An Ultra Simple Way to Improve Your Trading Results
Wednesday, June 18, 2008 | Teeka TiwariRating:
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(Today's article is from way back in the archives - Fall of 2006 to be exact. Several readers have written to me since and let me know how well this simple technique I explained in this article has worked for them. I suspect it will work just as well for the 100,000-some odd new Tycoon Report readers who've joined since this piece was first published. Enjoy!)
Unlike in other areas such as politics and religion, dogmatic opinions about the stock market rarely result in success.
As professional investors we cannot afford the luxury of a fixed point of view. In the same vein, we must avoid extremist view points, whether too bullish or bearish.
The greatest investors are usually great realists. They have the ability to strip away emotion, dogma, and their own personal prejudices when evaluating global events and their impact on financial markets.
The market despises extremes, and the best investors realize this. 68% of the time, the market is within 1 standard deviation of the mean. Knowing this gives us fantastic perspective when we see the market overly stretched in one direction or the other. Like water always seeking the lowest point, the market is always seeking the “mean” and will always revert back to the middle of its trading range.
Always remember that today’s "dog" group is tomorrow’s "star" group -- ALWAYS!
That's why a strong understanding of sector rotation is so important. Just like women’s fashions, stocks rotate in and out of favor. It’s almost comical how predictable these rotations can be.
There is almost a spiritual flow to the way that the broad markets move. As there should be, because it is the mood, the hopes, and dreams of the market participants that guides stock prices -- especially when we begin trading at the margin of either the upper or lower limits of the market. Like nature, the market constantly seeks balance.
This is where a strong understanding of human behavior can help you, the trader, immensely in your trading decisions.
Mental flexibility, the gift of being able to imagine the world as different from what it is today is a skill worth developing. Having a vivid imagination married with a firm understanding of the business cycle can yield bountiful rewards. I urge you to stretch your mental muscles and start on this path.
One of the things I do is keep a trader’s diary.
I use it to write my interpretations of global events and how they will affect the markets.
The more you do this, the better you will become at interpreting the impact of global events on the world's markets. As you start to be right, this will fill you with confidence but, even more importantly, you will have a firm record of where you got it wrong. Knowing where and how you went wrong is the first step to getting it “right”.
I also use it to record my decision-making process for each trade, and, of course, to keep track of my results.
Always write down the reason why you bought or sold a stock. Print a chart and staple it into your diary. Over time you will have an invaluable record of what winning and losing trades look like. You can’t get this kind of knowledge out of a book.
If you are a self directed trader then you are the one that has to do this work. It’s worth it, and it will take your trading to another level.
There is a beauty and a rhythm to market movements that transcends balance sheets and analyst reports. When I am at my very best it’s almost as if I’m plugged into an external source. It’s difficult to describe the feeling, but athletes call it being in the “flow”. Those of you that have experienced it know exactly what I am talking about.
My trader’s diary has been a big part of plugging me in to that “flow,” and I am sure your own trader's diary can do the same for you.
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“Let the Game Come to You.”
Teeka Tiwari
Chief Investment Officer
Point & Profit
