My motives in writing these weekly blogs and in teaching investment classes are in part selfish ones. I write and teach to become a better trader myself. By weaving together the key attributes that I deem most useful in trading the stock market and sharing them with other investors, I find that I’ve woven them together more effectively into the fabric of my own trading.
Two eyes are better than one, and I often benefit when students hold up a mirror and reflect their experiences back to me through their own investment lenses. A fine example of this occurred last year. The trading course I teach – Real Time Hands On Trading – has a strong group of 100 investors and includes a good number of full-time traders. After last fall’s semester ended, I received a detailed email from a student named Kelly H. who proceeded to list his key takeaways from the course. Coming from a full-time trader with more than 15 years of experience, Kelly’s comments were those of a colleague who had just spent seven weeks participating in my class. His comments were insightful and reinforcing, offering me a unique perspective as to what other investors felt were the most useful skills gleaned from the class. I was grateful to Kelly for the email, and I’d like to paraphrase his input. I hope I manage to capture his true intentions as I summarize the points he made.
1. Successful trading is about routines. When you trade with a consistent tone in your routines, you can’t help but take money out of the markets. The routine part may sound easy, but it’s really not. Repetition with proper guidance is the mother of all skills and is necessary if you are going to evolve eventually from a “conscious incompetent” into an “unconscious intuitive competent.”
3. The investing path is not an easy one. It requires unique mental facilities and the ability to follow strict rules about what you will and will not do. Yet with the proper work ethic, it’s a path that yields great advantages over most other careers.
4. There is a certain mystery about traders that average people don’t understand. When the market closes, you can become yourself once again. But when you are trading, discipline is your mantra. There is no place for “traders’ tics”. There is nothing average about being a successful trader.
5. If you look under the hood of extraordinary traders, you will find without exception that the critical components are twofold. They have put in place proper money management rules and possess the emotional equilibrium to follow them.
6. Most inexperienced investors have trading plans that are full of holes. They tend to be information sponges, collecting information from everywhere they can. They enjoy aspects of research and discovery that often tend to get them “off course” in their actual trading as they strive to implement everything they’ve learned, thereby never coming up with a consistent practical and implementable trading plan.
7. Reviewing a lot of charts day after day expands and reinforces your intuition. A large part of it is art – not science. It’s a skill that can only be acquired by putting in the time. As you will learn, trading is a collaborative experience. The market will tell you how to behave. You listen, you behave appropriately, you make money. It’s a beautiful relationship!
8. Most traders spend far more energy devising their buy criteria and fail to properly think through their stops, selling and exit strategies. You must have a lens that allows you to see the selling clues the market offers you – only then will you be able to pull the trigger effectively.
9. Inexperienced investors haven’t yet learned to
write out their trading plans. As Jesse
Livermore said, “When you make a bad decision, you must adjust your plan or you will
compound it with another bad decision.”
10. You have your own code. Make no apologies. When you find your own unique voice and apply it to the market, you will behold one of the great mysteries of life….you’ll succeed beyond your dreams.
It takes courage and personal honesty but you,
too, can become a successful investor.
As Robert Prechter said: “It’s difficult enough to develop a method
that works. It then takes experience to
believe what your method is telling you.
You must have it all: a method,
the conviction and the discipline to act decisively time after time, regardless
of distractions and pressures.”
Trade well; trade
-- Gatis Roze