Feb 21 02:53 GMT


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Breakfast of Champions & Trader Print E-mail
General Investing Articles | Written by Robert Prechter |

Breakfast of Champions & Trader

At 47 years old, Julio Franco is the oldest player in major league baseball by more than four years. He broke into the majors in 1982 – one year before Carl Yastrzemski retired. That's what you call "experience."

A profile of Franco this week in the New York Times talks about how he started his career as a wild man, drinking and partying hard. But 15 years ago, after winning the American League batting title in 1991 with a .341 average, he swore off drinking and found religion. Since then, he focuses on eating natural foods and living cleanly. Six egg whites in the morning is only part of his breakfast of champions. He eats at least 5,000 calories a day but makes sure to burn them off, too, by lifting weights six days a week in addition to playing baseball and working out with his team, the New York Mets.

What words does this veteran have about baseball players who preceded him? "The smart ones were the old ones."

That's a message to heed as a trader, too. To be smart as a trader takes experience. And that takes time. Take a moment of your time now to read this interview excerpted from Prechter's Perspective to learn more about why experience is so important. This is the third in a series of six.

Bob Prechter's Six Secrets of a Successful Trader

1. Find a method. 2. Be disciplined. 3. Get experience. 4. Accept responsibility. 5. Accommodate losses. 6. Accept huge gains.


What's the third requirement of becoming a successful trader?

Bob Prechter: No. 3 – Get experience. I can't stress that enough. I don't care how much you read or how brilliant you are, you won't find out how easy it is to lose the market game until you trade with your own real money. Let me give you an example: If you buy an Xbox baseball game and become a hitting expert while sitting quietly alone on the floor of your living room, you may conclude that you are one talented baseball player.

Now let the Mean Green Giant reach in, pick you up, and place you in the batter's box at the bottom of the ninth inning in the final game of the World Series with your team behind by one run, the third base coach flashing signals one after another, a fastball heading toward your face at 90 m.p.h., and 60 beer-soaked fans in the front row screaming, "Yer a bum! Yer a bum!"

Guess what? You feel different! Suddenly you can't approach the task with the same cool detachment you displayed in your living room. This new situation is real, it matters, it is physical, it is dangerous, other people are watching, and you are being bombarded with stimuli. This is what your life is like when you are actually speculating. You know it is real, you know it matters, you must physically pick up the phone or click the mouse and place orders. You perform under the scrutiny of your broker or clients, your spouse and business acquaintances, and you must operate while thousands of conflicting messages are thrown at you from the financial media, the brokerage industry, analysis, the market itself, and you own inner demons.

In short, trading real money successfully requires you to conquer a host of problems, most of which relate to your own inner strength in battling powerful forces and your emotional reaction to them.

Isn't requirement No. 3 just a reiteration or warning about No. 2?

Bob Prechter: Yes, this is a derivative rule, just as No. 2 is derivative of No. 1.

In essence, you're saying something is going to come into play to make following requirement No. 2 really hard.

Bob Prechter: Exactly. And to the extent that it ruins novices, it is worth listing separately. You must learn that if you get emotional over the market, you are immediately vulnerable. It is emotion that creates movement in the market. Of course, few people really want to admit that most of their decisions are emotionally based and emotionally driven rather than rationally based and rationally driven.

There was a study that showed up in USA Today several years ago. They surveyed something like 200 average investors. They asked, "How many of you read the annual reports before you bought your stocks?" I think they got a "yes" from three people. The rest did it on tips and reading the paper, which, of course, is influence from other people. That's what it's all about: other people influencing your emotions and your decisions and, in turn, your decision influencing them until a trend is in force.

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