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Thursday, 6 November 2008

PERSONALITY TIPS TO IMPROVE YOUR TRADES

Courtesy of Conrad Alvin Lim

Note that the title is not Personal Tips but Personality Tips. This is how you can improve your trades by identifying your personal traits that can either compromise or improve or trading results.



1. Learn To Save

The simple task of saving can be the difference between why a trader succeeds or fails. A saver represents a person with discipline and organization. It proves the ability to manage finances and control spending. Such traits are integral with trading habits and will stand the trader in good stead especially in trying times.



Without this simple discipline, traders tend to over-trade. This usually leads to disorganization and poor financial management. More significantly, it proves that the trader’s intent will not be on trading to trade well but trade to make money. We’ve already discussed how that is not a good mindset to start with. The inability to save translates into needing more money all the time and with this focus, greed will prevail.



Assuming an average person makes S$3,000 a month, less Provident Fund deductions and insurance premiums, this average person should be taking home about S$2,000 every month. A savings habit of just 10% means that S$200 is put aside every month for a rainy day. At the end of one year, this translates into S$2,400 (without factoring in interest gains). This money is just nice to pay for one’s year’s income tax, property tax, road tax and other forced payments to maintain a decent lifestyle.



So in essence, 10% is the minimum an average income earner should be looking at saving every month. The inability to save more than 10% a month means that this average worker will struggle until the time retirement comes knocking. And when it does come knocking, the struggles become worse.



In trading, this is a trader who is Profitable with No Growth.



Learn to save by spending less. Be prudent and frugal. Extravagance only serves to enhance your face and pride but does nothing for your real worth or your net worth.



I’d rather appear to be poor and have lots of money in the bank than look rich with nothing to show for it.



2. Trade What You Can Afford To Lose

In a nutshell, never trade with your children’s trust fund. Such silliness puts a lot of stress on the trader because losing that money is not an option. Under such stress, the trade will not be in the right emotional state and is more likely to make bad decisions or the wrong decisions that will end up in losses.



The losses will only serve to put more pressure on the trader as he tries to recoup his losses and take “revenge” on the market. The losses will continue to mount.



Stress is fear in trading. When one is full of fear, sound decisions and focus are blurred. In order to eliminate this fear, one must trade with money that can be lost. With this mindset, the trader will focus the objective on trading to trade well rather than not losing.



In the first place, trading with your children’s trust fund is a sign of desperation. Trading with money you can’t afford to lose is a dire need for more cash. If you are in this position, don’t trade … you’ll be doing yourself a world of good by staying away from the market rather than think and hope that you’ll get a windfall.



If you can’t afford to trade, then don’t trade.



3. Trade Comfortably

All too often, traders believe that to achieve success as fast as possible, all they need to do is model what other successful traders have done and emulate their trading style. This couldn’t be farther from the truth.



As in life, you must be comfortable with whatever you’re doing. If something doesn’t suit you, you either not do anything or you find ways to adapt it to your needs and style. Emulating someone else’s trading style is definitely not the best way to trade. That style was created by someone else with a totally different mindset and skill set and is best suited to the creator of the style. You may not have the same tolerance, skill nor experience to trade like that. It simply amounts to not knowing what you’re doing and following blindly a style that you hope will work for you as it did for the person you are emulating.



Question; have you noticed that when you emulate someone else, you are only emulating the winning technique and never the loser? So what will you do when something goes wrong?



For some unexplainable reason, everyone wants to emulate the wins but ignores what the successful trader does when faced with a loss.



Learn everything you need to know about trading and adopt your own trading style. When you have your own comfortable and personalized style of trading, you will find it much easier and less stressful to incorporate good habits and practice good financial management.



4. Don’t Be A Clone

One of the most popular ways to learn to trade is to attend workshops. Such workshops usually have one guru who teaches you how he trades and shares his trading strategies and secrets. The common approach is to teach the students how to emulate his style and to follow his rules.



The problem with that is no one is a clone. You cannot be expected to emulate as we’ve so clearly discussed earlier. You can’t blame the guru for teaching as such because he only has three or four days in which to teach you something that took him years to master. Honestly, is that really possible?



The best he can do is to show you how he does it and hope that you can do the same. The results are obvious. While only a handful of his graduates succeed, the rest will falter. The ones who do succeed, you will find, are the ones who can adapt and flex. They don’t become clones.



The majority, sad to say, believe in cloning.



5. Trade What You Know - And Stick To It!

As a trader, the temptation to ditch a consistent and profitable trading style for one that seems better is always going to distract you. Remember that the grass is greener on the other side. But is it really?



Why compromise a profitable style for something new when you are already consistent and profitable? The answer … Greed. Enough said.



The bottom line is that you want to be a profitable trader. That does not mean that you should be the best and most profitable. You only have to be profitable and consistent and you would have achieved your objective. Staying patient and diligent will ensure that. Being unduly adventurous can be costly and sometimes very unrewarding.



Trade what you know, stay consistent and stay focused. And stick to it to avoid getting tempted by greener grass.



As the old saying goes … “If it ain’t broke, don’t fix it!”



6. Stay Current

Books and workshops tend to use dated models. Today’s market is nothing like what it was 10 years ago or for that matter, a year ago. Information and technology is changing the way we do business with every passing minute.



What we know as plastic credit cards will give way to mobile telecommunications being the next form of payment. Telcos of the future will become the next big financial institution. Cash will eventually give way to credit or debit systems and plastic cards will become tiny embedded chips that will fit into lifestyle products like watches, mobile comms and keys. Even keys may change.

The way we work will change. The way we study and learn will change. The way we trade will surely change. The market as we know it is going through a change as I write this and who knows what the new economy will be like.



Books and educational material will become dated quickly in this fast moving environment. Our job is to keep up with the latest and never fall behind for reading and believing obsolete material.



Stay current, stay informed and always be on the cutting edge of your business.

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