Trading financial
markets is like any other discipline; the more you study it and
become an expert in it, the better you get. Too many people want to
jump into online trading and blow their money before they even know
what they are doing. They perceive forex trading or stock market
trading as a quick and easy way to riches and figure they can jump
in with minimal preparation.
This is why
beginner traders are susceptible to the latest forex trading or
commodity trading “sure-fire” system that some guru out there is
selling. After all, what could be easier than forking out some cash
and buying a trading system “guaranteed” to make you big profits?
It would be nice
if the world worked that way. It would be nice if money grew on
trees too. As with any other major skill, success in trading takes
time, study, a fair degree of frustration, and a lot of hard work to
master.
Whether it be
trading forex, stocks, bonds or commodities, you are going to have
to invest some serious time really studying your market and getting
to know it as well as you do your wife, your children, or your
parents! There are really no shortcuts.
I wish it were
possible to say that if you bought Mr. X’s trading system for five
hundred bucks, or even a thousand bucks, you are sure to be a winner
in the markets. However, it isn’t going to happen. A lot of other
factors come into play. Your own psychology plays a huge part in
your trading success, and that is not accounted for in any fixed
system. Moreover, no matter which trading system you have, markets
will cease to conform to it for periods of time, sometimes for long
periods of time!
This is NOT to
say that fixed rules trading systems have no validity. On the
contrary, they have a LOT of validity and are highly recommended.
However, it has to be (a) the right trading system for YOUR trading
temperament, and (b) be the sort of trading system that you are
likely to stick with even when times get tough.
Really though,
trading systems are just a summary of a certain type of profitable
trading action; effectively a filtered, scaled down view of the
market that you can use to consistently pull profits out of that
market.
However, there is
no reason why YOU cannot come up with your own trading methodology
by simply studying the markets yourself, and observing how your
chosen market moves and reacts.
If you study past
price charts, then you will soon discover that the future is a
repetition of the past. The more you study a market, the more you
will get to know its individual particularities, its habits and
characteristics, and the better you will be able to trade it.
This sort of
approach means that you are trading based upon solid knowledge, and
not upon hope or fear. Each phase that a market is in results from
its previous price action. Hence, if a sustained move has just
ended, a period of sideways consolidation will follow, and this will
determine the type of trade that you can put on, as well as the
timeframe of the trade itself. The same is true if a market has been
in a sustained consolidation, and now shows signs of making a
breakout.
By studying how a
market typically ends its bull or bear moves, or how it typically
breaks out of congestion phases into new trends, you will be well
placed to recognize these patterns when you see them in live price
action.
Each market has
its own different characteristics, and you would do well to study
each one that you propose to trade in great depth. Keep a file on it
and record your findings in that file. Go back in time in that
market and research it in depth. Collect some solid statistics on
how that market performs and you can use those statistics in your
live trading.
How does your
chosen forex, stock, bond or commodity market act when it is in a
rally? How does it behave when it is making a correction? How long
do these corrections typically go on for, and how many time periods
do they last? Collect statistics on all of these things, and you
will be a much better trader for it.
A person who
trades from solid knowledge, who uses firm money management
principles, and is disciplined in placing stop losses has a strong
possibility of being a successful trader. A person who neglects all
this, who thinks it should all come easy or be based on “gut feel”,
through buying someone else’s sure-fire system, or who neglects
placing stop loss orders is basically doomed to failure.
Once you have
studied your market, put the time into the research, perhaps even
paper traded your theories for a while before committing real money,
you are well placed to trade from confidence and the power of
knowledge. Then, you can devise your own trading systems that
conform to YOUR observations and fit YOUR psychology. In that way,
you are better assured of success than if you took the shortcut of
buying someone else’s system, or rely solely on newsletter tips or
whatever.
Take the role of
trading seriously, act like a professional and you will indeed see
the results that a professional trader deserves.
