Over the years the markets appear to have changed and taken on new dynamics. Although the online age has brought a whole new pattern to trading and accessibility for traders, but has it really changed and what about the traders within?
Fundamentally the markets are still places where traders go to buy and sell, trying to make the most profit whilst being driven by greed and fear. They want to dive in and win. So it remains true that the trader in the best place to maximise their profit and be the most successful is the one who can operate with clarity of thought, is attuned to the markets and with immense patience.
This also means that the principles of trading that Jim Rogers set out in his interview in “Market Wizards” 20 years ago are still valid today. These can be summarised as;
i) buy value stocks
ii) be patient while waiting for the markets to move significantly
iii) only select opportunities with high probability for returns
iv) be cautious of current trends;
v) when a stock gets hyped up, sell
vi) remain flexible and
vii) recognize when it is time to close out a position.
None of this is revolutionary or requires significant intelligence. It is all about attitude and winning the personal psychological war of getting and maintaining the right mindset.
The key is to seek out stocks that have value, growth or momentum depending on your style of trading. What is required to make a good gain is the patience to wait for the day to profit take, namely when the media hype rallies the market.
To be in the right place for the profit taking, the trader needs to have set themself up correctly which means taking the time to carefully select the best opportunities with the highest probabilities. The patience required gets a clear payback but it needs to be combined with an adaptability to move with the market conditions so the position is closed out at the right time.
Jim Rogers focused on undervalued stock. He was a long-term investor and had a simple rationale that finding the stocks that have true value reduces risk and ensures they hold their value.
Recent history of the Dot Com crash and the Global Financial Crisis especially has shown that everything does indeed have a value and so won’t hold on forever if significantly overvalued. It is therefore more critical than ever to fully research and understand the underlying company and industry, even if just trading for the short term.
In particular, if trading for the short term, you must identify the risk to reward ratio as well as the ability to identify when a stock has reached its saturation price so you know when to get out. The only things that will help the trader get it right is the patience and clear thinking that gives them the strength to hold out while the markets do what is anticipated rather than take an impulsive leap of faith and opt in or out at the worst possible time.
The psychological aspect of keeping a step ahead of the majority should not be under-estimated but will make the difference to a trader’s success. So take the time to investigate, review, plan and consider different scenarios. The trader has to be prepared to go that extra mile and pause those few minutes that turn a market in their favour.
Buy low and sell high or sell high and then buy low will never change as the foundation for success in the markets. It is doing it consistently and how you do it with patience and clear thinking, which sets the successful trader apart from the regular ones.
For more information about how you can trade your way to financial freedom, please click here.
