Monday, December 25, 2006

Self Awareness and Trading

After writing Market Wizards (where he interviewed many top traders), Jack Schwager decided that one of the most important factors to trading success is knowing thyself and finding a trading style that matches the trader. Over the years, I've learned the hard way that this is sage advice.

Early on in my swing trading career, after reading thousands of pages on the subject and successfully paper trading, I decided I would be an intermediate term trend follower. As a paper trader, I made over 200 percent gains over a six month period. Making money was so easy, I was already researching the boat I was going to buy with my real gains!

Unfortunately, playing the game with real money did not have the same results. My first three months, I was up only 3 percent and was trailing the major indices. Worse than that, I had left a lot of money on the table. Instead of sticking with those intermediate trades, I was selling on any spike up or down. I had picked a few big winners that would have made me a mint, but had bolted too early.

I knew what my problem was, yet no matter how hard I tried, I could not get myself to stop constantly checking my positions. I came to the realization that by nature I'm a risk taker that craves action. This is not the best way to conduct yourself when trend trading, and after a few months of this I realized I was not cut out for this style of trading. Since then, I've switched to short term swing trading, holding positions anywhere from 1 day to a few weeks. While I still battle the urge to micro-manage my positions, I am much more comfortable with the shorter time frames and success has come much easier.

There is an infinite number of ways to make money in the markets, but each system requires a specific skill set and psychological make up. It's imperative that you find the system that fits you. If you know yourself and match that knowledge with the right system, your probability for success will skyrocket.

{If you linked here from another site, thanks for visiting and please visit the rest of my site.}


Sharif said...

What was your strategy when you were papertrading? Didn't you succeed because the market was not good for intermediate trend trading or was it only your urge to microtrade around your positions?

The Market Speculator said...

Hi Sharif,
It was the fact that I was pulling out of the trades too early. Basically falling into the trap of trading the wrong time frames.