In the volatile economy we now live in – the “New Normal,” as it’s called – staying on top of the market is crucial for stock trading success.
The “trend is your friend,” but trends change faster than they used to, because, in a globalized economy, there are more trendsetters than there were before.
Recognizing these trendsetters, and understanding what the consequent market movements will be, requires a historical view of market performance.
Then, building trading habits to respond to trends demands self-knowledge, an understanding of what factors in your own outlook and reactions can be tapped to perform well.
Trading Psychology makes you successful
That is the psychological element in building effective responses to market trends, and it’s just as important as the know-how aspect of successful trading.
A good trader starts out with discipline – that is, you must make up your mind to work at your trading. Just trying to win on some trades does not make a trader. An overall plan, with a view on market evolution, global and local economic movements, and a well-determined understanding of where the market is going are all prerequisites to trading – meaning that you develop these before you put a dime on a stock.
You will often hear stock trading compared with gambling, but it’s not. Stock trading is a form of investment, just like putting money into real estate or Treasury bonds.
The difference is that stock trading requires different skills. Working at these skills makes you respond faster to the market. Understanding the level of risk makes it possible to take managed risks. It’s all about developing judgement.
A trader has to stay aware of everything that might affect the trades. This means following news events, but also analyst reports, economic indicators, and sentiment shifts. A trader has to know if, for some reason, risk-on has turned into risk-off sentiment.
The Trading Journal builds discipline, judgement, percipience
One of the best tools to help a trader build good psychological habits for trading is the trading journal. High-quality journal software first makes it easy for you to keep detailed trading notes, and then gives you the means to research them.
The discipline to keep a journal carefully, providing all the facts and observations that are relevant, is in itself good psychological preparation for trading. But, more important, studying past trades brings out specific points in your overall strategy. First, are you applying it consistently? Second, do you need to make changes? The journal will provide an answer to these significant questions.
Reviewing past trades, and finding patterns in which you repeatedly made mistakes, helps build judgement to avoid those mistakes in the future. With increasing sureness of judgement, you can respond faster and with greater accuracy to market trends.
And, as you study your past trades, you find gaps in your knowledge and technique for quick response. Perhaps you regularly did not take a particular trendsetter into account? Perhaps you ignored certain economic indicators that in fact made a difference in market trends?
Your high-quality trading software will help you find the gaps, and fill them, to build good psychological habits for trading.