Speculation as a Fine Art, Part 2

In Speculation as a Fine Art Part 1, I discussed Self-Reliance and Judgment. Today I will take a look at Dickson Watt's pithy advice about Courage, Prudence, and Pliability.

Courage: Courage is a double-edged sword. In once sense, courage is what gives us the guts to take risks -- a necessity to trading profitably. On the other hand, blind courage can drain your account when it becomes stubbornness.

For example, I have interviewed some of the top traders on Wall Street and they all have what Watt's defines as "confidence to act on decisions of the mind." Further, they have the courage to "be bold" when others are greedy or panicking. But all the biggest losers in trading history have neglected to use an exit strategy with their courage, therefore watching the market disprove their thesis and future ability to trade.

Prudence: If courage is one wing of your trading eagle, prudence is the other. Together, they balance your enthusiasm to pull the trigger with "the power of measuring the danger." If you want to believe in a Holy Grail of successful trading, this is it. The trader who uses stop-losses and exit strategies masters what is truly a game of probabilities. The trader who avoids prudence falls prey to the law of numbers and ultimately loses over the long-term.

Pliability: "The ability to change an opinion." One of my trading mentors Brian Shannon always repeats the importance of knowing when you're wrong and listening to the message of the markets. Given the market is one vast aggregate of ever-changing data and opinions, if you are not pliable you will perish. For example, Brian was a key influence in teaching me to remain nimble enough to change my bias from long or short and quickly take the other side. This one technique improved my Profit & Loss statement exponentially.

I hope you have been enjoying my tour through this powerful, pithy wisdom. The novice may think this is simple and for beginners, but the true master knows these are the absolute keys to success. Shit, the grand master himself Edwin Lefevre made these the pillars of the great classic Reminiscence of a Stock Operator.