There are many pitfalls to trading. Most, if not all, of these pitfalls have been covered in the blogospehere and other financial publications. I guess (or more aptly stated, “I speculate”) that there is more coverage to the pitfalls of trading versus the requirements to be successful in this endeavor. If one learns the rules to be successful first and foremost and keeps these tenants within, is there really a need to learn the pitfalls?
I recently came across a piece of work written by Robert Prechter and published by the folks at the Elliot Wave Theorist (EWT). Think what you may of Prechter and/or Elliott Wave, Elliott Wave works for him. And that is what is most important about trading: you have to find what works for you!
Additionally, in order to be sucessful one needs to understand what are the requirements to be a consistently profitable trader. I’m still learning, so I will start by paraphrasing the list of requirements outlined by Prechter.
1: A METHOD. An objectively definable method. One that is thought out in its entirety to the extent that is someone asks how you make your decisions, you can explain it to him, and if he asks in six months he will receive the same answer.
2. THE DISCIPLINE TO FOLLOW YOUR METHOD: Without discipline, you really have no method in the first place.
3. EXPERIENCE: Paper trading is of no value in learning about trading. Paper trading can be detrimental, by imbuing the novice with a false sense of security. The markets are not merely an intellectual exercise, they are an emotional exercise.
4. THE MENTAL FORTITUDE TO ACCEPT THE FACT THAT LOSSES ARE PART OF THE GAME: The biggest obstacle to successful speculation is the failure to recognize and accept the simple fact that losses are part of the game and that they must be accommodated. The perfect trading system or method does not exist. Expecting perfection is a guarantee of failure.
5. THE MENTAL FORTITUDE TO ACCEPT HUGE GAINS: need I say more….
here’s to successful speculating.