Tuesday, January 15, 2013

The Art and Science of Profitable Trading

Whether traders really think much about it or not they must overcome the question, “Is trading an art or a science?” Different traders will give you different answers with technical traders likely stating that it is a science and fundamental traders likely stating that it is more of an art. I believe that if you do not look at trading as an art and a science at some point in your trading career you may hit a roadblock and you may even end up losing on some trades when you really should win.

I believe that traders that strictly view trading in one way may hurt themselves in the long run because not only is trading about how indicators line up and what the price action is doing relative to them it is also in part based on the experience and feel that the trader has for trading. Trading is just like anything else; with experience you will know when it is likely that something will work out even though it may not look good on paper. You will also know based on past experience which situations have worked for you and which have not regardless of what anyone or anything may say should or should not work. The more you look at charts the more you will see because you will begin to recognize recurring situations.

Generally speaking trading is recognizing a move that is taking place in the market as early in its development as possible. It may sound a little painful but studying charts will help you to recognize moves that are likely to take place so you can take advantage of them. You will get a feel for the ebb and flow of the market or the specific issue that you are watching.

I have always noticed that traders in general are habit forming in the respect that they seem to go back to the same issues that they have traded in the past looking to trade them again. It seems as though once they have traded a security and have succeeded with it they get the feel for how it moves, they get to understand a little about the range it trades in and its tendencies and it seems as though it is a little easier to pull the trigger to trade an issue that they have traded in the past. It seems as though traders almost believe that they have created a relationship with specific stocks or whatever security it is that they are trading. This is definitely not a bad thing because if you believe that you are in tune with a security you may well be.

One my first lessons in trading stocks happened when I was in my late teens, I had a friend that was dating an older woman that was an experienced stockbroker so I mentioned to her a specific stock that I was interested in buying. When she asked me why I wanted to buy it I couldn’t give her any other reason than because the way the price movement looked to me I believed that it looked like it would go up. She told me that if you have a gut feeling about buying a stock that is strong enough for you to actually buy it more times than not you will probably be right; fortunately we were both right in that situation and the trade worked out well. The point is that including your intuition into your trading can be just as important as any indicator or any trading tool that you will ever use. I know there have been plenty of times when I have not traded a given issue because it didn’t feel right to me regardless of what the technical’s have told me to do and there have also been times when I jumped into the market when the technical’s were not very strong. I’m not saying to constantly break your own trading rules but I am saying to pay attention to your gut and to the little voice in your head when it speaks to you.

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