Trading should be an enjoyable and consistently profitable process. Here are two simple things you could do to become happier active market participant:
A. Personal awareness.
B. Situational awareness.
Personal awareness is about knowing your strengths and your weaknesses. Are you a detailed oriented or a big picture type of person?
It is not a good idea for big picture analytical guys to try to trade frequently. They overtrade, lose money and as a result, their confidence erodes and they miss out on future opportunities. It makes a lot more sense for them to focus on longer-term trend following, position trading and some forms of swing trading.
It is incredibly hard for a detailed-oriented person to make long-term investments. They tend to overthink, look at things from too many perspectives and at the end cannot make a decision. They tend to react to each small change and, as a result, they get frequently stopped out of perfectly good positions. It makes more sense for them to focus on intra-day technical trading or some forms of swing trading.
Why is it so important to know who you are and to develop a trading or investing style that fits your personality and cognitive strength?
Because you need a lot of practice to achieve mastery in any market approach. You are much more likely to practice harder if you enjoy what you do. The more you like what you do, the more you practice. The more you practice, the better you get. The better you get at something, the more you enjoy doing it.
The most practical way to figure out what type of market approach is best for you is to try different approaches.
People like to repeat that there are no shortcuts in life. In reality, there are shortcuts. Finding the right mentor or support group could accelerate your learning curve tremendously and get you on the right track to success.
A good mentor could teach you how to work smart and help you find the right market approach for your personality, strength, and lifestyle.
Belonging to a passionate community of aspiring traders will help you to become more perseverant and learn faster. You know the saying – you are the average of the five people you spend the most time with. If you spend more time communicating and reading smart people who work diligently and persevere through all challenges, you are likely to become more like them.
Situational awareness is about knowing what type of setups are likely to work best in the current market environment. Is it time to trade breakouts in high-momentum stocks or time to trade mean-reversion setups of stocks showing negative momentum divergence? Is it time to buy tight-range stocks in anticipation of breaking out or time to mostly sit on the sidelines and protect capital? Is it time to short weakness or is it time to buy weakness? Is it time to buy gold miners or big data stocks? Is the market choppy or trending? Which industries are trending up and which down? Are the indexes near overbought or oversold levels? All active traders need to have a daily or at least weekly process that helps them to figure out the type of market environment and the setups and industries that are currently working.
Related to the topic above:
How Active Traders Time the Market
Why the Path is as Important as the Move
How to Become a More Confident Trader