The Six Stages to Trading Success: Stage Four

1. Ownership
2. Planning
3. Working
4. Analyst
5. Artist
6. Trader

The first three stages are obstacles, while the second three involve the process of learning to trade. Today’s lesson covers stage 4 of the six stages: analyst.

When I ask a client whether they see themselves first as a trader, or an analyst, the response is predictable. Most men say “trader” while most woman say “analyst”. The correct answer is analyst first, trader second. Women tend to understand the need for planning before taking action while men tend toward action…or as my father often said: “boys will be boys”. And herein lay one of the difficulties in learning what should be a straightforward process: analyzing a market first, before taking a trade signal. It is a rare person who can both craft a viable plan, and then execute it. This is why in most firms there are executive teams who plan for growth, and a marketing department which is responsible for detailing that plan, and an advertising and sales team assigned to execute that plan -- not to mention a compliance department to keep an eye on everybody. A plan without execution, or vice versa, is no good without a lot of luck; and professionals do not rely on luck. It needs to be the same in your trading. The plan is your market analysis and trade selection – your methodology -- and the execution is your trade entry and management. A self-taught trader needs to handle both of these diverse tasks simultaneously – and don’t forget about the compliance aspect, i.e. trade and risk management!

Like most of us learning to trade, I had to learn the hard way that we need a solid methodology and a trading plan before we can take action. I also quickly learned that I am risk adverse. I do not like risk, and like losing even less. While I generally prefer acting to planning in most other aspects of life, I favor planning over acting in trading. Because I know this I make sure I am well prepared before taking action – pulling the trigger on a trade. Many of my clients are more action orientated when it comes to pulling the trigger on a trade. I’m a good match for them because they know I’m always working on improving trade selection to cut down on risk. They realize that between my planning and their acting together we make a stronger team than if they were on their own. If I have a client like me, who is somewhat risk adverse, and steeped in planning, we wouldn’t make as good of a team because we would not complement each other. We can help such a client out by providing a fair spread, and showing him how to measure pattern and direction, but what he really needs is the confidence, i.e.: lack of fear, to pull the trigger. The only way to do that is to observe our demonstrations and then replicate that in a demo account. Easier said than done, given peoples penchant for ownership – see Stage 1. Planners, those who are inclined more toward analysis than trading, unfortunately are also more prone toward ownership.

The best market analysis is generally provided by a trading method that is straightforward and simple. Regardless of the level of simplicity it must be effective, and the way to measure its effectiveness is to demo trade it in live markets through the different economic environments the global economy puts us through. In our estimation you will need a method that provides objective output based on market generated information only, i.e.: price. It needs to be empirical – there is no room for theory’s in live trading.

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