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Are
you a good stock trader ? - Apr 25, 2004
There has been an endless debate on a million buck question - are
successful traders born that way, or can a successful trader be trained
and factory produced. While I am no authority on the subject, I feel there
are a few points that can help a trader become a better trader and
therefore enhance his / her experience in the whole process. I follow the
simple principle that mind does indeed work over matter and maybe the
ultimate threshold between success and failure.
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You're the one -
remember, trading involves implementing profitable ideas into concrete
action. No physical effort is required, its a mind game. The stronger
you are emotionally, the better trader you make. A lot of personal
traits determine your actions during a trade. Factors like your
patience quotient, attitude, strengths, weaknesses and personal life -
the whole lot ! If you are the sort of person who gets frazzled
quickly, obviously trading is not your game. If you are a docile and
submissive person who cannot / will not talk down a thankless friend /
unfaithful spouse / self suiting relative, but would rather prefer to
bottle the storms inside till they kill you, you are not trader
material either. Learn to stand up for yourself and get yourself a
punching bag for starters. It's a taxing game and you rather be made
of tensile stuff.
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Learn to relax -
when I was training for a career in the armed forces in my younger
days, I did a lot of heavy physical exercise. My trainer emphasised
the importance of relaxed muscle & mind tone. Have you noticed how
a flexible rubber pipe can be bent almost 180 degrees and still not
snap ? Let go of the pressure and it recoils like a spring and settles
down to it's original state. Try doing that with a plastic pipe ! The
difference is elasticity. Try various things that suit your
personality - music, yoga, jogging or even a drink or two. Personally,
I feel winamp 3 and mp3 were two of humankinds greatest inventions.
Belting out Van Halen's "Dreams" or Survivor's "Eye of
the tiger" puts me on a new high. A relaxed mind will get you out
of problematic situations faster. Ever notice how long you are
depressed after a loss making trade ? Aren't you losing opportunities
in the interim ? A fatigued mind will ensure a slower / no recovery,
whereas a fresh mind will put you on your feet in no time.
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Balanced approach -
a good trader does not mean a committed person who eats, drinks,
sleeps and breathes stock markets. Doing this will stunt your
personality development and affect other areas of your personal life
which will eventually come to haunt your professional life. While
stock trading is like penance, you don't have to go to the himalayas
and isolate yourself from all mankind to sharpen your skills.
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Discipline -
indeed one of the most difficult aspects to enforce. Many a sucker
trade has been initiated because the trader succumbed to temptation,
greed or took a short cut knowing fully well that his / her capital
was at risk. Believe me, stock markets are one of the few places where
your capital can grow geometrically ( rather than mathematically ) so
taking short cuts is a strict no - no.
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Damage control -
one of the most glaring weaknesses that you can have as a trader is
how you react to adversity. A lot of traders buckle down to the
pressure and hold on to a losing proposition till the losses become
unbearable. Invariably, they bail out of a stock at the rock bottom
and suffer acute depression. Thereafter, they are hit by the double
whammy of seeing the price escalate to the original levels ! It's
easier said than done but learn to assign limits to your trade, decide
just how much you are able / willing to lose on a particular trade before
you enter the trade. Once those stop loss levels are reached, bail out
!! You reserve the right to re-enter the same stock at a future date
after all. Similarly, getting into trades on hearsay, tips and inside
information is the best way to commit financial suicide.
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Keep it simple -
ever heard the old saying - "simplicity is the essence of
beauty" ?. I feel it's true ! In stock trading, especially so.
Your understanding of the game, the discipline and basic common sense
decide your profits / losses. Buying expensive trading systems,
programmes, books and allied bells and whistles will do you no good as
long as you are lacking in your understanding of the market
mechanisms.
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Accept your failures
/ short comings - one of the critical aspects of trading is
to overcome a major loss making trade. As I mentioned above, having a
relaxed mind helps the recovery process. Fine ! But what do do you do
after that big sucker trade ? Sulk, moan, get angry or blame some one
else ? I believe you should go to the drawing board and analyse what
went wrong and where. See to it that every blip in the duration of the
trade is broken apart and analysed. It helps you avoid the same pit
falls in the future. Take the approach - " anything that doesn't
kill you, can make you stronger." You must strive to come
up a winner inspite of your losses. The trick is to keep losses to the
minimum by careful planning and learning from mistakes. Going back to
the drawing board is always advisable in cases of mistakes.
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Plan ahead &
take a break - always try to plan ahead in terms of projected
prices in time frames. Remember your money comes at a cost ( interest
) and a 10 % return in a month is anyday better than 10 % returns in 1
year. Your profits and more importantly, losses should be
pre-determined to avoid unexpected bumps. Also, it is important that
you take some days off from the markets after every big profit and
loss. It keeps your thought process stable and logical. Big profits
may make you arrogant and over confident, whereas big losses can
depress you. So learn to take breaks after each.
It is important that you
enjoy what you are doing. If it feels like a drag, don't do it ! I'm sure
you enjoy trading and using the above mentioned common sensical steps will
ensure superior profits and good trading habits which will stand you in
good stead. Have a
profitable day.
Vijay L. Bhambwani
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