Why Don’t Most People Trade Market Rationally?
Because we are human and we have certain feelings and emotions. This feelings and emotions affect our decision-making consciously or subconsciously. Stock market trading, investment, forex or commodity trading requires constant decision making. In trading, we are taking decision every time even if we are not taking any decision!
Even if we trade market with automated computers, it is part of human decision to choose the strategy, the market, the time of trading, the capital amount and many things.
We act differently when we are trading 100 shares of 10$ price and 10000 shares of same stock. People behave differently when they have five or more consecutive winning trades and losing trades. Sometimes we trade aggressively by betting more on one trade, increasing the frequency of trade. And conservative sometimes by trading in a small lot and trading less often.
Sometimes we get trapped in one bad trade. We reach the peak of loss in our capital (maximum drawdown). We feel so bad that we even don’t check the price of that stock for weeks. This is enough to demonstrate how emotion affects our trading attitude. Emotions are not just the weakness of human, they can also be our most powerful strength if we adapt them to the condition.
The Optimized Professional Attitude To Trading
There is a proper way to trade market which is common in most of the successful traders among the world. This is the optimized attitude for trading for any market in any conditions. Let’s learn the real professional approach to trading in the following steps. It will also helpful for preparing your trading plan.
Find The Real Reason For Trading:
Most of the time there will be only one answer and that is to make money. Of course, everyone wants to make money from trading. But how much money and in what time limit you want to make. This specific goal will keep you focused on trading.
Most people don’t have specific reasons for trading. They have an excess of income which they want to invest in something so at last, it is the stock market. Or they have a monotonous lifestyle and they want some thrill in life with trading. They have gambling instinct which they satisfy in trading. Or they want to be quick rich.
These are not a valid reason that is why they won’t achieve much by trading. So by keeping yourself focused on your ultimate goal, you save yourself from this traps. Write a specific and realistic goal that you want to accomplish through trading.
Trading Is A Business:
Though you won’t have customers but still trading is a business. You will need to gain proper knowledge of stock market trading before you start. People spend huge money and time to get a graduate, engineering or medical degree. Then they work as an apprentice for 2-3 years before they got paid, and still, it is not guaranteed. But when they come to trading they don’t want to spend any money or time for proper training, and still they expect millions. People relate stock market trading to a lottery ticket.
You will need some capital depending upon your goal. There are people who want to make 10 million from an investment of one thousand in a year or two.
As in every business, there is a risk of capital and so is with the trading. So don’t put more capital then you can afford to lose without hurting your lifestyle. You also have to change your employee attitude. Income in business is not constant like salary. You can’t profit every time, you will have to learn to lose.
Stock market trading is just like all other business which requires knowledge of business, capital investment and business mentality.
Stock Market Trading Is A Skill:
When people start trading they think it as a shortcut to make huge money. When they gain some experience they think it as a secret. At last, they understand that trading is a skill.
To develop any skill there are three basic steps which are getting knowledge, training and practice. Trading is same as learning any other skill. For example, take cycling, you can’t learn cycling without taking the risk of falling. You will often fall while you are learning. You can manage injury by using safety tools, keeping your speed low, practicing in the open ground. And you can reduce your risk while you learn to trade. You can paper trade, or reduce your trading capital and position size per trade.
To be successful trader you have to cultivate an automatic subconscious response to various market conditions. Just like a good batsman knows all tricks of bowlers like bouncer, yorker, googly etc. and plays it accordingly.
Instead of developing their trading skill most people rely on others like some tip or call providers, broker recommendation, penny stock tips or many services like that. Most of them are fraud. Some of them have a legal license so they can legally lose your trading capital. So you not only lose your subscription fees but also your trading capital and time. So successful stock market trading is a skill which requires knowledge, training and practice when you master the skill, it will pay you for life long.
Write Your Trading Plan:
As jobs have job description and businesses have business plans. Trading needs a trading plan. A trading plan should have answers to the basic question like:
- How much will be your total risk capital?
- When will you increase or decrease your risk capital?
- What is the frequency of your trading?
- How much percentage of trading capital you will risk per trade?
- What is your preferable risk/reward ratio?
- When will you enter in a trade?
- When will you exit a trade?
- How will you record your trade?
- When you won’t trade?
- When will you take home your profits?
Most people don’t have any written trading plan, they just trade on a hunch. They don’t decide their risk per trade or even the target. People keep on adding to a losing position when actually they need to cut short their position. People add their profit to their risk capital to earn a cumulative return and ultimately lose all profit in one bad trade.
Do not trade without a written trading plan that includes answers to at least all the above questions.
You Need An Edge:
I have read many time in numbers of books and on the internet that knowledge of technical analysis or trading is only 10% requirement for success in trading, the rest of 90% is your psychology and money management. This is simply not true.
This is like having a very good tool rich clinic, skillful nurses, staff and a doctor with a degree. But the doctor has just 10% knowledge of diagnosis, anatomy and medicine. Would you go to this clinic? Of course not. So why you would allow yourself to trade your capital with only 10% knowledge of market analysis and trading?
That is why all three elements technical knowledge, trading attitude and money management are equally important and inevitable for successful trading. You can’t success if you are weak at any one of them.
With the misconception that there is no need of any technical knowledge. People misuse the concept of risk/reward. They stretch this rule to an extreme and keep risk/reward ratio 1:5. They keep a target of 5 in 100$ share with a stop loss of just 1$ or 0.5$. And they also want to achieve this target in intraday. And they don’t have any technical method for finding such trade. They trade arbitrarily just based on high risk/reward ratio. They thought that even if they win 3 out of 10 trades, they will succeed. But without any justified technical method, their chance of hitting the target is only 1 out of 20 trades. So they are sure to lose.
You can’t order the market to move some point in your direction of trade. Plan your technicals, trading plan according to the normally expected market move. You are not the boss of the market. But the market is your only boss in trading.
Find your technical tool which put you ahead of the mass in trading. This tool can be any indicator, technical method, trading strategy or some software that increase your chance of winning. Your ideal risk/reward ratio should be between 1:2 to 1:3. It can be greater only if you have a specific technique to find high rewarding opportunities.
Take responsibility for whatever happening in not only in your trading but also in life. Don’t blame others.
When you blame others you empower them to control your life. But when you take responsibility, you give yourself a chance to improve and take control of your life.
I have done most of the mistakes that I discussed here when I was new in trading. But I learned from that and improved my attitude for success. You may have done some of those or you have done some other mistakes. Because there are infinite ways to make mistakes but the right method are just a few.
There are still many things that can be put in this list of “Stock Market Trading Skills And Traits To Win The Game” but for the comfort of readers, I will discuss more in the next post. It will be more focused on the trading plan and how to use stop loss optimally. If you found this post helpful please share it with your friends and well wisher on social media. This way you can support me and helpful for them also.
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