Self-Understanding: Becoming a Successful Trader

How to Become a Successful Trader
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This post is written by Frts. Gautam Mohanty and Prof. Sanmay Rath.

Most of us do a great deal of soul-searching before we choose a profession. Whether we realize it or not, in this process we consider not only the intellectual and academic requirements of the profession, but also how that vocation meets our own psychological and emotional needs. What does it take to become a surgeon, and can I deal with patients that die on the operating table? Do I want to work for someone else, or do I want to call my own shots? Do I want to manage people, or would I prefer to do research on my own? Do I want a profession that is steady and predictable, or would I prefer to have each day be entirely different?

Additionally, we also consider whether or not we possess the innate skills that can spell the difference between success at one profession over another. Do I have the precision hand-eye coordination to become a professional baseball player, the mathematical mind to work as a physicist, the writing style to become a reporter, or the mechanical aptitude to become a mechanic or electrician? These basic skills are usually identifiable early on. When choosing a profession, we need to consider whether we possess the skills required to succeed at that profession. While there are many ways to develop these skills through education, coaching, and experience, the seeds must already be planted if they are to grow.

Most individuals have never given much thought to the underlying skills necessary to become a successful trader. Consequently, when they begin to trade they wander into a very dangerous area totally unprepared. The personal characteristics that generally accompany success in the futures market include maturity and stability, a strong sense of self-competitiveness (as opposed to team-competitiveness), the inner strength to maintain contrary opinions, an orderly mind, and the ability to make a decision and act with confidence.

How to Become a Successful Trader?

The ultimate decision to become a professional futures trader involves a melding of your personal skills with your financial and emotional needs. Many view futures trading as a glamorous profession in which it is possible to make a lot of money with very little effort. Few professions are truly glamorous, however, and to the most successful futures traders, the greatest reward is often emotional, while the financial reward is regarded as secondary. If this comes as a shock to you, consider our Olympic athletes.

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Although a few are compensated well through sponsorships, the majority of these individuals are in the athletic profession first for the emotional value—for the inner feeling of accomplishment that comes with mastering a sport, with winning the game. The financial rewards are secondary and flow naturally as a consequence of their success. And this, it seems, is where most futures traders err. They are drawn to, and in a sense intoxicated by, the lure of the financial reward, while never giving a second thought to the emotional or intellectual requirements of success.

Most  traders, like drunk drivers, should be taken off the streets. They are trading under the influence—under the influence of the many advertisements that blanket the pages of trading magazines and newspapers with claims and near promises of quick, easy success. Each month, a new guru is touting a break-through system that turns a computer into a black box gold mine. Enter the orders and scoop out your profits. These glittery ads spark interest and induce sales, but they are misleading.

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In contrast, how would you respond to an advertisement that read:

Wanted: People willing to undergo specialized training in how to succeed. This program will require rigorous intellectual schooling, intensive introspection geared toward identifying invisible blocks to success that are trapped within you, and then a long behavior medication process necessary to overcome these inner obstacles. At the same time, you will undergo a daily on-the-job training program.

Requirements for this training program are as follows: Intellectual ability, a meaningful amount of capital, and the willingness to immerse your entire self-esteem into the program. It is anticipated that you will lose most, if not all, of your capital and will be forced to rationalize the whole experience to maintain your self-esteem. Although it takes a minimum of two years to reach a moderate level of success, soon after this initial training program the majority of you will drop out because it is too hard, takes too much time, requires too much flexibility, is not well defined, and there are not enough concrete rules. Of the few that remain, less than 10 percent of you will enjoy the feeling of exhilaration that goes with completing what you set out to accomplish.

Like the artist who only gets better, your newly acquired skill and experience will be just the start of a process that can continue for a lifetime. You will be equipped to succeed at your profession. You will be an entrepreneur.

This imaginary advertisement could apply to virtually any serious professional venture. It is not meant to convince you not to trade. Rather, it is meant to dispel the glamorous illusions that surround the field off utures trading. You have already experienced the difficulty of learning the vast amount of theory that makes up market understanding. Developing self understanding is just as difficult—perhaps more so, for self-understanding cannot be learned from a derivative source.

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The Profile graphic enables a trader to objectively organize and observe the market’s behavior, which leads to the development of market understanding. Similarly, self-observation is essential to developing self understanding. One of the most effective methods to observe and reflect on your actions is to keep a trading journal.

For a trading journal to be useful, you must be honest and consistent, writing down thoughts, feelings, and surrounding circumstances before, during, and after each trade. Observing how your emotions affect the outcome of each trade can reveal your propensity for risk, your intuitive skills, the affects of outside circumstances, and myriad other factors that contribute to self-understanding.

Eventually, you will begin to identify behavioral patterns and the types of events that directly affect your trading performance. Perhaps you are overly affected by conflicting news sources and professional opinions. Maybe you find it difficult to trade against the crowd and are easily shaken from your convictions by contrary opinion.

For example, you may notice that every time you make a trade based on a fundamental source, you exit too early and have little confidence in the trade. If this is the case, it may be best to simply not expose yourself to outside opinion. Or, perhaps you want to be a long-term trader, but find you have trouble sleeping during nights when you are carrying outstanding positions. By keeping a trading journal, you can begin to understand how you affect your trading results.  

This post is written by –

Prof Sanmay Rath: Trainer with Black Panther & Satvik Skills , Bhubaneswar.

Frts.Gautam Mohanty: MD ,B School Forum & NCC , Bhubaneswar.

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