2013 Resolution for the Aspiring Trader

Hi All,

Christmas has gone and the New Years well and truly with us now.  Most people will have made their 2013 Resolutions by now and as an aspiring trader/Investor I thought I’d add to your weapons bag for 2013.

The ultimate resolution you should make (and this depends upon your stage as a trader/Investor) is:

  • To Reach the moment of clarity as fast as possible

This usually takes approx 3 years, but it can be achieved far faster if you follow the right route.

The trick is keeping money whilst the 3 year route to clarity takes place, this is often the downfall of the would-be trader.

You should make it your aim to fully understand the markets and how to Invest and Trade properly in as short amount of time as possible, because the faster you reach the moment of clarity that’s when you can really focus and motor in the markets.

There’s no secret way to trade, it comes down to 4 things:

  1. Managing Risk per position/trade
  2. Having a viable Trading strategy/set-up
  3. Understanding the probabilities of the trading set-up
  4. Trading the strategy according to those probabilities to achieve a positive expectancy

There are 100’s of ways to create a trading set-up, it takes time to find one that suits your personality – This is where you’ll spend hundreds of hours reading books, magazines and online sites trying to see what works out there.

I won’t go into a massive lecture about my thoughts, they’re all over this blog site and they are likely to differ from your thoughts on the markets, take this for instance:

  • 1 Trader likes to compare debt levels, growth and sales of a company, once this has been done they then look at the “charts” notice that price has been moving up steadily and they then form a BUY opinion on the stock.  They then proceed to buy it with a 10% stop-loss in place
  • Trader 2 comes along looks at the chart of the very same stock and notices the chart looks positive, chooses to BUY and places a 10% stop-loss – regardless of what the company does or it’s fundamentals

Neither of these 2 traders knows for certain (hence the stop-loss & the fact that neither trader is likely to be betting the entire farm on the position) that the share will rise and there’s no guarantee that the stock will rise just because of the positive fundamentals – but it is this analysis that makes Trader 1 feel more comfortable and secure about risking money into the market – yes it’s a longer route to the same scenario than Trader 2, but Trader 1 feels happy and comfortable – as does Trader 2 who is obviously happy to buy strength based solely on the price action.

Neither trader are right or wrong – that occurs when they work out their annual profit & loss and if Trader 1 or 2 were so sure they right they’d not bother wasting their time setting a stop-loss in place.  Think about it if you are that sure there’s 50% in a move why would anyone diversify their portfolio?  The common sense decision is to go in with all your money to make 50% overall on just 1 trade – I’ve not seen this done consistently.

The TRUTH is:

  • that you reach the moment of clarity when you realise that anything can happen in the markets, that there is no way you’ll be 100% right in your decisions, no-one can tell you exactly what a markets going to do or how much you’ll make on the trade and that you have to trade your trading set-up to the letter each and every time in order to do the only thing that can be 100% guaranteed and certain in trading = Controlling RISK

The only way you can achieve this is by going through the motions – EVERY successful Trader/Investor has been on that journey.

By going through the motions I mean researching all the viable ways to trade so that at the end of your journey you come out knowing and thinking – “Nothing works all the time” – That’s when you’ve reached clarity

There’s a lot more to this than I’ve stated, take Trader 1 – they’ve probably been scratching their heads during the past 5 years trying to figure whats been going on, they’ll have been buying trading books trying to fill the gaps in their knowledge, but the facts are that during that time they’ll of still been able to trade fairly well regardless – BECAUSE of the fact they diversified their portfolio – You’ll probably find these very people had a fairly rough/hard (but positive returns) during 2007, 2008 & 2011 compared to other years – The Trader 1 types expect the markets to rise, when they move sideways or down they play havoc with their trading/Investing style.  The fact that Trader 1 resorted to reading books suggests they have not reached their moment of clarity.

Trading and Investing is about confidence & understanding, achieving Clarity gives you that but its something that has to be learnt by first hand experience and testing

As always I wish you well on your Trading/Investing journey

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