So you want to become a full time stock trader?
This is the dream of many. The problem is that it is very easy to be wiped-out in the learning process. Some lucky people have the skills to make money from the stock market and keep it, knowing very little. This is because they are skilled at money management and taking risks. They know how to handle a risk - bookmakers generally make good traders because they are skilled and practised at risk-taking and know how to handle it.
Magic Stock Trading Systems
There are no magic systems in the stock market. If there were, every move would be very rapidly discounted. We know this because there are some of the sharpest minds in the world at work within the stock market. We have to assume that any easy way to trade the market would have been spotted. Many of these systems are the product of the eye's ability to recognise patterns. It sees what it wants to see and ignores the many instances in which it does not work. The intuitive response is fine as long as you do not attempt to computerise and build a working system around it. If you do, you will find that they fail as often as they work. The mechanical system is not fooled by an innate selective pattern recognition capability.
Qwoter has delt with several successful traders who say they are using a so-called secret system which is making them money. This is 'their' secret system; it is working for them. But in every case, if you look into it more closely [once they have shown you the system], what they have overlooked or will not admit, is that they have become good traders in their own right. It is their skill as a trader that is making them money, not the magic formula. The magic formula is acting as a psychological security blanket to them, without them realising it, because they do not always follow what the formula is indicating.
Emotional Influences
We would all like to think that when we make a decision it is based on logic and sound reasoning. In reality, logic plays only a very small part in our decision-making processes. You may think you are acting on common sense but in most cases you are not. Whether buying an automobile or deciding to have your hair cut, emotion usually blinds you to logic. You do not buy a car to get from A to B as quickly and as cheaply as possible. You do not get your hair cut simply to shorten it. A great many emotional factors enter into your reasons for doing things. This mechanism has ensured our survival in a hostile world over the last million years or so. It was not designed to help you in trading the stock market. The fact that you basically make most decisions on some hidden emotional reason rather than sound judgement is well known, especially by advertising executives.
But it is important to bear in mind that under any sort of stress you become even more emotional, giving many traders serious problems as they trade the market. As soon as you are on the losing side of the market, stress rears its ugly head and interferes with your logical decision-making processes. If you are long the market and you are suddenly caught in a sharp down move, you are then hoping for a recovery, not covering a potentially dangerous trade.
Frequently an up-move does start next day, usually early in the morning trading. You then become relaxed as it looks as if your prayers have been answered. You will surely now be able to cover your poor position and if lucky even make a small profit. A second sharp down move later in the day locks you into further loss. Good traders never allow this to happen in the first place.
The second component is also difficult. You are long the market, a sudden up-move, gives you a paper profit and you are delighted. This delight is then clouded on any downward reaction. You are counting what you would have made if you had sold sooner at the higher price. The pressure can become unbearable and you will sell, taking some profit before the possibility of losing it all. This process will never allow you to catch the big moves.
The stock market by its very nature is designed for you to lose money. The rallies and reactions within any trend ensures this process is at work constantly. It is created automatically. The market behaves this way because it has to! The weak have to perish so that the strong can survive. Professional traders are fully aware of weaknesses in traders under stress and will capitalise on this at every opportunity.
To overcome these problems you need to develop a disciplined trading system for yourself. A system strictly followed avoids emotion because like the trained soldier you have already done all the 'thinking' before the problems arrive. This should then force you to act correctly while under trading stress.
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