Key Principles

The same people seem to always be winning in different aspects of life. Why is it that someone succesfull in business, seem to have an easier time staying in shape and losing weight? I concluded that the same “key principles” are very portable and apply to various concepts. Here I will attempt to draw parallels between them.

1. Admit you have problem and stop blaming outside influences.

Trading: Admit you have a problem if you notice your account is always in the red of it you are constantly losing. Stop blaming your broker, the news, the wars or bad CEOs. Take your responsability and admit you make bad trades more than good ones these days.

Dieting: Admit you may not want to look like a magazine cover model but losing weight would not kill you. So many people could lose weight if they simply took that first step.

Personal Finances: Same goes for personal finances. If you never admit you have a problem, your finances will never improve.

The same applies to various addictions and/or bad habits picked up along the way.

2. Tracking is a key component to *any* recovery. To solve anything, the progress must be tracked. Nothing can be fixed or improved if it is not measured.

Trading: Any trader need proper records of his trades to know what he is doing wrong or right. A trader’s journal is the solution for most. Trades are noted in, profits or losses recorded for each trade. A simple look at the journal will tell the trader how well or how poorly he’s doing and will allow him to re-adjust accordingly.

Dieting: Like with trading, a dieter must keep track of what he puts in his mouth. Otherwise, you have no idea how good your diet it. And like with bad trades, bad foods can sneak in your diet without you noticing. A record will reflect that quickly and allow you to correct the situation. Regardless of how much you hate the number it gives you, stepping on the scale and noting the result is an important step to any diet.

Personal Finances: Same concept apply to personal finances. Without records of monthly expenses, you have no idea where your money is going, when and why.  Proper records will allow you to track when you are spending and why and correct the situations if you notice you are spending too much.

3. The “stop loss” concept allows you to prevent a small mistake from turning into a really big one.

Trading: The name “stop loss” comes from trading and is the order type in the stock market that tells your broker you want to sell (or buy to cover) if the stock goes down below a certain point (or up past one). A good trader will decide before buying what his limit will be. The risk in known and quantified and emotions are kept out of the way.

Dieting: Diets need stop-loss orders too but they are trickier and require will power because nobody will stop serving you food. You have to stop eating by yourself. How many people get off track in their diet because they turn a small mistake into a lifetime addiction. “I already ate way to much at diner, I might as well have a desert” or “I had desert already, why not have more… While I’m off my diet…”. Those are evil words.  The minute an overintake in food is detected, like with the stock market limit order, the action has to stop now.  Why turn a small mistake into something more.

Personal Finances: The same applies to personal finance. Once people blow by their budgets, they have a tendency to just keep going. “I spent too much already, another $20 won’t make a difference” or “I own $5,000 on the credit card already, why not charge another $500 for this new TV”. Those are the words that will lead to poor credit situations and financial problems. The “stop-loss” principle should prevent that.

More later…


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