Webster defines trading as: “to engage in frequent buying and selling of (as stocks or commodities) usually in search of quick profits”. Notice the key words that even Webster knew to include, “…in search of…” making an implication to the fact that ‘quick profits’ are ever so illusive.
This definition works fine if you are learning English as a second language. It gives you a notion of what the word means. It does not do justice to the process. I am going to take this post to share some ideas regarding what makes up the essence of trading.
This is MY definition, you do not have to agree with it, but perhaps if you read it closely, it may open up some ideas. As a matter of fact, if you get any ‘light bulbs’, please email me.
Here is a definition to consider…
“Trading is “Using market analysis to find a moment in time when the odds are in your favor. Then trading becomes a matter of your entry and management.”
In other words, it is having the KNOWLEDGE to know when the odds are in your favor, having the PATIENCE to wait for that moment, and then having the DISCIPLINE to handle the trade properly when it goes in your favor and properly when it goes against you.”
Now let us dissect a little. The opening words are ‘using market analysis’.
Now, I know Webster’s definition would let you trade with fundamentals, but not ours.
We begin our search on the charts. This is the only place where we find truth and useful information in the markets. We do not find useful information from analysts, not from brokers, and not from accountants.
Next comes ‘a moment in time’. How long is a moment in time?
It depends on your timeframe. For a long term trader, that moment may be a day, for a swing trader several minutes, for a day or scalping trader, perhaps only a few seconds.
The point is that there is only ONE moment when that exact trade is proper.
Anything past that moment, and that trade is gone. Note, there may be other similar trades that occur later (such as buying the first pullback), but these are separate trades, each one of them will have their ‘moment’.
Next, when are ‘the odds in your favor’?
Well, that comes down to a matter of knowledge of technical patterns and trade set ups. Every so often, an asset will ‘show its hand’ and give away a key secret. It will let you in when a set up develops that appears to be something other than just random noise.
“Then it becomes a matter of entry and management”. In other words, here is where the psychology comes into play. Once you learn how, the intelligence actually required to enter and manage a trade is minimal.
The ability to do so is rare!
This is where you become your own worst enemy, and this is the level that even the most astute traders seldom pass.
Then notice the three capitalized words in the last part.
**KNOWLEDGE to know , PATIENCE to wait and DISCIPLINE to handle.
It sounds like the beginning of the Boy Scout Creed, but is a sentence you may want to cut out and put on your monitor!