Red, Green, Yellow - or - Stop, Go, Go Very Fast: Which Describes Your Online Trading?

by Jonathan van Clute

Published on this site: June 23rd, 2005 - See more articles from this month...

Ever notice how behavior in one area of life can apply to behavior in other areas of life? For example, I've noticed a number of things while driving that apply to online trading. One of them is regarding how people behave toward traffic signals.

In the USA, where I live, all the traffic lights are red, yellow, green red for stop, yellow for slow down or caution and green for go. The lights always change in order from red to yellow to green and back again to red after a time.

How drivers relate to the changing lights is NOT always the same. There are three types of drivers and responses to seeing a green light:

Type one drivers believe the light will change to red at any moment. In anticipation of the change, they begin to slow down far in advance. I call them "Red Lighters."

Type two drivers know green means it's ok to go. They continue on their present course and speed, making no changes at all as they approach the light. I call them "Green Lighters."

Type three drivers know the light could turn yellow at any moment, so they step on the accelerator to catch up to the light as quickly as possible, not wanting to miss it. I call them the "Yellow Lighters."

Many people apply these same approaches to most of life's opportunities, including online trading. Maybe you do the same thing.

If you see an opportunity approaching, do you slow down, believing that since it won't last you shouldn't be too hasty or you could be stuck in a bad deal? "Red Lighter."

Or, do you see the opportunity coming, and just let it come at its own pace, taking your time and accepting whatever happens when it reaches you? "Green Lighter."

Or, do you rush to it, knowing that it could be gone at any moment so best to jump on it immediately so you don't miss out? "Yellow Lighter."

Each of these approaches has its risks, and its rewards. Red Lighters take no risks, and therefore never "push their luck" by hurrying into anything. On the other hand, what risks are they actually taking by potentially missing out on opportunity?

Green Lighters just want to travel safely and smoothly. They don't mind what happens along the way so they just keep going with the flow of traffic. Sounds smart, doesn't it? Yet, what real gain is there in being "just like everyone else"?

Yellow Lighters don't want to miss any opportunity so will do whatever is needed to capture the potential reward. But how big is their risk in being first?

Each is going the same direction, and could even be in the exact same type of vehicle, but none is actually any more guaranteed to arrive at their destination than the other.The Yellow Lighter will probably get there the fastest, but could also get into an accident along the way from so much speeding. The Green Lighter will arrive safely in a reasonable time, but will likely arrive with the rest of the crowd and never be early. The Red Lighter will probably always be late, and will typically spend so much time on the road that they never get to fully enjoy their destination.

Which are you? Which do you want to be? How do you assess risk and reward in your financial decisions, your daily activities, your life? Like it or not, everything we do every day has a risk and an associated reward.

Getting in a car each day and driving to work carries with it the very real risk of death from a traffic accident, with the reward on the other side of the commute being a paycheck. Everyone must assess the risks and rewards in their life for themselves on an ongoing basis, something that I myself do constantly every day and that I encourage you to do as well. You just might be surprised at the trades you find yourself making unconsciously.

I invite you to notice your trading style and adjust it according to the results you wish to achieve. Being conscious of our behavior patterns and changing them when appropriate can make all the difference in online trading success.



Jonathan van Clute is a full time investor, educator, speaker, and online options and sports arbitrage trader. In addition to his business activities, he is also a musician, video editor/animator, and one of the world's greatest Segway Polo athletes. He can be reached via email at [email protected] and is speaking at an upcoming teleseminar, visit http://snurl.com/vclights for details.