Share Trading School

In his book, ‘Trade Your Way to Financial Freedom’, the renowned American psychologist Dr Van Tharp discusses in several parts how important your psychology or mindset is to your trading success. He graphically depicts the significance of your psychology using a pie chart and explaining that it is the most essential ingredient to trading.

To many who have traded for an extended period of time, they would agree with the fact that traders can experience a wide range of emotions and often one straight after another. Traders can experience the exultation of a winning trade that went very well to the despair of the string of losses where ‘giving up trading’ is a prominent thought in one’s mind.

Books like ‘Market Wizards’ by Jack Schwager and other similar texts illustrate how successful traders have found a trading methodology that they are very comfortable with. None of them have found any magic solution to trading but they all clearly possess an inner confidence in their own ability to follow rules and their own trading plan.

Investing in the stock market looks deceptively simple but the reality is that most investors lose money. The basic reason is that they lack a trading plan. Without a plan, it is just not possible for investors to know what to buy, when to buy and when to sell.

Instead most investors trade in the market like how you would bet on a roulette in a casino; choosing a number based on a hunch and deciding on a wager based on gut-feel. Worse still if you do not know when to stop and only 'wake up' after you have suffered huge losses by then the consequences could have been disastrous.

Trading is not a hobby. It is not a pastime. It is a real business that requires skills, knowledge and discipline. Just like any successful business that requires a business plan, a successful trader requires a trading plan that is a systematic approach to investing in the market. However, having a trading plan is not good enough. It is also important to have a plan that is well-tested and proven to ensure you are financially successful trading the markets. If you currently do not have a trading plan, a good approach would be to adopt one from a successful trader or find yourself a mentor to help you develop one.

You have probably seen it before. You pick up a glossy brochure or saw an impressive newspaper advertisement claiming an accurate trading system that gives a success rate exceeding 80% or even 90%. Sounds attractive, doesn't it? What if it is true? Imagine how much money you can generate if you are able to consistently pick the "right" trades in the markets.

Here lies the truth about such claims and contrary to the earlier assumption, that "highly accurate" trading system can lose you money instead!

Everyone is always searching for that "holy grail", the one system that does it all. That perfect system that will help you pick a stock at the lowest price before it shoots up and help you exit at the highest price to maximize your profits. The system that will consistently help you pick the top of the tops and bottom of the bottoms. The truth is that if anyone is telling you or selling you this, you will do well to heed that instinctive "warning bells" that goes off in your head.

In fact, the more accurate your trading system, the lesser your chance of being profitable! How is this so?