How to be successful in stock market. 5 tips

[K.Karthik Raja]

How to be successful in stock market. 5 tips


Like most rewards life offers, market profits are not as easy to come
by as the novice believes. Making money requires a good deal of
education, like any craft or business. If you've got the time, the
drive, and the right psychological makeup, you can enter the elite
realm of the successful trader:


A method

You need an objectively definable method of financial market analysis.
It must be thought out in its entirety to the extent that if someone
asks you how you make your decisions, you can explain it to him, and
if he asks you again in six months, he will receive the same answer.
This is not to say that a method cannot be altered or improved; it
must, however, be developed as a totality before it is implemented.

A prerequisite for obtaining a method is acceptance of the fact that
perfection is not achievable. People who demand it are wasting their
time searching for the Holy Grail, and they will never get beyond this
first step of obtaining a method. I chose to use an approach called
the Wave Principle, which I think reveals the true pattern of market
behaviour. But there are a hundred other methods that will work if
successful trading is your only goal.

The discipline to follow your method

This requirement is so widely understood by true professionals that
among them, it almost sounds like a cliche. Nevertheless, it is so
crucial to success that it cannot be ignored. Without discipline, you
really have no method in the first place.

It struck me one day that among a handful of consistently successful
professional options and futures traders of my acquaintance, three of
them are former Marines. The pressures from trading are enormous, and
they get to everyone. If you are not disciplined, forget the markets.

Experience

Paper trading is useful for the testing of methodology, but it is of
no value in learning about trading. In fact, it can be detrimental in
imbuing the novice with a false sense of security. A novice may have
successfully paper traded over the past six months and thus believe
that the next six months with real money will be no different.

In fact, nothing could be further from the truth. Why? Because the
markets are not merely an intellectual exercise. They are an emotional
challenge as well.

When trading, you must conquer a host of problems, most of them
related to your own inner strength in battling powerful human
emotions. The School of Hard Knocks is the only school that will teach
it to you, and the tuition is expensive.

There is only one shortcut to obtaining experience, and that is to
find a mentor. Locate and learn from someone who has proved himself
over the years to be a successful trader or investor - but they are
hard to find.

The mental strength to accept the fact that losses are part of the
game

There are many denials of reality that automatically disqualify
millions of people from joining the ranks of successful speculators.
For instance, to moan that 'manipulators', 'insiders', 'program
trading' or anything else is to blame for one's losses is a common
fault. Anyone who utters such a conviction is doomed before he starts.

The biggest obstacle to successful speculation is the failure to
accept the simple fact that losses are part of the game, and that they
must be accommodated.

Practically speaking, you must employ an objective money management
system when formulating your trading method. There are many ways to do
it. Some methods use stops. I think a better approach is to commit
only a small percentage of your available capital on each trade and
let your analytical method dictate your action. After all is said and
done, learning to handle losses will be your greatest triumph.

The mental strength to accept huge gains

This comment usually gets a hearty laugh, which merely goes to show
how little people realise it to be a problem. How many times have you
had this experience: You exit a trade to grab a profit, then day after
day for the next six months you watch the market continue to go in the
direction of your original position. You try to find another entry
point and continue to miss.

At the end of six months, your method finally, calmly says, 'Get out'
You check the figures and realise that your initial entry, if held,
would have netted a huge profit.

So what was your problem? Simply that you had allowed yourself
unconsciously to define your 'normal' range of profit and loss. When
the big trade finally came, you lacked the esteem for your method
required to take all it promised. So you abandoned both method and
discipline.

To win the game, make sure that you understand why you're in it. The
big moves in markets only come once or twice a year. Those are the
ones which will pay you for all the work, fear, sweat and frustration
of the previous eleven months or even eleven years. Don't miss them
for reasons other than those required by your objectively defined
method.

(Excerpt from Trading Rules from the Masters: Money-Making Lessons
from 50 of the World's Experts This piece is by Robert Prechter, an
international trading luminary and President of Elliott Wave
International)