Concentrate On the Markets

Having a reason is a very important component to trading success. Why? Because if you don’t have a reason, you’ll be swept along helplessly by the numerous (and often contradicting) market indicators and TV market analysts that are out there. In the same token, at some point if you want to make money, you’re going to have to make a trade. “But how? How can I discern the relationship between the buying and the selling?”, you ask.

You have to come up with a trading plan and the first part of coming up with a plan is to engage the market in an observational manner (read: trade small). You can come up with all types of ways as to how to gauge a market’s movement – the main idea is that you are learning it. Forget about the money for a second and just concentrate on what the market does. You must be able to have some grasp on the market movement before you can make an educated and flexible statement as to what it can or can’t do.

After you have spent time observing the market for whatever instrument you trade, you will be able to understand its character across many conditions. When I say, “spent time”, it’s not a week or a month. Spending time means that you have observed and traded in that security for months, even a little more than a year, maybe even longer. Think about it. We don’t become experts by taking crash courses. Expertise is developed; some just develop it faster than others. The key is that you have to spend time with it.

Have you ever made one of those trades where you just bought something or sold something because you felt that’s what the wind dictated? Do you remember how you felt after you executed that trade? Chances are you felt pretty nervous because of the huge uncertainty that you’ve placed your point of view on. Then you sit there and watch as the market reveals itself – often as a red set of numbers on the PnL bar. I’ve seen many traders like this and I know that it’s because they don’t have a reason to trade. Either they’re following someone, or they “call on intuition” that the market is heading a certain way.

First of all, anyone can call on intuition. A monkey can call on intuition. The real trick is whether intuition will answer back. In place of that uncertainty, you have to have an edge. An edge is only developed after you’ve observed the markets and you’ve determined how to engage it favorably with a well-thought out trading plan.

Posted in Categories: Contributor, Psychology.