I learned this method for implementing trading plans from an old friend who came to teach at one of our Traders’ Camps. Fred Schutzman is a CTA (commodity trading advisor), and even though he came to teach, he also liked to sit in on my classes. One day I was showing a trade that was coming together, saying that I was going to place an alert with my electronic broker. I wanted to receive a message when that stock reached a certain predefined level.
“Why don’t you place a small order there instead of an alert?” asked Fred.
It hit me that placing an order and receiving a fill had an entirely different emotional meaning than receiving an e-mail. One more e-mail in the midst of a busy day only added to that day’s clutter. It would be a completely different matter to receive a fill for a few shares of stock. Suppose I was planning to trade a 1,000-share lot and placed an order for 10 shares at the trigger level. Once I owned those 10 shares, I’d have to re-analyze the charts and make a decision—to buy another 990 shares, bringing the trade to its full size, or to sell those 10 shares, taking a tiny loss because my view of that stock has changed.
There is a big difference between looking at a picture of a woman and hugging a real one. There is a difference between reading an e-mail about a potential trade and holding a real position, no matter how small.
I liked Fred’s suggestion very much and implemented it immediately. Years later I came up with a name for this method—a Chihuahua trade. A Chihuahua is a tiny dog, so small you can put it into your pocket, but it is a real dog nonetheless. I met a woman in the Dominican Republic who kept a pack of big dogs for security at her estate. The big dogs slept much of the day, but she also had a few Chihuahuas who were always alert. Whenever they heard someone approaching the fence, they began barking, and then the big dogs would wake up and rush in to investigate.
This is why when I am away from the screen and need to place an alert for some future trade, I prefer to place a Chihuahua-sized order. Recently a friend gave me a present—a photo of a Chihuahua at the feet of a Great Dane. I have the picture on my bookshelf and continue to use trigger orders instead of sterile alerts.
“Why don’t you place a small order there instead of an alert?” asked Fred.
It hit me that placing an order and receiving a fill had an entirely different emotional meaning than receiving an e-mail. One more e-mail in the midst of a busy day only added to that day’s clutter. It would be a completely different matter to receive a fill for a few shares of stock. Suppose I was planning to trade a 1,000-share lot and placed an order for 10 shares at the trigger level. Once I owned those 10 shares, I’d have to re-analyze the charts and make a decision—to buy another 990 shares, bringing the trade to its full size, or to sell those 10 shares, taking a tiny loss because my view of that stock has changed.
There is a big difference between looking at a picture of a woman and hugging a real one. There is a difference between reading an e-mail about a potential trade and holding a real position, no matter how small.
I liked Fred’s suggestion very much and implemented it immediately. Years later I came up with a name for this method—a Chihuahua trade. A Chihuahua is a tiny dog, so small you can put it into your pocket, but it is a real dog nonetheless. I met a woman in the Dominican Republic who kept a pack of big dogs for security at her estate. The big dogs slept much of the day, but she also had a few Chihuahuas who were always alert. Whenever they heard someone approaching the fence, they began barking, and then the big dogs would wake up and rush in to investigate.
This is why when I am away from the screen and need to place an alert for some future trade, I prefer to place a Chihuahua-sized order. Recently a friend gave me a present—a photo of a Chihuahua at the feet of a Great Dane. I have the picture on my bookshelf and continue to use trigger orders instead of sterile alerts.
Posts
No comments:
Post a Comment