Tuesday, February 3, 2009
trader
You often hear traders say that it is easier to trade professionally with a company's’s capital than to trade on their own time with their own money. Normally, they might have financial planners manage their money or put it into mutual funds. This shows how traders actually tend to be more disciplined when dealing professionally with a company's’s money than they are when dealing with the loss and gain of their own money in the market. To be a successful trader, you need that professional calm!
One successful investor who made millions defined stock trading as gambling. To some extent it is true: both depend on common strategies and discipline. You need to know when to bet small and when to bet big, when to check, and when to quit. Although the stock market is vastly more complex and far more grounded in information variables than gambling, they both require that you exercise strict discipline, clear judgment, that you do your homework, and that you set firm goals and limits. Sometimes in trading, the most important work you can do is exercising patience, confidence, and discipline. You need to stay calm, keeping your mind clear and focused. When you make a bet on a price going up or down, your intuition needs to be well informed. You need to understand what your risk is (Risk Assessment), what the probability of winning is, how much damage you can incur if events go badly South! Sound like gambling? It is true in trading or investing that people tend to dream about how much money they are going to make, tending to ignore the down side.
Is your bet good or bad? Agreed, as in gambling, intuition does a lot of work. But in investing, intuition does not come from nowhere. Good intuition starts with good education and good psychological habits. When you begin to win, you can't think of yourself as a winner yet because if you lose caution and become greedy, you can lose your gain in an instant. More importantly, if you should happen to lose, you can't let yourself conclude that a single loss makes you a loser: it won't, so long as you keep to your strategy, like a professional, and cut losses promptly. If you vainly cherish your hope that a stock will bounce back up after a setback, you may end up losing more than 50% of your money, when otherwise you could easily have closed off your position at -10% and kept costs to a minimum. Losing money can be very upsetting, but you need to be consistent and not quit the game easily. Learn to use a loss as a lesson, just as professional traders (or gamblers) do, and determine why you lost. In this way, you maximize your chance to become a better warrior. You should keep a close record of your trades, noting decision strategy, variables. Be systematic, just like a photography student who makes notes about each exposure to learn from inevitable mistakes. Talk with your friends and listen closely to trading tips, but in the end, you have to make your own judgments. Believe in yourself. If your next pick ends up being wrong, that may mean you haven't yet done sufficient homework on that stock to realize a win.
Homework is the most important thing to do before any trade. By doing your homework, you complete a definite set of steps that will guide you toward a successful outcome. First of all, set your market goals: Do you want to trade long-term (from one year to many years), mid-term (two months to a year), or short-term (every week, even every day)? Then, once you've set them, stay true to goal boundaries. For example, traders who set their sights long term may end up losing money by indulging in a tempting but ill-prepared short-term plunge.
After you've set your goal, you'll need to concentrate on specific industry sectors. By specializing in a couple of different sectors you avoid putting all your eggs into a single basket. Within each sector, choose stocks you want to invest in. Ask yourself questions such as, Why do I want to invest in this stock? Is it because its rating of strength relative to that of the industry is very high? Does it have leading-edge products or technologies that I believe are going to fly? Or does the stock follow the technical patterns very well? In other words, does the stock chart conform to a reliable and understandable model? Positive responses to these questions can help you feel comfortable in placing a stock on your short list of candidates.
One successful investor who made millions defined stock trading as gambling. To some extent it is true: both depend on common strategies and discipline. You need to know when to bet small and when to bet big, when to check, and when to quit. Although the stock market is vastly more complex and far more grounded in information variables than gambling, they both require that you exercise strict discipline, clear judgment, that you do your homework, and that you set firm goals and limits. Sometimes in trading, the most important work you can do is exercising patience, confidence, and discipline. You need to stay calm, keeping your mind clear and focused. When you make a bet on a price going up or down, your intuition needs to be well informed. You need to understand what your risk is (Risk Assessment), what the probability of winning is, how much damage you can incur if events go badly South! Sound like gambling? It is true in trading or investing that people tend to dream about how much money they are going to make, tending to ignore the down side.
Is your bet good or bad? Agreed, as in gambling, intuition does a lot of work. But in investing, intuition does not come from nowhere. Good intuition starts with good education and good psychological habits. When you begin to win, you can't think of yourself as a winner yet because if you lose caution and become greedy, you can lose your gain in an instant. More importantly, if you should happen to lose, you can't let yourself conclude that a single loss makes you a loser: it won't, so long as you keep to your strategy, like a professional, and cut losses promptly. If you vainly cherish your hope that a stock will bounce back up after a setback, you may end up losing more than 50% of your money, when otherwise you could easily have closed off your position at -10% and kept costs to a minimum. Losing money can be very upsetting, but you need to be consistent and not quit the game easily. Learn to use a loss as a lesson, just as professional traders (or gamblers) do, and determine why you lost. In this way, you maximize your chance to become a better warrior. You should keep a close record of your trades, noting decision strategy, variables. Be systematic, just like a photography student who makes notes about each exposure to learn from inevitable mistakes. Talk with your friends and listen closely to trading tips, but in the end, you have to make your own judgments. Believe in yourself. If your next pick ends up being wrong, that may mean you haven't yet done sufficient homework on that stock to realize a win.
Homework is the most important thing to do before any trade. By doing your homework, you complete a definite set of steps that will guide you toward a successful outcome. First of all, set your market goals: Do you want to trade long-term (from one year to many years), mid-term (two months to a year), or short-term (every week, even every day)? Then, once you've set them, stay true to goal boundaries. For example, traders who set their sights long term may end up losing money by indulging in a tempting but ill-prepared short-term plunge.
After you've set your goal, you'll need to concentrate on specific industry sectors. By specializing in a couple of different sectors you avoid putting all your eggs into a single basket. Within each sector, choose stocks you want to invest in. Ask yourself questions such as, Why do I want to invest in this stock? Is it because its rating of strength relative to that of the industry is very high? Does it have leading-edge products or technologies that I believe are going to fly? Or does the stock follow the technical patterns very well? In other words, does the stock chart conform to a reliable and understandable model? Positive responses to these questions can help you feel comfortable in placing a stock on your short list of candidates.
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