Guidelines for Novice Traders

Cross ref : http://awanginvest.com/?p=680

 

MASTER TRADERS LEAGUE

 August 21, 2008 – 5:00 pm

With the  seminar coming up  this weekend that I organized for my mentor at the Singapore Management University, I would like to touch on how novice traders could take a pro-active approach to learning to trade well.  The course  to be conducted by Ray Barros, who is in the class of Master Traders, would highlight the road to take and to form good habits of trading.

I merely wish to give some guidelines seeing how choppy the markets have been lately.  August is also the month when families go away.

It may be best to sit on  one’s hands and do no trade. Or one could devote more time to learning how to trade well.

There are many would-be traders turning to the markets for wealth and security. Yet, in spite of the need to win, many fail to achieve enduring financial success.

The recurrent question is “Why?”

Before I answer this one word question, I would like to reveal what I believe is the greatest obstacle to trading success by would -be traders.

At   some recent presentations in which I assisted my mentor, I was saddened by some   expressing some unrealistic views to me.  They all are eager to learn to trade but they only   attend  freebies, thinking that a couple of hours of  presentations would suffice to teach them all the techniques for a good trade.

Also many  want to trade for a living but they have not shown any  commitment to master the markets.  One major  move is to invest in knowing how to trade .  As with any profession, like a doctor, one must first invest money , time and efforts to reach competency in whatever we profess to be.  There is no short-cut or instant success. This is contrary to  what we are bombarded with , ads giving the impression that trading is easy to make quick and high returns. You  have to put more than money on the line, to incorporate trading into your life and do whatever it takes to hone your trading skills to the point where you become competent.

Goethe the philosopher observed , which  many novice traders would be wise to heed:  “Until one is committed, there is hesitancy, the chance to draw back.”

In his book, The Mentally Tough Online Trader, Robert Koppel observes, “Top performing traders are committed to overcome any hardship or roadblock to achieve their goals.”

You must commit money. You cannot expect to make a living from a $1,500 trading account.  Until you have a nest-egg you can afford to lose, you should not even think of trading. If you are under-capitalized,  you need to get an extra job to build up the capital you need. You also need to invest time and energy – a huge commitment on your part.

It is impossible to digest the full range of trading knowledge over-night, even if you were a genius.  Learning about the markets and developing an intuitive feel as to how they behave requires time and practice.  It  can take many years before you can trade the markets profitably. Some can do it within 3 years with consistent profits, many will take up to 10 years to be really good.  But to the trader who is fully committed, these are minor setbacks. Once you make the commitment to master the markets,   you are on the way to success with good habits.

On the psychological level,   once  you have invested in a trading course, you must learn to let go and move on when you start to trade. When you trade with the proper mental edge, you flow with the markets. You   do not worry about how much you may lose. You are energized  and focused entirely on the markets.   Of course, It is hard to focus once you have a string of losses.

Professor Jennifer Lerner, at Harvard University’s Kennedy School of Government,  studies how emotions impact judgments, such as the financial decisions traders make daily. Her  recent study showed how a combination of focusing on oneself and feeling sad can produce biased perceptions of the value of a commodity. These results highlight the impact of focusing on the experience of feeling sad rather than maintaining an objective state of mind.  When trading the markets, it’s vital to stay objective and focused on the trade. If you feel sad, disappointed, or depressed and mull over these feelings, you may overestimate the value of a stock or commodity.

Winning traders stay objective. They take setbacks in stride. They objectively survey the markets. They view setbacks and losses as merely a symptom of an inevitable change in market conditions, and take an active problem solving approach rather than a passive approach marked by depression.

Traders who become  consumed with setbacks and unpleasant emotions dwell on internal reasons for a setback -  their inadequacy as a trader. They start focusing inward  and   may hold on to losing trades rather than cut their losses short and  look for a new high probability setup.  Winning traders do not   look inward at all. Instead, they look at the market action and  make an active  problem solving approach to recover from the setback.

Many novice traders blame themselves for their setbacks. Again, “ Why”?  Lacking inexperience, they tend to  focus on their lack of trading ability. They stop looking for solutions and give up too quickly. If only they just stay focused and continue to search for solutions, they will increase their chances of finding a solution  to   move forward rather than stumble.

Last but not least,  you must not forget about risk controls. Also,  do not  trade beyond your skill level. The only way you are going to hone your trading skills and become a seasoned trader is to practise by making trade after trade across various  market conditions. The more focused you can trade and the more responsive you are, the more likely you will be one of the few who can be called winning traders.

Bonne chance!

 ANA aka IDKIT

Ag Moderator

 

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