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Trading is deceptively simple.
After all, there are only 3 kinds of trades, and thanks to today’s technology, anyone with even a small amount of money can open an account, be linked to the exchanges and start sending off orders in no time.
But that doesn’t mean making money through trading is easy. On the contrary. It is probably one of the most difficult, frustrating and challenging undertakings you can imagine.
So why is it so difficult?
Of course, there isn’t a pat answer for such a question. So I’m going to explore this in a series, of which this is the first.
One of the primary nature of trading is that it is a waiting game. Most people, especially those new to trading, imagine it is a frenetic exercise in yelling “Buy, buy” or “Sell Dammit!” into the phone or a flurry of keyboard presses and mouse clicks. I suppose they have this perception of trading from Hollywood.
In reality, trading consists of long bouts of (near) boredom, interspersed with spikes of adrenalin induced action. This makes trading extremely demanding, physically, emotionally and intellectually. Let me use an analogy.
A cheetah can instantly unleash an unbelievable amount of energy, reaching speeds of 100 km/h and more, faster than any of its prey. But such acceleration and speed requires restraint and responsibility.
A cheetah must stalk its prey, choose a specific one and then get as close as possible before initiating the case. In spite of its superior speed and agility, without these prerequisites, it faces failure.
Similarly, a trader can, with a click of a button, send an obscene amount of capital into a trade. But if s/he hasn’t done their homework, of what use is the instantaneous execution of their order?
So a trader must first watch, single out opportunity and then act. But this requires a special blend of patience and decisiveness. Most of us are good at one or the other. Some are very analytical and others very action oriented.
The ideal trader has a constitution that blends both harmoniously: they are patient and serene when scanning the market but when they spot an opportunity, they act quickly and decisively. They are able to stay alert and perform at their peak even during the “boring” parts.
Too much observation and analysis leads to missed opportunities. And on the other end of the spectrum, hyperactivity without forethought leads to taking too many trades and wasting your capital on unworthy ideas.
So how do you know when to be patient and when to take action? That depends on the type of trading you’re doing and what sort of trading plan you’ve set up for yourself.
You do have a trading plan, right?
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