CONSIDER YOUR STRENGTHS BEFORE STARTING TO TRADE
THE SUMMER outlook is somewhat hazy – weather-wise and economically. In addition, there’s a large sporting event about to take place, which is set to make life difficult for anyone who lives or works in London. The likelihood is that trading volumes will be lighter than ever over the next month or so, as market participants head for the hills. Of course, those of us who didn’t get Olympic tickets are bound to get a chuckle as we hear stories of unfortunate souls being subjected to a full body search, just for the pleasure of attending the synchronised weightlifting.
Anyway, I thought I’d take a break from banging on about the parlous state of the global economy. Over the next few weeks, I’m going to ignore the desperate efforts of policymakers and central bankers to shore up our increasingly fragile financial system. Instead, I want to focus on the business of trading itself. After all, it is one thing to pontificate on the markets but quite another to trade on them – let alone to do so profitably.
As a bit of background, I’ve worked in the City for over 25 years, more or less continuously. I’ve spent the majority of my time in spread betting and contracts for difference, dealing for private individuals rather than institutions. Consequently, it makes sense if I address my next few articles to this constituency – not professional traders, but those of you who are considering trading or who perhaps already trade as a hobby or a second job. I also trade myself – sometimes successfully and other times not. I have traded professionally but now do so more as a hobby. Despite hitting my own Silver Jubilee, I still wouldn’t describe myself as an expert. But I still take pleasure in constantly learning something new – even if it is typically through my mistakes.
Many people find the idea of trading for themselves an attractive proposition. After all, it involves working for oneself, and there is always the dream of making a financial killing. But, like anything, becoming a successful trader takes considerable time and effort, although time and effort alone do not guarantee success. So over the next few columns I’ll offer up a few opinions and observations about trading, which I hope you find useful.
In terms of becoming a successful trader, it’s difficult to pinpoint the most important aspect. But we have to begin somewhere. For me this means trying to identify what kind of trading style suits you best. I would first consider the time you have available to follow the markets. We all have commitments – work, family, social and otherwise – and it is important to weigh these closely as you become more involved in trading. If you are not able to follow the markets throughout the day, without another important aspect of your life suffering as a result, then I would strongly suggest that you stay away from day-trading. While the idea of nipping deftly in and out of a stock index or currency pair half a dozen times a day, nicking a few ticks here and there is very attractive, the reality (especially for a novice trader) can be quite different.
But you don’t have to spend the day glued to a screen. There are also plenty of traders who run positions for a week, a month or even a year – and I write as someone who prefers this approach. I know this is going to sound like New Age psycho-babble, but trading comes down to knowing yourself. To do this you need to think about how you behave under pressure, how you cope with being wrong and your attitude to losing money – something that professional traders do regularly. You need to assess your strengths and weaknesses and be honest in your appraisal. And ultimately, be prepared to accept that trading may not be right for you. Next week, I’ll look at the foundations of trading – money and risk management.