Several weeks ago I have finished the third year of my trading. It was spectacular year, with great financial result and, the most important, with great safety of trading ? no losing months, seldom losing weeks, no huge single losses, no huge single wins (yes, I consider it a sign of cautious safe approach). So, I tried to put together some thoughts concerning: what were the factors that made the difference, resulted good financial outcome, reduced stress to normal "living" level? What had to be changed comparing to the beginning of my trading career in order to lead to this wonderful stage: successful trading for a living with its freedom and enormous potential?
1. Was it hardware/connection/OS improvement? Certainly not. Yes, faster computers, ADSL, Win NT made things more reliable and decreased risk of technical failure, but I came to all this as my trading profits allowed, not the other way around. Apparently, none of above would make winner out of loser.
2. Was it better trading system, with sharper indicators, more reliable signals? Certainly not. My system has not changed much during last 16-24 months. Of course, I deviate now and then from basic setups, experimenting and trying to finesse details, but none of this ever made major difference. In my opinion, it doesn't matter what system trader uses, as long as he is comfortable with it and system chosen doesn't contradict with the way market works in. Any indicator might work for Joe and not work for Jack. Even more than that: Joe might buy the top and Jack might short the top, and both could be successful (or not) because of some fine distinctions they have in their systems which personalize the system, adjusting it to particular person manner of thinking.
3. Was it different state of mind, different method of thinking? Bingo! My strong belief is, yes - that's what changed dramatically and made the major difference. Here is my endeavor to put in the words some of the most important changes that required some major shift in the way I perceive the market.
- Reacting vs predicting. It took a great while until I stopped trying to predict what happens tomorrow, or in an hour, or in 10 minutes. Market is not logically framed financial environment, where one has to learn how to calculate. It's rather emotionally framed psychological environment, where one has to learn how to read human behavior. There is no certainty in the market because there is no certainty in the human reactions. It's a game of probabilities, based on observations that in this and this kind of situations people most often act such and such (MOST OFTEN is operative word as opposed to ALWAYS). No one can ALWAYS tell which of market moving forces would prevail. One can suggest where the path of the least resistance is and act accordingly, keeping in mind that his reading can be and now and then will be wrong. Thus: DON'T PREDICT - REACT. Most of good traders I know just shrug when asked what market would do tomorrow.
- Responsibility for own action. It should be unconditional, full and undivided. Otherwise one will never learn. If power went down while I am in trade and I lost money - it's my fault, because I shouldn't have left cellular phone in the car. If INCA huge bid flashed and I bought impulsively only to find out that bid disappeared and stock downticks - it's my fault because someone was fishing for sucker and I apparently fitted. That's why I have withdrawn word "manipulation" from my trading vocabulary - all those talks about MMs manipulations don't do any good to trader as they just help to switch the focus of responsibility, putting great weight in some unreachable powers and making trading more like gambling. BE YOUR OWN MAN, DON'T COMPLAIN AND DON'T EXPLAIN.
- Self-control. Trader has no control over market. Market has no control over trader. Trader can control and manage himself and himself only. Notice: we say MAKE profit and TAKE loss. Like someone gives us the loss. In fact we make both. Listen to yourself, learn to tell that tiny difference between the inner feeling you experience when you react on valid signal and the one that you experience when you make crap shot, reacting impulsively on something not your trading system related (hype, CNBC screaming, boredom, frustration caused by missed trade or several stops in a row etc).
- Being contrarian. Market works in a way that allows handful of players to win while majority loses. It happens because majority thinks conventionally, like: good news drives stock up, crazy buying with furious pace means start of the big move etc. And this is not how thinks work. Minority sees deeper. Crowd buys at the top (from minority) and sells at the bottom (again, guess to whom). Conventional approach leads people to buy when they are comfortable with stock and its price and sell when they are frustrated. Minority buys when crowd panics and sells into euphoria. That's why one of the main principles of the tape reading says: public is usually wrong.
- No one is smart enough to evaluate news item in all its extends, to know all hidden circumstances surrounding stock, company etc. Therefore, DON'T FORM OPINION. PUT THE MAXIMUM WEIGHT IN PRICE ACTION.
Well, probably, that's not it but it's already long enough. As usual I finish with disclaimer: all said is more material for discussion than preaching.
Vadym |
