I am constantly amazed by the number of traders who expect to read the first text book they come across and then make money.
This nativity often leads me to think how easy it must be to become a doctor or airline pilot. Perhaps I just need to read a book or sit in on a 2 hour course to achieve this. Perhaps I am mistaken and becoming proficient at these highly skilled jobs is a lot easier than it looks.
The over optimism that is shared by many new traders to financial trading. This I believe the result of too many industry get rich schemes and over hyped marketing. Did I say over-hyped marketing? I meant downright misleading marketing!
Financial brokers such as those who offer Binary Options, Forex and Spread Betting are chiefly to blame. In much the same way as betting companies post disclaimers or risk and loss on the one hand and then offer easy ways to high odds and profits in the other, so too, financial companies want to entrap the gullible.
The problem with this is that too many people fall into this trap. Most often they don’t know what they are getting themselves into until the costs hit home. This may the result of a big loss beyond what they expected.
If you come from the standpoint that it is possible to profit from trading, then what can you do to hone your skills? Is there such a thing as the perfect trader? Can you learn profitable trading from a book?
My own take on this is that trading is something that you can learn to a level of proficiently. Some people will be naturally adept and possess the skills to succeed from the outset. Others will struggle. I do of course believe that that it is possible to improve your skills by study. However, this will only take the majority of people so far and this is why.
Trading is a skill. Fact. It is a skill that is balanced between analytical skills and psyche. The analytical skills are required to the analyze and read the markets. The psychological skills are required to keep the trader in check.
When learning to trade the easy skills to pick up are analytical skills, In my opinion, understanding technical indicators and devising a strategy to identify entries etc. is fairly straightforward. Of course, it needs some study, but the basics are fairly easy to pick up.
The difficult part of trading is the psychology. Where trading skills can be honed over time, dealing with the psychology of trading is much harder. The trading mindset is not easily mastered from a book. This is why I said earlier that some people are naturally ‘born traders’ while others have to attempt to learn how to behave as such.
Shaping the traders’ mindset is difficult because it is deeply rooted in psychology and values. The natural traders’ values are often very different from those that we naturally possess as human beings.
OK so traders are not psychotic. They do however elicit different emotional response which enables them to deal with the cut and thrust of the financial world.
Now I’m sure that many people have seen the Wolf on Wall Street or watched Nick Leeson melt down Barings bank. The key take on the central individuals in these movies is the ease with which they deal with events without melting down.
OK so they manipulated people and tried to manipulate the markets. However, the take from this is that didn’t completely fall apart although the risks were high. Having seen many new traders at the first sign of their trade moving into the red it becomes clear that certain people are cut out to trade. Others aren’t.
I talked in my previous article about reasons people will fail when financial trading. I stand by this and offer a new piece of advice.
In order to hone your trading skills and increase your chances of success, it is vital to stick to your pan. It is difficult to change your mind set, yet if you place rules in your plan then it should be possible to create a framework in which you are happy to operate as a trader. This can help to reduce the psychological element of trading and avoid any meltdowns.
So how can you do this? Simply be honest with yourself. Set out realistic attitudes to risk that you are prepared to accept. I mean really accept. There is a difference to what you thing you might accept when things are going well and what you will be prepared to stomach when the chips are down.
Cover off some basic scenarios and work through what would happen in the event of a, b or c happening. The plan will offer a trading structure that you can stick to and lean on when the inevitable market shakes happen. It will help to frame your trading and should help to provide reassurance.
With this increase reassurance, you will be in a position to perform better as a trader. Ultimately that means better results which is what we as financial traders are all aiming for.