The average person who begins trading in the share market often has little idea or knowledge as to what is required to become a profitable successful share trader. Due to this lack of knowledge they have unreal expectations of how much money can be made or lost depending which way the share market is currently heading. Invariably they join in when the share market is in the middle of a bull run. (A Rising market.) They are spurred on by the media hype of rising share prices, the rumours of takeovers and rising company profits. They experience early success and knowing no better assume that money is easily made. They are not prepared for the sudden downturn in the share market which inevitably happens. Only to see their profits suddenly evaporate and become large losses. Some become disillusioned and leave the share market never to return. While others hang on hoping for a return to the good times to return which sometimes can take months and in some cases years. The disciplined share trader realizes that losses are perennial and are part and parcel of the behaviour of the stock market and have learned, sometimes by bitter experience, to take the necessary steps to keep their losses to an acceptable level.
One of the first disciplines they have learned is patience. Because they have experienced first hand that impatience invariably loses them money, either in paying too much for a stock or a loss in profit because they sold too early. They have learned the difference between being a “day trader” and other types of investors. They have found which sort of time factor suits their own personal trading pattern whether it is short or medium trading or when it is necessary to take a longer time frame. The patient trader realizes that “Time” can be his friend or his worst enemy depending on the type of trade they have decided upon.
The second discipline is the setting up of a “Trading Plan” then once it is completed they stick to it religiously. The factors involved in their trading plan comprise of knowing in advance the amount they have to invest, the time frame involved and the amount they are prepared to lose if things do not go accordingly to plan. They always employ stop losses (conditional orders) to either lock in their profits and to minimize any losses that might occur. The percentage profit they expect to make is also worked out prior to the purchase of the stock. They have already established a pre-set criterion of guidelines which their future prospect must pass before they will invest their time and money in them. These criteria will vary depending on what the guidelines the trader deems as important.
They have a ready made list of prospects usually around the 20 to 30 in number. This is updated regularly as names will always be deleted as they become unacceptable trades as they do not meet the pre-set criteria already formulated in their trading plan.
The disciplined trader realizes that if nothing meets their criteria then it is not imperative to trade and they will patiently wait until an acceptable prospect shows itself before entering the market again. They have the discipline of doing their own research and not relying on others for this. They invariably do “Fundamental Analysis” first then followed by “”Technical Analysis” if further research is needed. Once the choice is made and the pre-set criteria’s have been met then and only then will the trader enter the market. Even though the choice of stock has been made the disciplined trader still will not buy if the price has risen above the price they wanted to pay. They have learned the folly of chasing prices only to see a reduction occur in the next couple of days.
Again they have learned when to exit a trade once their pre-set exit price has been achieved. Even though the share price looks like that it might go higher yet. From past experience they have learned not to be too greedy.
One of the most important disciplines is that they have realized that they “Don’t Know it all!) And they have become aware of the importance of learning from their own mistakes and learning from the experiences of others.They have developed the mindset of always being on the lookout out for ways to improve their trading performance.
The disciplined trader has a definite edge over the average trader as they have become aware of the devastating effects of “Fear and Greed” and in doing so have guaranteed themselves a better than average chance of being successful and surviving the many traps and pitfalls that await the unwary trader.
Strudy is a successful share trader on the Australian Stock Market Visit his weblog
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