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What knowledge is needed to trade

5.09.2018, 12:28

We will talk here about some knowledge that needs to be acquired. You can start by buying a yearbook ‘Stock Trader’s Almanac’ by Ieyl Hersch. It includes awesome information about the nature of the market. Some traders used to make money for living by reading this book only in 60’s and 70’s when the internet was completely absent. The software trading appeared later and that has changed the trading approach somehow but most of the facts published in the book are still important, actual and periodic. You need to have this information in order to start making decisions in the same way as you need to now alphabet to be able to read. This article is about how to trade daily with price figures market forecasts.

The main concept of the communications with markets requires a knowledge of what is going to happen presumably in the market. If that does not happen though, you need to admit immediately that you were wrong and start acting with appropriate changes. For example, you can plan to go out for a picnic tomorrow but meteorologists say that the day will be sunny and perfect. But when you wake up the next day, you see that it is raining. You can be stubborn saying that there is no rain outside and you can go out being wet on the grass. But most probably, you will say: “Damn meteorologists, they looked at the satellite weather screenshots from the wrong side again. I would better change my plans and go to see a movie”. One more time, the key to successful trading is to know what is going to happen presumably before this event and to react to the situation changes if that does not happen.

Any forecast has to be based on the following components:

1. Identify the long-term, medium-term and short-term trend.
2. Feel and understand the economic daily news.
3. Season factors knowledge (what happens during this part of the year) which you can get from ‘Stock Trader’s Almanac’.
4. Understand the technical details which mean: options expirations, software trading principles, graphical chart analysis, institutional capital management companies’ sentiment (price increase every quarter-end), income reports and private capital inflows or outflows in mutual funds.
5. Be aware of political changes expected.
6. Be able to interpreter the Federal Reserve monetary policy statements and their market interventions.
7. Read a lot of periodicals about the current economical situation in different countries: the European Union and Asia, for example. You can read Barron’s and The Wall Street Journal (especially headliners in both), New York Times and Washington Post (you can miss the headliners here ), Forbes, Fortune, Investor’s Daily, London Times, The Economist, Newsweek, Business Week and Institutional Investor Magazine.

Wall Street Journal
Source: The Hill

8. Have a healthy intellectual position free of any external pressure.
9. Be in a good physical shape - healthy, active and vigilant conditions.
10. Have a focused, attentive and intensive approach and deep concentrated thinking of all the markets and relations between them.
The book ‘Trader Vick - Wall Street Master’s Methods’ has a chapter which is called ‘Fifty ways to lose your money’. Some of the rules described in that chapter are applicable only to the exchange operational desks traders. The list of the rules below is a bit different because of that. It is recommended to have the list of trader’s precepts in front of you when you are trading.

1. Avoid overtrading.
2. Do not take a loss close to your heart.
3. Never increase the volume of a bad deal.
4. Never allow profit to turn into a loss.
5. Always calculate the stop-loss order before opening any deal.
6. Increase the volume of profitable deals when it is appropriate. The best time to buy or sell is right after a consolidation and breakthrough above or below price ranges.
7. Focus on one pit if you trade on the stock exchange.
8. Learn all traders’ and brokers’ oddities.
9. Don’t be a one-side trader. Be flexible.
10. Try to avoid mid-session trading unless the market is extremely active.
11. Never leave your trading station before you set stop-loss orders for all of your opened positions.
12. Be cautious of a new deal opening when you buy on a quick spike or sell on a sharp decline.
13. Control your emotions including fear, greed, hope, pride, anxiety, recklessness and happiness.
14. Be patient.
15. Cut your losses and allow your profits to grow.
16. Do not trade if you are not confident.

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