Every endeavor that requires skill must be practiced consistently to achieve mastery. The art of stock trading is no different. The more skilled you become, the better your profitability will be. This is no secret. Everything requires hard work to achieve worthwhile results. This is why a get-rich-quick mentality will fail in the market. The market rewards those who consistently learn and punishes foolhardy gambling.
In this post we will discuss what it means to be a true student of the market.
Stock Trading Involves Skill
Market analysis whether fundamental or technical, involves a degree of skill to be able to have a lasting impact on your trade performance. This involves consistent analysis, monitoring, journaling, and research. If you do not have the desire to learn the market on a deeper level and improve, then you will not see big profits flow into your portfolio. There is no shortcut to this.
Some people get lucky in a bull market only to be completely wiped out when the market shifts to a bear cycle. Skill and experience are what separates profitable traders from the crowd. When you put in the necessary work, you will get rewarded.
The Progress Loop
A key denominator across all fields of expertise is the Progress Loop. This is the typical experience that any novice undertakes towards the path to mastery. In the context of stock trading, the Progress Loop is expressed as a learning process through learning from past successes and failures.
First, research and planning. Then comes execution and practice. When the results come in whether you succeed or fail, you seek to learn and improve. This consistent pursuit towards improvement is the main driving force that will speed up your performance.
Over time, the consistent application of the Progress Loop will form an upward trajectory towards mastery.
Most people quit when they experience the bitter taste of failure. They do not want things to be difficult. This is a big problem. Remember that most of the worthwhile things in life are achieved when you persevere through failure and succeed. Hard work and discipline is the key.
Failure is the Best Teacher
Failing is part of the journey. In stock trading, you will be faced with many losses when you are starting out. This is only natural since any mistake in the market leads to financial loss and we all know that no one gets it right consistently in the beginning. So while you are gathering experience, your past mistakes will be the best source of information for you to be able to improve.
Traders who achieve mastery are able to reflect on their mistakes and assess the things that went wrong. When you can recognize the things you are doing wrong, you can gather the necessary data and be able to determine what to avoid and what to change. When you can consistently calibrate your strategy to determine what works and what does not, you will be able to avoid recurring mistakes and leverage on successful trades that can be repeated reliably.
The only thing that will allow you to achieve mastery is to have a healthy response to failure. You only lose when you quit.
Developing Market Awareness and Pattern Recognition
As lifelong learners of the market, there are two main skills we want to focus on to fast track our progress towards stock trading mastery. These are the skills of Market Awareness and Pattern Recognition.
1. Market Awareness
This is the innate skill of a trader to determine the current economic climate he is in and make the necessary trade adjustments. Strong market awareness enables a trader to discern if he should be aggressive or defensive. It is also the overarching skill that allows him to determine what setups are applicable on certain economic climates.
What is needed to develop Market Awareness:
A good starting point to increase Market Awareness is to regularly determine the current state of macro and micro conditions of the economy (local and global). This can be done by gathering market information from reputable sites and official government statistic data. Information such as inflation, GDP, major index rebalancing updates, central bank interest rate hikes, job statistics and the like are good base data to analyze. All of these will help you understand if the current economic climate is in a good shape or not. This will of course reflect in market price action as well.
2. Pattern Recognition
This is the skill of interpreting the price chart to be able to recognize market patterns and signals. How good a trader can recognize chart patterns will heavily depend on how well he can utilize technical analysis. Being able to clearly recognize chart patterns and signals will enable a trader to determine the proper time to buy, sell or hold a stock.
What is needed to develop Pattern Recognition:
Learning more about Technical Analysis and how it fits to your strategy is a good way to develop Pattern Recognition. You have to know what you are looking for. Being clear and objective is the key. Learning about different bullish and bearish chart patterns and market signals through different technical indicators will allow you to build the needed mental repository when you proceed to monitor the market.
Once you can properly discern the technical patterns and signals, you will be able to know the proper time to be in the market or when to simply avoid it. This complements the skill of Market Awareness very well.
The Bottom line
As a lifelong student of the stock market, I have seen many enthusiastic newbies start strong in the market and quit the moment they encounter a huge loss. In the market as well as everything else in life, mastery is needed to replicate success again and again. No one can achieve sustained profits in the market on their first try. You only attain mastery when you learn from your mistakes and continue to get better over time. So it all boils down to commitment, discipline, patience and the eagerness to work hard while enjoying every moment of it.
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