“Winning can create powerful emotions which distort reality. The
more you win, the better you feel, and your ego takes over. The joy
of winning is the drug that gamblers live for,” he said. “A
gambler will lose money as many times as necessary just for the
thrill of winning once.”
“Never
place a trade without perspective,” stressed Deel. Like other
speakers at the trading conference, he said physical stops (not
metal) must be used.
“Money
management addresses the preservation of existing and accumulated
capital. Without the implementation of strict adherence to
money-management principles, even the best trading strategy will not
succeed. Risk management and money management are, in my opinion,
critical elements of a successful trading and investing plan,”
said Deel.
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