Trading Nuggets
Have you been hurt by these 3 major points?

by Mike Mc Mahon of

The Economy is still on shaky ground and the Markets are not quite sure what to do. They rally, they fall back. We can apply all the Technical Analysis, Fundamental Analysis, and Economic Guru talk we want and still not see a clear path. This has become a “trader’s market” but only for the adroit.

When will it change…as Mitch Cariaga says, “Only God Knows…” And the rest of us have to guess. But the good news is that it will change. It will start to smooth out again, trends will return. Unfortunately, many reading this right now are thinking, “Yeah, I’ll be ready to buy again” – ooops, I didn't’t say it would change to the upside, now did I?

This should be a clue to your possible bias. In any case, the market will start to change. Many have been hurt the last couple of years because of three major points – 1.) Lack of Appropriate Knowledge; 2.) The Inability to Do the Work Necessary and 3.) the lack of Humility to Accept that you Cannot Control the Market.

1) Lack of Appropriate Knowledge this goes far deeper than the ability to spell “stochastics”. Too many people believe that they can “make money” in the market because they have read books, attended seminars and feel comfortable with Charting or Fundamental analysis. Yet, the real knowledge that they need is the intimate workings of the market. Yes, TA, Fundamentals, Level II, Order routing, Execution and others are all vital – but that is the point, they are “ALL” vital.

Learning one discipline and hoping it is the “answer” is not the road to success. Unfortunately, it is hard work and requires a deep understanding of self and the strange world you're stepping into. Most want a “system” that someone else did the hard work on – “Heck, why should I re-invent the wheel?” Well, the “why” is because it is going to be your “wheel”.

Someone else’s view of how the market works may not coincide with your vista, your understanding. “Yeah, but if it works, then I will be happy with the money”. It did work – Past Tense - but the market and conditions change. You must change with it.

2) The Inability to do the work successfully - I attended a trading workshop this morning. I got a lot of goodies out of it but the instructor said something that really stuck with me – I am paraphrasing here – He asked, “If I gave you 6 rules to follow and guaranteed that they would make money for you, how many of you would follow those rules?” Needless to say, the audience was unanimous in their willingness to follow the rules. After all, you can’t be too rich.

His next statement was the ringer, “The reality of it is only 10%, or less, will actually follow the rules – most will skip a rule, some will interpret the rule, others will add rules – few will follow them”. I thought about this and I realized that risk management and discipline were (AGAIN) the difference in most successful traders. Being given a “system” without doing the work to develop it for yourself allows you to be suspicious of the system. Being suspicious, we then “fool’ with it and defeat its original purpose. Being suspicious, if things go against us, we can blame “the damn thing”.

However, if you do the work, build the discipline yourself, then you understand the “mechanism” and tend to trust it and you can only blame yourself for its weaknesses. Sure, it may need tweaking over time but it is yours and you understand it. You have to do the work – or you will be subconsciously suspicious (if it works so good, why did they sell it to me?).

3) The Lack of Humility to Accept that you Cannot Control the Market - The Market is mightier than even Alan Greenspan (Who can leap over a tall economy with a single bound!). What then of your musings? “I know this stock will come back, it’s a good company” – “Nothing goes straight up or straight down” (See Enron – not perfect, but straight enough for me).

My point is that we have to accept what the market will give us. I often say in class, “You cannot MAKE money in the market, you can only be there, open to the opportunity to humbly receive the money” – the nuance is lost many times. Your analysis, your planning, your execution will not “shape” the market – quit trying and learn to get in sync with it.

Spend a large amount of time just watching the “dance” and be humble – and thankful – when you have winners, and learn to accept the losers that inevitably come. Develop humility; understand that you can “go” with the market at best and learn to admit you are wrong quickly and cut those losers off at the knees. This will build discipline for you.

Perhaps you need some help – a proper education is a good start – stop guessing or reacting, start thinking and learning.

Just some thoughts...and of course, I'd love to see you in one of our courses at Online Trading Academy, so we can discuss this further!

Online Trading Academy - Professional Trader Education Article by Mike Mc Mahon, Lead Instructor - OTA

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