The world of internet is flooded with trading materials. Strategies, news, rumors, trading psychology and mind hacks – you name it, the internet gives it.
Yet, only 5-10% of retail traders cross the finishing line. Why?
Are the sources at fault or is it the traders?
It is not either’s fault; instead, it is a misunderstanding.
The blogs, books and success stories are factually correct. The writers have put down what worked out for them. Not what is going to work for you.
In fact, they found out theirs after gruesome trials and hard works. You can learn from them but not impersonate them.
On examining all the success stories, they all have one thing in common – the winner playing to his strengths or having a knack for trading. It only proves an adage in the market – Traders are born, not made.
If you’re wondering whether trading requires inherent traits, yes it does. But it isn’t going to disregard yours either. Your trait, your strategy and your story can be an inspiration for someone else in the future too.
You have to find out first – What in you is going to bring the market at its feet? It is that discovery that makes you ‘born as a trader’. That’s the case with every winner; they are not born winners rather reborn traders.
You have all the buttons at your disposal. You just have to press the right combination.
Trading Psychology: Define what you are
You are your best judge; no one else!
Say, you’re a free-spirited person, no matter what the mentors say you’re not going to be disciplined. Even if you strive to change your attitude, you’re going to succumb to the temptations one moment or the other and lose it all. So, rather than going against the ‘natural you’, brace your inherent nature, traverse with it, just like trend trading. The advantage of being free-spirited is that you wouldn’t bother about losses either, which could be an asset in the trading. Leverage it to your favor. Go for long shots with wide stop loss and subdued lot size. It gives an edge to you rather than playing to someone else’s tantrum.
On the contrary, if you are risk-averse and prudent, go by your innateness, follow the risk management principles to the core, grind your way to success.
The trick is to keep you as ‘you’ long in the game, and hence identify and define you. Because trading is a war of emotions and psychologies. And no better place to fight a war than your turf.
Moral: Be you, naturally you, unadulterated but pre-defined, pre-destined.
Trust your gut
Your best friend; day in day out!
As you grow in the market, you are bound to get signals from YOU as often as from the charts.
Many a time, it is going to be contrary to the charts.
Who is your best bet — chart or you?
The word ‘best’ gets defined with your age in the market and gets redefined as your trading psychology matures.
But, for starters, just avoid those signals which your mind issues a red alert.
Your mind registers and reposits the instances where repercussions were severe. Like it or not, it stays vigil and alerts you. Just like it warns you against the extra drink when you have to drive your car to the home.
But the natural tendency of human beings is to consciously discard the subconscious warnings and regret later. So, let’s skip the regretting part with a simple ‘pass’.
However, do remember to jot it down in your journal. Give a scorecard – you vs. chart. When your numbers get the better of the chart, you get reborn as a trader again, only this time as a contrarian.
And never be shy of contrarians, once you have the experience and expertise because it is the fortune reaper in trading.
Moral: If it’s obvious, it’s obviously wrong.
Never try to correct your weakness
The moment you start fixing your weakness, you lose track of your objectives — profiting and staying to your strength.
Say, you are a top-notch swing trader, but a lousy day trader. Your obsession over ‘mastery in all’ lets you fancy day trading. Both are different spectrums of trading and requires a shift in your psychology. Swing trading requires only to ride the trend, whereas day trading to go against it, quite often. You learn new techniques and tirelessly try it out despite losses. The lookout for day trades lets you miss lame duck, highly profitable swing trades too. However, you’re not the one to back out from any tryout. Finally, you become a day trader by martyring the swing trader in you. So in your quest to nullifying your weakness, you unlearn the profound wisdom, you unshed the habit of profit-making, you offset your rhythm.
When you specialize in one spectrum, you’re bound to suck in another. It is the cost of being the ‘best’.
Imagine, a Cristiano Ronaldo or Messi, regretting their defense inadequacy and trying to improve it, at the cost of their A-game. It’s insane. Right?
So, don’t try to change the inevitable.
Stay to your strengths. Hone your skills. It takes you to new heights. It makes the wizard you want to be.
Moral: It is better to be king of one than a jack of all.
Don’t overtrade your strengths
Your strength is a goose, golden egg laying goose.
When you try to overuse it, you’re virtually tearing it apart into pieces.
Consider an eternal optimist, attending a funeral and consoling the deceased’s father to see the positive side of it that he doesn’t have to college fees. Whether the optimist makes his way out of the funeral home can be a debate but not the fact he is ever going to be an optimist, aftermath.
And, it is the same with millions of traders out there. They overplay and overleverage their strength. A good breakout trader, on the backdrop of strong gains in the month, sees a continuation breakout trade just a day before the expiry of futures. Should he trade it or not? Well, most traders act on it, only to see the futures market spiraling down to a profit booking rally.
The problem with overdoing is that it often goes unnoticed. And when noticed, it makes you feel that the strategy has become obsolete. So, you move onto another. The cycle continues with your knowledge (trading psychology) curve running nowhere.
Therefore, clinical psychologists inculcate that overusing strengths dwindles it, if at all, turn it to weakness. So, when it comes to utilizing the strengths, the best choice of word would be ‘frugal’.
Moral: Get inspired by Dre Parker.
Filter news from noise: Stretching Trading Psychology
The sooner you do that, the better for you and your capital!
News channels bring three recipes to your table. And you always have the choice of saying NO.
First, the mundane market events that occur and recur which you can shrug it off effortlessly.
Second, the outcome of the pre-anticipated events which the market would have priced ahead. And so, the experienced and pros use this so-called newsbreak as an exit at the cost of the naive.
Third, the real news is a new development, a likelihood at its budding stage or a failed outcome that stumps the market.
It takes the experience to discern the third from the second since the media sensationalizes the priced in events — hard facts — and downplays the third, as it constitutes speculation.
As a trader, you must develop an eye for the events that drive the market over the long-term. And disregard the noise on both fronts – news and price action. Also, one should envisage the psychology of the trading community aftermath of the newsbreak.
A bet on the impact of any story in the short-term is merely a gamble, which is also against the underlying assumptions of technical analysis. So, playing to the strengths don’t stop with you but also your domain. As a technician, play to the strengths of technical analysis too.
Moral: The good, the bad and the ugly. Stay with the good in the news and in you!
The world of technical analysis has seen it all — strategies, moving averages, etc. But what it hasn’t seen is you. It is you that can be a game changer. Your mind and psychology interpreting the strategies is the unique component of your trading. So, play to your strengths. There is no guarantee of success, but it gives you an edge.