In recent articles, I have touched upon issues relating to the idea of knowing oneself as a trader; the necessity of careful self-analysis. One important area I believe many traders gloss over is the concept of motivation. Obviously, on the most apparent level, we are all motivated by the desire to make a profit, but I suggest it might be prudent to dig a little deeper in recognizing additional factors that may motivate us.

Over the years, particularly in the seminar setting, I have run across a significant number of people who look upon trading as a get rich quick endeavor that requires little effort. While I concede that almost anyone can occasionally land a big return with a lucky play, it is the trader who treats his efforts as a business that is more likely to succeed. Let's face it, we all have some level of greed; it is a part of our humanity. But greed unchecked can be one of the greatest dangers any trader faces. It encourages us to take foolish risks. I have often related the story of a seminar student who began trading very well. He was trading directional options and had several consecutive winners. Each day he would call me reporting on how much he had made but then the phone went dead. I thought he might be vacationing on his profits. After a few weeks I called him only to find that he had lost it all. Instead of managing his money, he, in essence, "bet it all on black." He bought short term out of the money directional options before an earnings announcement and on the announcement (even though it was positive) the stock gapped down and with little time remaining to expiration, he was wiped out.

When I tell people that story, the reaction is "how foolish" that would never happen to me. I'm sure the subject of my anecdote thought exactly the same thing -- that it could never happen to him, but it did. He was, and undoubtedly still is, a very bright man whose greed and impatience sucked him into making one foolish decision with catastrophic results.

Two major premises of my book, "Trade Your Way to Wealth," are the importance of appreciating risk as well as focusing upon reward and the necessity of treating trading as a business. In my view, many unsuccessful traders focus only on the positive possibilities when entering a trade. They fail or refuse to see and understand the risk until it is too late. I suggest it is better to look at the risk first and decide how to handle it before ever entering a position. Sure, losses will be incurred, but we can still be just fine if they are controlled.

A second element often found in our motivation is impatience. We are looking for the quick buck. Those kinds of trades definitely do occur, but I personally prefer the "get rich steady" over the "get rich quick" approach. Please don't get me wrong, getting rich quickly is fine, but, in general, that isn't so likely. In my new book, "Smart Investors Money Machine," I discuss a variety of ways to create numerous streams of income. Most of us need income to pay our bills each month and if we can utilize strategies in addition to a job to add to our income, it seems we can be better off financially. In "Smart Investors Money Machine," I try to show the reader a variety of ways that can be accomplished using different techniques and differing investments while pointing out those that require less effort as well as those that may require a fairly high level of monitoring. These are ways almost anyone can add income to their lives, but which few bother to do.

Ultimately it comes down to motivation. What steps are you willing to take to improve your financial lot?

Good Trading!
Bill Kraft

May 16, 2009

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