Before one embarks upon his journey as a trader, it is extremely important 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 previous 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 very personality that reflects in one’s trading behavior.
Unfortunately, the lessons of life are shades of grey whereas the lessons of the market when simply put, are black or white. Fears, biases, greed, ego, etc. which in real life are only emotions and a state of mind are quantified in the market as profit or loss. Thus knowing oneself is extremely important before one enters the trading arena. Knowing the market equations is a far simpler job!
That said, the first challenge for any trader is to acquire an edge in his trades. With the outcome of every trade being a 50-50 chance, he needs to acquire the ability to increase the chances of him being right and reduce the chances of him being wrong. When this is achieved it results in the ability to be right for a large profit and be wrong for a small loss. This edge allows one to stick to his convictions and take larger bets for larger profits. This also helps one to ignore the small noise and pursue his conviction to the very end.
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? And how does one define the high or low?
A logical retrospection of the market can so simply reveal this. Prices fall when people sell. Prices go lower and lower as people continue selling. Panic takes control of the markets 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 can very easily be considered as the fundamental aspect of trading. With this arises the ability to support one’s conviction and the honest representation of one’s methodology. It also comes with this the desire to learn more and the knowledge that there is no one way to trade and then a quest for learning.
Our trading style thus reflects our personality and our personality is thus reflected in the markets- in our gains and losses.