What It Takes To Be A Successful Stock Market Trader
(Image: pxhere)

What It Takes To Be A Successful Stock Market Trader

BloombergQuintOpinion

Last week I met Ajay, who had done a stint with me for personal mentoring. He came into a training programme for technical analysis, decided that this is what he liked and wanted to pursue. He decided to take up my mentoring programme and stuck with it. He did very well, actually. I was happy to see his progress. He analysed diligently, kept notes, traded the signals, kept up a journal, etc. He moved from being an unsuccessful trader to a successful one.

But when I met him last week, he told me that he moved on to something else. Surprised, I asked him what happened to his trading career. He said that it took too much effort to keep at it, so he gave it up. Even though he was doing okay at trading, he had now turned into an investor and making ‘good’ money.

Pressed for details, he revealed that he felt he was ‘working’ too much on his systems and analysis, etc. while his friends were just, well, “networked” and making more money than him.

So, he decided to do that himself and said it worked out pretty well. He was holding several stocks that had done well, and several others that he ‘thought’ would do well soon. Now, he said, “I have time to do a lot more things because my time isn’t lost with needless analysis!”

We parted with me asking him to send me his recent worksheet and he did. I was not surprised by what I saw. There were a few decent-sized gainers in there – stocks that he bought several months ago. But there were many, many more recent purchases that were either flat or in the red, some rather deeply! Collectively, his investment had a small gain only because of one or two big winners. The dates indicated that he had been at this for about a year and a half. Calculating the returns, I found that he was making less than fixed deposit rates.

There is a lesson in this story, which is why I am describing it in detail. Earlier, Ajay was determined to succeed and had convinced himself to do whatever was needed. He followed the plan and began to succeed.

As success panned out, his resolve to remain motivated began to weaken. What was a process earlier started to feel like a chore.

Looking around at other ‘successful’ people, he felt that he was not getting enough bang for the buck. He began to drop his process and instead, adopted another, easier-to-do route, that demanded no analysis, no process, and at the same was popular.

What happened to Ajay is that he began walking the road to reward but did not want the struggle. He wanted the result but disdained the process. Soon, the will to fight ebbed away but the desire for victory remained. The daily drudgery of practicing became a chore and was gradually replaced by easier ways of trying to do similar things.

Unfortunately, the market doesn’t work that way.

You can’t be in love with just the result – the image of being a successful trader, having lots and lots of money, very little work, no pressures from anyone around, etc. You have to love the process too. Without that, you will fail. Repeatedly.

Most people just fantasise about trading success. For them, the reality never comes. It is because they just love the idea. If you wanted to be a successful trader, spent years and years at it, and are still nowhere near being one, it is possible you enjoy imagining the success, but have not committed yourself to pay the costs – get into the rigour of the process, unflinchingly, forever.

This has become more relevant in the last year as a whole new bunch of guys have joined the fray in trading. They have no real idea about the market but are here because they have no other option. Fortunately for them, the market has been in a super bull phase for the last year. This has made life easy for many of these new entrants. Most of their trades and investments have been right – not because those making the bets are good at their work but only because it is a bull market.

Bull markets gloss over all your errors and may even reward you for making some of them. But the bear phases exaggerate your errors and smack you with much larger losses than you ever imagined.

Those that think that they have managed to lick it and beat the ‘90% are losers’ label better rethink. It is the market that is making money for you right now, not you.

At this stage, if you tell many of these chaps that they better get a process, build some good habits, learn more about how success is achieved - particularly in trading, they may laugh at you. They are currently getting what they want, but when the going gets tough, we will see whether these new guys really want it. If they do, then they will have to work for it. None of those fly-by-night training programmes will work. None of those short-options shortcuts will work. Many of those who are flashing their credentials right now won’t be around at all.

Every success in life is achieved by creating a process, sticking to the process, constantly refining it along the way with new data as it flows in. All this takes time. One of the primary elements that a more recent entrant of the market needs to understand is the role of time and effort in the market. Sure, it is skewed from how it is seen from outside the market, in that one can make a large sum of money in a very short period. But the opposite is also true, that one can lose a fortune in a flash too. This too is skewed from the normal life that one leads.

So, desire success. But do it right, the way it has to be done. No shortcuts.

CK Narayan is an expert in technical analysis; founder of Growth Avenues, Chartadvise and NeoTrader; and chief investment officer of Plus Delta Portfolios.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.