He was an extraordinary guitarist, but most people focused just on his guitar playing abilities, not realizing his lyrics were often quite poetic. In one song, he sings "Castles made of sand, fall in the sea, eventually." This is a great phrase to think about while trading.

There are two good lessons for traders in this simple song lyric. First, just as you should not trade based on a faulty idea, you should not use sand as a building material. Second, you need a solid trading plan as your foundation - without it, you'll slip into the sea, where 90% of traders reside. Let's look a bit more at both ideas.

First, you need to trade with a sound concept. This means you can throw all those hot tips out the window, and ignore the talking heads on television. What you need to do is have an idea or strategy that has been properly researched and tested. Then, you need the emotional power to trade the proven idea as is, without fail. Obviously, there are a lot to these two steps, but if you ignore them your trading house might as well be built of sand.

Second, a trading plan is essential to have a solid foundation, BEFORE you enter the markets with real money. What is involved in a trading plan? A good trading plan is written just like a business plan, since if you don't treat trading as a business, you are destined to fail. So, all the sections that make up a good business plan (Mission, Products, Operation, Strategies, Disaster Plan, Financials, etc) should be in your trading plan. The more time you spend on this plan, the stronger your foundation will be.

Just as "castles made of sand, fall in the sea, eventually," traders who ignore the fundamental ideas of 1) trading a sound concept and 2) having a trading plan will soon find themselves adrift in the "Sea of Losers." Don't let that be you.

By the way, in case you did not know, the guitarist I am referring to is Jimi Hendrix...