Trading as a Vocation

Can trading be taken up as a career. In spite of the un certainties involved. There are a large number of people who trade actively. Do their Profit and Loss resemble the charts that they look anxiously before the market opens. How do they maintain sanity in the hustle of the market place. When faced with losses on a daily basis. How do they have courage to continue. One needs to find answers to these questions before one thinks of venturing into the market place. It does help if a trader makes a sizeable profit early in their career. Starting a trading career on a winning note gives one the necessary self belief required for executing trades. But before trading starts to pay off regularly.

The novice will have to spend sufficient time in skill development. This is similar to any sport. A sportsperson in a competitive sport practices extensively. He identifies his strength and his weakness. Through continuous practise and mentoring he modifies his behaviour so that he does not keep repeating his mistakes. There are plenty of books and blogs that will help in understanding the markets and the skills required for trading. But nothing sharpens the skill like actively trading and reflecting on one’s action at the end of the day.

When starting a trading career a trader will have to trade in small amounts. He has to track the markets closely. He has to cut out the noise and focus on the relevant news, price action. During the initial period he should not focus on growing his profits. The focus should be on creating an edge. That is identifying high probability trade setups. Why high probability and not certainty because that is the nature of the beast. Any trade setup however well thought out is a risk. In spite of this the trader should not lose his self belief even if his prior trade setups had failed.

Once he gains the poise and timing the next step would be money management. He should trade aggressively when winning because winning means he is able to accurately read the market. This is opposite to general behaviour when winning, traders like to cash out and celebrate. And when losing traders trade aggressively to regain what they have lost. When in fact they should be trading moderately as they are not able to read the market correctly.

A successful trader does not require high IQ but one skill that would be an advantage is the ability to read people. The ability to sense panic, euphoria but not get caught in it. The analogy to this would if you are dancing on thin ice at the first sign of crack step aside. Let the crowd continue dancing and collectively jump of the cliff. The crowd before committing money needs confirmation and when they are convinced and pour money into the market. It is probably the last move in the trend when price action form a parabolic pattern.

A majority of investors that i know entered the Indian markets around September 2007. They made paper profits when the market made a double top. They never sold out as they were convinced by analysts on CNBC that shares were fundamentally sound and very cheap if you factor in future growth. That is next year forward earnings. These earnings are bound to look rosy if there is sufficient demand for the excess capacity built during boom years. The reason they did not sell out at the top can be attributed to confirmation bias. This would be only to factor in the good news and not pay attention to the bad news. Have investors learnt their lessons. The answer would be no a lot of investor quickly started averaging down between January 2008 to June 2008. But when the markets crashed around October 2008. All investment came to a standstill. The investors flocked to the market only after the general elections at 4500 Nifty levels and even though selective sectors like automobile and IT have outperformed. The other sectors have stagnated or worse gone below the May 2009 levels.

So now what should a person do if he wants to take up trading as a vocation.

1. Keep a trade journal where he should enter all trade related information. It should capture all the thoughts that went into each trade. At the end of the week review and update the trade journal.
2. Making money is more important than being right. Focus on entry, exits and not on feeling good.
3. Technical analysis is a way of looking where traders are lining up to buy\sell.
4. Before a trade is entered figure out the trade entry and exit points
5. Remove all the clutter from chart you should be able to mentally map all the levels or moving averages
6. Find market that fit your style and personality.
7. Stop trying to pick tops and bottoms. The strategy should be to identify the trend and spot opportunities.
8. Stop thinking of markets as cheap or expensive.
9. Maintain a flexibility of approach allow the market to tell you what it intends to do.
10. Markets continuously provide a flow of opportunity. Do not beat yourself if you missed a trade setup.
11. Look to spot opportunities when markets mimic mob behaviour.
12. During market hours use tick based chart to get a feel for the speed of the market. After market hours use time based charts to plan trade setups.