The Personality of the Market
Some traders specialise in say, the price of gold or Brent crude or currencies or they might specialise in a particular Index such as the FTSE 100 or the Dow Jones. Many traders of course, choose to trade shares.
Indeed some traders dabble in a bit of everything. I think this is the area that causes many traders to fail or at least not reach their full potential. In my view: You absolutely MUST specialise.
I am sure that on the surface most people would say that sounds sensible but here is why it is a MUST!
Superficially, many charts look the same. I bet if you had not seen the charts for some time and someone where to show you a chart of Brent Crude over 6 months and then a chart of Barclays PLC over the same 6 months you would be hard pushed to say which was which purely on the look of the chart.
However, I bet that if you found a trader who trades ONLY Barclays day in and day out and also found someone who trades ONLY Brent Crude day in and day out, both of them would easily identify which was which.
Because every share, index or commodity has it’s own ‘personality’. Some will be volatile intraday, some will follow their sector or main index (market followers), some will do their own thing, some will spike up and down regularly, some will stop at key moving averages and some will just plough through. Some will move by 5% on average before they retrace and some by 2%. Some will gap up or down regularly, some will not. You get the idea!
Therefore, no matter how good you are at analysing indicators, moving averages, trends and patterns, the same strategy WILL NOT work for everything. A strategy that works well for Bovis Homes, for example, might NOT work for BT Group – they have very different ‘personalities’.
So how do you develop a really good trading strategy?
It is a combination of:
- Your trading personality including your attitude to risk and whether you are capable of sticking to a set of rules or whether emotion (fear & greed) takes over.
- The “personality” of the index or share must be profiled, understood and complement your strategy.
- You must identify the most reliable method of determining entry point, initial stop loss position, trailing stop (if used) and exit point for that share or index “personality”.
Then comes the most important bit. ALL of those things must fit together perfectly. Imagine if you had a Rolls Royce and the garage called up and said, ‘You need a new set of pistons but don’t worry, we’ll fit a set of Toyota ones, they’re cheaper.’ One component wrong and the whole thing becomes useless!
A good strategy MUST have EVERY ingredient working perfectly in harmony to:
- Work in all market conditions.
- Make money whether the market is going up or down.
- Fit comfortably with you so that you don’t override it.
It is my firm belief that trading a strategy and sticking to it religiously is the ONLY reliable way to make money consistently in the markets and with the volatility in recent times you MUST look at smaller but more reliable and consistent profits.
Developing a strategy like this is very tough believe me. It took me over three years of design, testing, re-design and re-testing to get there. Add to that a great deal of anguish and pain (even tears at times) as well as a lot of money and it’s not difficult to see why most traders make an overall loss and even give up before getting it right.
But if it were easy, everyone would be making a fortune, right?
Fortunately I got there and now trade full time for a living – AND LOVE EVERY MINUTE OF IT!!!!!!!