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Trading and Investing Objectively

by Admin 21. September 2015 08:05

 Trading & Investing is about making money. That is about all that is there to trading. If a trader has any other objective to his trading he will most certainly fail for he will have deviated from his objective. Having said that, one may classify traders into two broad categories:

The trader who trades to see how much the markets wish to give him 

AND

The trader who decides how much he wishes to take from the markets.

The first trader takes his position and then moves and flows with the market locking his gains as he moves along until his trail is hit and he is thrown out of the trade. He becomes a victim of market corrections and pull backs and always loses out that little more he could have earned if he had chosen to exit at will instead of allowing the market to throw him out.

The second trader takes his position with a certain financial objective in mind and exits his position as soon as the same is achieved. He too locks his gains as the trade moves along but exits his position as soon as his objective is achieved. He does not care what happens to the trade after that and moves ahead looking for another trade. Such a trader sometimes loses out on a big move just because of his premature exit.

Yet, both are content and happy as they have achieved their objectives. The first trader waited for the market to decide how much it wished to give him and is happy taking whatever was given to him. The second trader, on the other hand, decided what he wanted and took it and hence has no regrets and is happy too.

But to a novice trader, both the above traders are losers in their own respective styles as they have left/given back a sizeable part of their gains. He feels that had these traders spent more time on analysing their trades before execution they could have gained much more.

What the novice trader fails to realise is that markets are unpredictable and the greatest of experts have failed in accurately predicting the markets. The markets are driven by innumerable factors the greater ones being fear and greed. How can fear or greed be quantified?

Traders A and B have spent years trading the markets and know that it is not the accuracy of one’s prediction or assumption about a trade that makes one a successful trader but it is the ability to consistently pull out money from the markets that makes the cash registers look green. Hence they prefer to leave a trade in profit, even if it is less on various occasions.

Consistently making profits, besides boosting the morale of the trader and building his confidence then becomes the stepping stone for the next step – increasing the capital for greater profits.

If a trader has been trading objectively and is earning, say, 10% profit per month on his trades consistently for a year, he may then consider the possibility of increasing his trading capital thereby increasing the amount of profit. By this time he is confident of earning 10% per month from the markets and can take any further risk that is involved. He becomes a cash machine which churns out 10% consistently. Or 20% or 50% or even 100%.

There is no limit to the amount one can make in the capital market. It is all a matter of persistence, patience, discipline and consistency.

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