Zen and the trader

We recently met a very successful trader. In his office hung a Zen Koan “Do not just do something. Sit there”. If you are unfamiliar with a Zen Koan, it is a paradoxical statement that is meant to push the Zen disciple beyond everyday reality and to open his or her mind. The trader, a Zen follower, attributed his success to the Koan that hung in his office. There is, indeed, a message in that Zen Koan for anybody wanting to become a successful trader. What is it?

We always continually trade in the market. If you are a confused trader, you may choose to buy shares for intra-day trading. Usually, the stock fails to move up on the day that you buy them! So, you decide to hold it for another day. And the process continues the next day and the day after. Everyday, you buy shares, hoping to sell them at a higher price sometime in the future. Soon, you are saddled with a 30-50 stock portfolio. Have you experienced such behaviour?
Breaking habit

If so, you are not alone in the market. Most of us tend to over-trade. The reason we do that is because we are continually chasing profits. Some of us do out of compulsive habit. If you are heavy smoker, you will know how difficult it is to break such habit. The Zen Koan is a remainder about our shortcoming. As Zen Koan states, not doing anything in the market is sometimes more profitable!

The trader we met adopts a simple approach to get over the urge to over-trade. He takes positions intra-day, 5-10 days and 1- 3 months. Since he is busy buying in one time-horizon and selling in another, he does not feel the urge to chase profits. Importantly, he does not take any position unless the upside is at least three times more than the stop-loss level.

Next time you have the urge to trade, think about the trader and the Zen Koan that hangs in his office.