Teeka Tiwari

How to Improve Your Timing

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He steadies his sights, feeling the beads of perspiration slowly trickling down his spine. His breath quickens and he can feel the adrenaline coursing through his system.

In hunting circles, this is known as the onset of "buck fever." It's just as prevalent in the world of trading, but can lead to vastly more disastrous results than a missed "kill."

In trading, the phrase "jumping the gun" has far more meaning than you can imagine. None of us is immune to it.

Fighting the Herd Mentality

You see, our biggest enemy is not the market, but rather our own human nature.

The herd mentality is deeply ingrained in us at a genetic level, and it affects EVERYONE. Even the smartest, mentally toughest person you know will, in times of extreme stress and peril, revert to some form of follower/herd mentality.

The best traders I know haven't so much conquered this particular human peculiarity as they have instead created a strategy for dealing with it when it comes up. In psychiatry, this approach is called "cognitive behavioral therapy."

Now I'm no shrink, but I do know that I have learned to recognize the telltale signs of my own "buck fever," and have developed a strategy to talk myself out of making stupid decisions.

Stalking Your Prey

Recently, there was a stock I had been following very closely that I felt was primed for a major move. It already had made a quick 15% move up, but looked to trade higher.

When the stock was trading at $5 and change, I was looking for a move to $15; the nine-month $5 call options could be had for $105 per contract (as one contract represents 100 shares of the underlying asset).

Now, when I get the opportunity to make 10 times my money on an option play like this, I get excited, to say the least.

But as eager as I was to buy these options and position myself for what could be a major potential windfall, I was quick to bring myself back down to earth and examine the trade.

I punched up the stock chart and started seeing the stochastic readings begin to fall off. My greed said, "Forget it; buy now. Who cares? It's a 10-bagger! What's a few pennies count?"

At this point, warning sirens and red flags started going off in my brain; this is the signal that activates my cool, professional detached self.

The first thing I do when this happens is to tell myself to relax, forget what I want to happen and FOCUS ON WHAT IS HAPPENING. What is the stock telling me now?