Before one embarks upon his journey as a trader, it is essential to have a deep insight into one’s soul. Self-analysis needs to precede market analysis. Who am I, and what do I wish to achieve? The earlier experiences of life, both good and bad, leave a mark upon one’s psyche to the extent that they shape one’s personality. And it is this personality that reflects in one’s trading behaviour.
Unfortunately, the lessons of life are shades of grey, whereas the experiences of the market are black or white. Fears, biases, greed, ego, etc. are the emotions and a state of mind that quantifies in the market as a profit or loss. Thus, knowing oneself is extremely important before one enters the trading arena.
The first challenge for any trader is to acquire an edge in his trades. As the chances of success to failure in each trade is 50-50, the trader must learn the market properly to increase the chances of being right and reduce the chances of being wrong. This edge allows one to stick to his convictions and take larger bets for more significant profits.
The obvious strategy for any trader is to buy low and sell high. Easier said than done, the lows and highs of the market, though quantifiable, are in a constant state of motion. What seems to be a low today could become the high of tomorrow and vice versa. So how does one ascertain the precise entry point?
A logical retrospection of the market can reveal this. Prices fall when people sell. Prices go lower and lower as people continue to sell. Panic takes control of the market and drives the prices further down. Most players at this state are frozen in panic and fear rules the street. But a professional trader knows better and starts buying into this fear. He has started buying low to sell high. The rationale is simple. The prices came down and hence made a low. So where most of the traders and investors are still selling, the professional trader is in the accumulation mode and buying away the fear.
The final and most important aspects of trading are self-scrutiny and honesty. The ability to admit a mistake defines the fundamental aspect of trading. It arises the ability to support one’s conviction and the honest representation of one’s methodology.
Trading style thus reflects one’s personality and thus leads to gains and losses.