It’s only been almost 2 years since I began trading and I must say I am still learning how to trade. I have summarized the lessons learnt so far in my trading journey:
Be patient and wait for the best opportunity to place a trade
Trading is really a patient game. It is not as quick as I imagined in the first place. The duration of the trade can be short, but the time waiting to place a trade is very much longer. The thought of profits urges me to be involved in the market and it just makes the wait feels like eternity. Sometimes, the charts do not show any opportunity but my eyes will try to find patterns to justify for a trade. And true enough, these forced trades usually end up in losses.
Statistics have shown that market generally spend most of the time consolidating (non-trending) or moving within a band. To understand more, read “90 days attribute to 95% of profits“. This is why traders have to spend most of their time waiting!
Back on forcing a trade. What I was doing (and still doing) was to demand the market pay me profits. Who am I to do that? I cannot force opportunities. The wise Sun Tzu said, “to secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.” If I may rephrase, “to prevent losses in the market lie in our own hands, but the opportunity of making profits is presented by the market herself”. I have to be the servant of the market, to get paid when she decides to. I cannot expect to jump into the market anytime and reap gains out of it. It just does not work this way. If it does, everyone should just quit their jobs and make a living off trading. Waiting is perhaps the most difficult part of trading and if anyone tells you trading is easy is lying. The earlier you understand the importance of patience and the more you can practise it, the less you lose and the more you gain. Like what Warren Buffett says, “the trick is, when there’s nothing to do, do nothing.” Opportunities do not appear all the time. A good trader will wait for the best opportunity while an amateur trader will make a trade whenever he/she perceive there is one.
But the market is always uncertain. Call upon conviction!
Easier said than done. When is a good opportunity and when is bad? The market always look uncertain whenever I want to make a trade. The problem is that I will only know if the market is good after the trend has started. So what am I going to do before the trend has realised? This dilemma is part and parcel of trading and is also another reason that makes it difficult. I will always have doubts, especially with a few losses behind me. All the “what ifs” will appear in my thought bubbles. I am often put into an emotion turmoil, torn between greed and fear. Greed will tell me to go for it and I will feel very bad if I miss the boat, while fear will tell me not to as I will suffer another loss. To resolve the battle, this is where the conviction comes in. The conviction that my trading system is proven to be profitable. As long as I trade correctly, I will end up in profits. So by understanding that “I can lose money even if I select the right stocks” and having the mentality “it’s alright to lose“, I have the courage to carry out trading even after a string of losses.
Be selective, choose the right time and choose the right stocks
Since patience is key, I need to be very selective on the stocks that I trade. I will disregard and reject stocks that do not fulfil all the entry criteria. The selection has to be very stringent when the market is not trending. When the general market is trending, almost any stock will go up in price. But some will go up higher than others, hence, rules still apply to pick the best winners. In addition to my trading system, I have added some tools and tactics to help me reject trades. It is more important to use tools to reject a trade than to support it. Just like water treatment, good filters are used to remove impurities from water. These tools and tactics are to help me filter the bad stocks away.
- Price trends must be nice. Erratic price movement or excess volatility are bad for trading as your stop orders are easily triggered. Avoid choppy price and trends at all cost.
- Confirm trend with longer time frame. Only buy/sell according to the longer time frame. Reject the trade if it is against the big trend.
- Identifying key resistance and support. Investors have price memories and they form key resistance and support. Price breakouts from these levels will have greater validity.
- Price and volume. Volume is the bloodline for price movement. No volume = no price movement. Rising price must be accompanied by rising volume, if not the price will collapse due to insufficient buyers in the market to hold or push the price higher.
Go for the jugular as I only need a few stocks to make it a good year
“The New Market Wizards” has taught me to go for the jugular when I am right. George Soros said it does not matter you are right or wrong, the important thing is how much you lose when you are wrong and how much you win when you are right. Going for the jugular is important. It means I must capitalise on my correct picks. Ride the trend as long as I can and even increase my positions on these stocks along the way at appropriate intervals. Remember “90 days attribute to 95% of profits“, I just need a few days/weeks of the year, to trade the right stocks, and end up profitable for the entire year.
Building on these, I will continue to refine my trading skills and understand the market and myself. The immediate milestone is to achieve the trading goal of 2010.
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- Capital is key to Profitable Trading
- You can lose money even if you select the right stocks
- It is Alright to Lose
- Trading Profits in relations to Time and Accuracy
- Investing Strategy – Trend Following
- Trading Report Card – Aug 09
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{ 12 comments… read them below or add one }
Hi Alvin,
Enjoyed reading this. Yes, trading is a bit like fishing. Investing too. Patience plays a part.
I also believe in buying with confidence and holding with conviction. However, for me to hold with conviction, I am informed by FA. So, our styles differ a little but I always say, “Whatever works!”.
Hi Alvin,
Enjoyed reading this. Yes, trading is a bit like fishing. Investing too. Patience plays a part.
I also believe in buying with confidence and holding with conviction. However, for me to hold with conviction, I am informed by FA. So, our styles differ a little but I always say, “Whatever works!”.
Thanks AK. Nice blog you have!
Thanks AK. Nice blog you have!
Well done mate! The fact that you pen down these thoughts is sufficient to show that you are making great progress. You are conscious of your trading and thats important. The market is like a mistress, sometimes she rewards us, sometimes she breaks our hearts. I guess we all need to learn to live with the mistress in our own way. Thanks for your effort in this website.
Cheers.
Well done mate! The fact that you pen down these thoughts is sufficient to show that you are making great progress. You are conscious of your trading and thats important. The market is like a mistress, sometimes she rewards us, sometimes she breaks our hearts. I guess we all need to learn to live with the mistress in our own way. Thanks for your effort in this website.
Cheers.
Hi Alvin,
Thanks for the compliments. I’m still pretty new to blogging. If you would like to do a link exchange, please let me know.
Hi Alvin,
Thanks for the compliments. I’m still pretty new to blogging. If you would like to do a link exchange, please let me know.
Seriously I think we should take the approach of an investment rather than a trader when it comes to stocks. I had participated in a stock pick competition in US in 2007. The whole period of the competition is 1 whole year. Eventually I had outperformed a lot of traders because I had invested based on a long term view.
See here if you are interested:
http://basemetal-trading.blogspot.com/2008/05/my-competition-portfolio-ended-with.html
Seriously I think we should take the approach of an investment rather than a trader when it comes to stocks. I had participated in a stock pick competition in US in 2007. The whole period of the competition is 1 whole year. Eventually I had outperformed a lot of traders because I had invested based on a long term view.
See here if you are interested:
http://basemetal-trading.blogspot.com/2008/05/my-competition-portfolio-ended-with.html
I think there isn’t a best way for all but there is a best way for each of us. What is important is whether we can use the method to make money. As long as it can, who cares which method we use?
Some can’t trade for nuts and some can’t do fundamental analysis properly. So to each his own.
I think there isn’t a best way for all but there is a best way for each of us. What is important is whether we can use the method to make money. As long as it can, who cares which method we use?
Some can’t trade for nuts and some can’t do fundamental analysis properly. So to each his own.