MODULE 1: INTRODUCTION TO FINANCIAL MARKETS
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- What is Trading
- History of Trading
- Equities and Bonds
- Financial Markets and Brokers
- Long vs. Short
- Types of Orders
- What Can I trade?
- Market Player Psychology
The Financial Markets – What Are They?
Markets have been operating probably since the dawn of time, since man is a trading animal! We are all familiar with a street market where, on special Market Days, several traders set up their stalls (the ‘Sellers’), and the public (the ‘Buyers’) come and buy their products. Trade takes place during fixed times and stops when the market closes. Mostly, the prices paid are constant during the day.
Financial markets are similar, in that buyers and sellers come together in a fixed place (the ”Exchange”) and at fixed opening and closing times, but this time, prices are determined purely by the interaction of the Buyers and the Sellers – and constantly fluctuate. That makes for opportunity for profit!
The financial markets trade in those instruments such as equities (shares), indices of equities (derivatives), bonds/gilts, currency pairs, and we also consider commodities, such as soybeans, gold, crude oil, etc. They are based on the futures markets for these instruments (derivatives), or the cash market.
But what, or who determines the prices in the market? And what makes the price go up or down? The conventional ‘wisdom’ is that it is the forces of supply and demand. But the real mechanism is much more basic: When a price goes up, that new trade has the buyer and seller agree that the new higher price is correct, not the old, lower, price (otherwise, they would not trade!). This new trade at a higher price then imparts market information that influences the other traders, who make decisions based on this knowledge.
As prices move up, observers then find it easy to justify the upmove with reference to ‘bullish’ news, thus attracting more buyers. (If prices had moved down, this “bullish” news would not have been given prominence in the media, you can be sure!).
So, markets move up with increasing confidence, and down with decreasing confidence. Understanding this, we can use technical analysis, which attempts to measure confidence levels, to make predictions of the likely market direction. That is what we are about as traders.
Trading refers to the practice of buying and selling financial instruments; a trader is looking to capitalize on the movement of a financial instrument that, in the judgment of the trader, is in a tension state ready to accelerate in price in either direction. When traded well these movements provide potential for substantial profits.
What is Trading?
Put simply, trading is buying and selling ‘things’ to try and make a profit. The ‘things’ may be baseball cards, works of art, or used cars. This course won’t help you buy and sell those. In the financial world, the ‘things’ are stocks and shares, and other types of things that I’ll explain later, and that’s what this course is about.
Stocks and shares represent ownership in a company. The words are often used interchangeably, and usually shares will refer to just one company, and stocks referred to ownership in several companies. For instance, you might have a shareholding in IBM, and that could be part of your stock portfolio.
But the shareholder has literally bought part of the company, and has a voting voice in the running of the company, usually at the Annual General Meeting. Unless you’re wealthy like Warren Buffett, you probably won’t hold enough shares to be heard, but many shareholders together can influence the course of the business. Shareholders want the business to succeed so that the company can afford larger dividends and the shares increase in value.
With that said, shares go up and down in value every day and the price really depends on what everybody ‘en masse’ thinks it should be. Trading is not precise mathematics, but more group psychology, and emotions play a strong part in how you trade, and how others perceive the market.
A Bit Of History
The first Stock Exchange based on modern principles was established in Holland during that country’s booming trading era in the 17th Century. But soon afterwards, in London, shares were traded in two coffee houses – including shares in the infamous East India Company, which was formed in 1688 with a view to undertaking projects ‘as yet undecided’. No wonder the share price languished until it was ‘pumped’ by operators, who promised untold riches to a naive public (sound familiar?). The share price reached over £1,000 (a massive sum then) and then crashed when it was realised there were no profits.
As in most bubbles, the share price crashed by about 90% from high to low, and many investors were wiped out (Isaac Newton, the scientist, was one of them).
Today, the vast majority of financial markets are traded electronically, the main exceptions are in the USA, where in Chicago, agricultural commodities are still traded by open outcry. Here, traders stand in pits (large, round steps) and often scream bids and offers with hand signals, with prices being recorded by observers who are suspended above the pits watching the action. At times, it seems very chaotic, and it is, but trading does take place and prices do reflect the actual flows of trading.
The electronic markets are now open almost 24/7 and turnover in the major markets has exploded over the past 20 years. For us, the important point is that we are all able to participate in these markets either through brokerage accounts, or direct purchase of shares and debt instruments.
We will concentrate on trading the major (very high volume) markets with a wide public participation (this is because they give us the most reliable signals and where government agencies and other large players generally have minor direct impact).
The main markets we are concerned with are:
- Stock Indices, such as the Dow Jones Industrials, the S&P 500 (usually the emini version, since the full S&P future is very large), the NASDAQ, the FTSE 100.
- Fixed Interest Instruments, such as the US Treasuries (10-year and 30-year), the UK Gilts
- Currencies, such as the Euro/US Dollar, and the British Pound/US Dollar (sometimes called “cable” for historical reasons)
- Commodities, such as Gold and Crude Oil
- Blue Chip Shares (like those stocks in the FTSE 100)
So what is actually traded in the financial markets? Let’s take a look at one: the Dow Jones Industrials (one of my favourites for trading).
To a large extent, all financial markets are trading intangibles. They are derivatives of a physical product. Take the Dow Jones Industrial Index (the Dow).
The venerable Dow Jones Transportation Index is the oldest surviving share index, having started life in 1884 (this was the era of the railroad in the booming USA).. Charles Dow was the figure who recognised the need for an overall market index of leading shares. Individual shares of the index would go up, down, or sideways, but the overall average would give a broad indication of the ‘mood’ of the market.
Later, in 1896, Dow saw a need for an index of shares for the growing industrial corporations, and composed an index of the 12 largest companies by simply adding up the share values and averaging. Over the years, the index was expanded to 30 of the biggest capitalisation shares in the USA. Even today, the Dow is a superb indicator of market movements, despite the small number of constituents.
Futures Markets – What Are They?
Because it was recognised that there was a need for a mechanism to determine the value of the index in the future (as firms needed to hedge their portfolios), a ‘futures market’ opened up. Today, the futures markets are among the biggest in the world. For instance, the US Interest Rate futures market at the CBOT handles face value of over $600 Billion per day.
The modern futures market was launched in Chicago in the agricultural markets, where farmers and end-users needed to agree prices at and after harvest-time – often months ahead. To provide vital liquidity (trading volume), private speculators were allowed to participate (hence the term ‘public markets’). At the end, though, there was a real physical product (corn, or wheat) which changed hands on settlement day. One key feature we take for granted is that the price history is openly available to the public at all times.
So the futures market is simply a market where you can trade the underlying product for settlement months ahead. Because most traders will not want delivery or make delivery, most trades are closed out before settlement day. And because no exchange of the physical product takes place, only a ‘contract’ to do so in the future, only a small deposit (the ‘margin’) is required by both buyer and seller to be made to the Exchange clearing house to guarantee performance by both parties (this is all handled today by your broker, or spread betting firm).
Stocks and Bonds
You often hear about stocks and bonds in the same sentence, but they are very different. Stocks represent ownership in the company, and that’s it. If the company does not do well, then they may not issue a dividend, and if the company really doesn’t do well, and goes bankrupt, then the shareholders may lose everything as the banks and finance houses who lent money to the company will be paid out first from any sale of assets. If there’s anything money left after the assets are sold off and the debtors paid back, then the shareholders get their “share” of it.
Bonds are totally different. Bonds are issued so that companies can borrow money, and there is a promise to pay it back with interest. The government does the same thing, issuing Treasury Bonds to get working capital. Bonds are usually scheduled to be paid back in a number of years, and at that time the bond holder will get their money back with interest. Bonds can also be traded, or bought and sold, and you may be surprised to learn that they don’t always change hands for the face value, particularly if it’s some time before the bond is due to be paid back. But bonds are guaranteed if the company fails, at least to the extent that assets can be sold to cover the debt.
The Stock Exchange
People talk about “the stock exchange”, but actually there are many different stock exchanges, and some countries have several. Basically, they are places where stocks are bought and sold between brokers and market makers, and they can have quite a hectic image as portrayed in the movies. But some others, like the US NASDAQ market, are all electronic, basically a bulletin board, rather than a trading floor.
Different shares are traded in different stock exchanges. For instance, the NASDAQ has a reputation for trading technology stocks. Depending how you approach trading, which exchange lists what company may not matter to you. You may just deal through your broker who will take care of that detail. However, you will often find that you can only trade shares of the country where your broker is located. If you want to take part in trading in other areas of the world, you will be limited in your involvement unless you can open an account over there.
A term you may hear about in trading is ‘liquidity’. It basically means how much a stock is traded, and therefore how easy it is to find buyers and sellers if you want to sell or buy at any time. How ‘liquid’ a stock is matters, as with low liquidity you may not find many people wanting to trade with you when you think the time is right, and that may force you to pay more or sell for less than you want to.
Another pair of terms that are used frequently is the ‘bulls and bears’. A ‘bull’ is someone who thinks the prices are rising, a bullish market, and you can remember it as bulls’ horns go up. A “bear” is the opposite, and a bearish market goes down in value, just as a bear would knock you down.
Why Do The Financial Markets Exist?
The first kind of financial market was the stock market. As enterprises in the 17th Century became much larger than before, they could not be financed solely by the court, by the landed gentry or by the managers. There was a need to attract capital from the public at large. So the joint-stock company was invented, which gave buyers of shares the right to receive profits (if any) in the form of dividends from the company. That model still exists today and is a powerful means of recycling savings into commercial enterprises.
So financial markets exist to finance (hopefully) productive endeavours that aim to increase wealth of all citizens – it is the bedrock of the capitalist system that has taken over the world. Whether it achieves that aim is debatable, but will not concern us here.
Thus was the risk and/or reward of a commercial enterprise transferred to the investors, both public and institutional. Today, we are familiar with unit trusts (in the United Kingdom), mutual funds (in the USA), insurance companies, pension funds, sovereign funds, and so on.
We have seen the rise and rise of the cult of equities (shares) as our commercial endeavours have spread out world-wide, and the age of consumerism has likewise spread to bring increasing wealth and comfortable living to more and more people.
The stock market is thus a measure of man’s productive endeavours in that it reflects the aggregate confidence of the public towards present and future economic conditions.
Of course, it can work both ways – if public confidence is high and growing, stocks will generally rise in value. But when the mood is negative and falling, stocks will fall. We shall return to this in later sections.
Did I mention, you can’t actually go to a stock exchange and buy and sell shares for yourself? You have to go through someone who is authorized to deal there, and that is a stockbroker. There are many types of stockbroker, giving different facilities and charging different amounts for their services.
The traditional stockbroker such as your father may have used is only a phone call away, and will help and advise you on where to place your money. He makes it his business to research the companies, and tell you which he thinks are good investments. He makes money every time you buy and sell, and you have to trust he is not telling you to trade just to make more commissions – this does happen, and it is called ‘churning’ your account.
You don’t want that type of stockbroker when you are taking responsibility for your own trading. You want a broker who will give you access for trading the shares that you select, and who will give you “fast execution”, obeying your instructions right away while the shares are at the price you want. The Internet has changed the face of stock broking, and there are many online brokers who can provide a reasonable and efficient service. You should check out several before deciding which to use, based on cost, ease of use, and recommendations.
Depending on the type of trading that you intend, there is another option – with a fast internet connection and for a monthly fee you can have what is called a Level II screen, and this gives you immediate access to what the broker sees. This shows pending orders that haven’t been satisfied. For instance, if a stock is trading at 97.5, it may show that someone would like to buy 500 shares at 97.4, if only the price came down that much, and that someone else would like to sell 2000 shares at 97.55, if only the price would go up to that. If you are daytrading, then it’s useful; if you don’t need it, then don’t bother.
Understanding Long and Short
Going Long: Let’s say you have no position in the FTSE. You decide that the market is going up. You place an upbet with your spread betting firm. You now have a ‘long’ position, since you own a position that you could sell. It is akin to a grain merchant who buys wheat from a farmer. The farmer is ‘long’ wheat and after the trade, the merchant is now long the wheat. All pretty straightforward.
The opposite of this, as you might expect, is ‘going short’, ‘taking a short position’, or ‘shorting the stock’ – these all mean the same thing, and you would do it in anticipation that the shares will fall in price.
Going Short: Now, let’s say you have no position in the FTSE and decide the market is headed lower and wish to profit from your forecast. You would then place a downbet with your firm. You do not ‘own’ anything, and in order to cancel out your bet, you will need to buy the FTSE at some stage. You were short the FTSE and after buying, you are flat (no position).
It is the reverse of our normal experience of purchasing first and selling later. What you are doing is selling the shares before you buy them, and that’s what worries people. You sell the shares at the current high price, wait for the price to drop, and then buy the shares to replace those you sold and profit by the difference in price. You finish up not owing anyone any shares, and with a profit.
Types of Orders
When you trade, you give your broker an ‘order’ to buy or sell the shares. You have choices on how you present that order, and that will influence how the broker fulfils it. This is covered in detail in one of the course modules about money management, but at this stage you should know that you have choices.
For instance, you can tell the broker to buy or sell the shares immediately, regardless of the price, and hope that the price will be similar to what you have been looking at on your screen. Usually it won’t be very different, and often a good broker can improve on the price when he places the order.
On the other hand, you can place an order and say that you don’t want to pay more than a certain price, and the broker will either get the shares at that price or better, or he won’t fulfill the order. You can do the same type of thing when selling.
A very common type of order when you are trading is called the ‘stop loss’ order. You can either tell your broker, or you can watch the prices yourself, but either way the stop loss is valuable protection for your account. The idea is that, if your trade goes the wrong way, say falling in value rather than increasing, the stoploss order tells your broker to sell your shares at a lower price before they drop any further. That way you prevent any more losses to your account even if you are not watching the market.
Choosing Your Order Type
- Market Order – This is the simplest and one of the most commonly used. If you wish to buy or sell, you just take whatever quote that appears on your screen – and click. This price is the market at the time.
- Limit Order – Let’s say you are in a trade and believe the market will reach your target price. Say you have a target of 12,250 on the Dow and you are long. The market is trading at 12,126. You would then place a Limit Order to sell at 12,250. If the market does reach your target, your order becomes live and you offer to sell at 12,250. Because the Dow is a very liquid market, you will almost certainly get your price, especially if the market trades through your target. Of course, the danger is if the Dow does not trade up to your target and falls back. There are two types of Limit Order:
- GTC Good Till Cancelled. This order stays on your firm’s system until you decide to cancel it.
- Day Only. This order expires at the end of the trading day, unless filled or you close out the trade beforehand.
- Stop Order – This is an order I want you to become very familiar with. It can get you into some remarkable trades, it can take you out of a very profitable trade before your ‘paper’ profits disappear, and it can get you out early of a wrong ‘un in case your analysis deviated somewhat from reality! The stop order is your bread and butter in your trading hamper. I want you to get into the habit of ALWAYS using protective stop orders when in a trade.
I know some experienced traders never use stops to protect their positions. To me, they are like soldiers going into battle without a flak jacket. It is possible to survive, but don’t bet on it!
You then have a decision to make! Usually, the best policy is to move your protect-profit stop up just in case the market plunges and you “lose” your paper profits. More on this when we discuss strategy.
Sorry to bring this up just as you were getting comfortable, but I must tell you that there are several different order types you can use to enter and exit a market. I will briefly describe the main ones below. But, since I advocate simplicity in all things, I will recommend you use only these.
There are a number of other types of order, and you need to become familiar with the ones that apply to your method of trading. They help you manage your money and control your account, so they are discussed later in the money management module.
What Can I Trade?
Stocks and shares are one commonly known type of ‘financial instrument’ which can be traded, but there are several others. Some traders are involved with the Forex market, that is buying and selling currencies, and many look to the ‘derivative’ financial instruments so they can multiply the effectiveness of their trading capital. The details will come in later modules, but here’s an outline of what types of financial ‘things’ are available to trade.
By the way, don’t be scared by the name derivative, and the mathematical connotations that it has to Calculus. The financial derivative is just something that ‘derives’ its value from something else. All it means is that you are not buying that something else directly, whether it be a stock or a commodity; what you are trading in just has a relationship to that something else.
What Is Actually Traded?
The Dow Jones is a dollar average of its constituent share values. Today, you can trade futures, options, ETF (Exchange rades Funds), and in the United Kingdom especially, spread betting on the underlying future or the cash market is very popular. The other indices have a similar makeup. The S&P 500 Index is a basket of 500 large cap US shares, the NASDAQ is a basket of almost 4,000 US corporations, weighted towards tech shares.
Also, you can trade ETFs on the index, 2xthe index, even 3x the index – and can trade inverse ETFs (buying when you expect the underlying index to fall). It is quite a zoo out there. But for most traders, trading the Dow Jones (and the emini Dow), the S&P 500 (and the emini), and the FTSE offers enough scope for making profits.
So the Dow is a collection of shares, and each share is a part-ownership of the company. There is nothing “physical” traded here (unlike the corn example). This applies to all the markets we shall discuss here (except gold, I should add).
One of the problems with trading futures is that close to settlement day, you need to close out your position. Let’s say we are trading Crude Oil.
We are trading the March contract and it is getting close to delivery (what is called First Notice Day), where you definitely need to close out your position! If you are confident about your position, you could roll it forward to another month, but look at the quotes- they are way up from the March quote. This market is showing a ‘contango’, where the market expects a tighter supply/demand balance in the future. You have a difficult decision to make.
When we trade any financial market, we are trading a derivative of the underlying index or future. There are many exotic derivatives out there, but we will not concern ourselves with these. We shall focus on trading the well-established and understood markets (those listed above) which have high public participation and large trading volumes. We should avoid thin markets where exaggerated moves often can happen, such as a minor oil exploration company, whose shares depend on the latest drilling results. These kinds of markets appeal to traders/investors who need a high adrenaline rush in their trading as primary motivation. We advise just the opposite in our trading.
We trade the large markets because:
- They respond well to macro economic forces, where the data is mostly in the public domain, and
- They respond well – and directly – to the major ‘sentiment’ indicators (more in later sections)
What Is Actually Traded? Forex
The currencies are traded in pairs, and the prices are quoted against six letters, the two currency codes put together. For instance, you have the GBPUSD, the USDJPY, etc. The numbers are always quoted the same way round as the currency codes, with one unit of the first mentioned currency being equal to the quoted number of the second. So the GBPUSD is at 1.6280 right now, which means one GB pound is equal to 1.6280 US dollars.
When you come to trade you will be offered a choice of buying or selling, and there is a small difference between the two rates, which is where the broker makes his money. For instance you may buy dollars at 1.6280 for a pound sterling, but if you wanted to sell US dollars and buy sterling, you might need $1.6285 for each pound. These gaps, which are called ‘spreads’, are usually quite small, because there is so much trading going on. By the way, Forex traders talk about ‘pips’ when prices change. A ‘pip’ just stands for ‘percentage in point’, a percent of a percent or 0.0001, so the spread above is five pips. The pip is the same decimal for all currencies, with the exception of the Japanese yen. As there are about ¥100 to the US dollar, a pip is defined as 0.01 of the yen.
Each foreign exchange standard contract is usually for 100,000 of the first named currency, for instance dealing the GBPUSD you would be controlling ₤100,000 worth of pounds or dollars, and making a profit from the price changes between the currencies. As I mentioned at the start of this section, you do enjoy good leverage with Forex, and you may typically only need one percent of the traded amount in your account. You can also get smaller or mini-contracts nowadays.
I mentioned that there were six commonly traded currency pairs. These are the USD/JPY, USD/CHF, GBP/USD, EUR/USD, USD/CAD, AUD/USD. The first four are the major ones, and the Canadian and Australian dollars also have some interest. This does not mean that you shouldn’t trade other currencies, but you’re probably more familiar with these so you will be better aware of the fundamentals that can affect currency values. You can use all the technical analysis tools that you will learn about, and get used to the daily cycles of the currencies, with the traders in different countries waking up, doing their trading during the day then going back to sleep.
The Psychology of Trading - Show Me the Money
Many beginning traders think that they should concentrate on making money. Usually this doesn’t work. There is a money management module later in the course which will go into detail of how you should behave and treat your funds. For now, start thinking in terms of preserving your capital, as this is the most difficult task ahead of you. If you trade appropriately and concentrate on not losing too much, then you will find that you make profits. It’s when you go hell for leather to make money that you usually find yourself losing.
It sounds silly, I know, but it usually works out best that way. Consider – if you lose your money then all your trading knowledge is worthless. You must preserve your capital as well as you can so that you can keep on trading, earning and learning.
The Psychology of Trading - The Psychology of it All
Again, we’ll talk about it later, but we have to get straight right now that you will be challenged, more than you currently realize, when you start trading in earnest. Trading is very difficult psychologically, and you must be prepared to be disciplined in your actions.
Fear and greed are usually named as the dominant emotions that will attack your trading discipline, and you will find your feelings working against you, particularly when your money is on the line. Most people think that they can be in control of themselves if they really want to, but you will be experiencing forces that may be outside your previous experience. At least, that is the finding of many novice traders.
What you need to do and how to do it will be reinforced by the modules, the videos and webinars. Don’t try and second-guess your next move when trading, and make sure that you always stick with sound principles regardless of whether you are winning or losing. If you are winning a lot, it is easy to think that you have “got it” and that everything you touch will be golden, which will tempt you to trade more than you should and take on additional risks. If you have a losing streak, you may be determined to double up on your trades to ‘catch up’, which again can lead to ruin. Steady and consistent application of established principles is the recipe for long-term survival and growth. You can earn a great income on your own terms with trading, and this course will lead you the right way to make it a long term career.
Being successful as a stock market trader is no different to being successful at other things in life. It requires the right mindset to cultivate the set of core habits that lead to success.
Here are 10 habits all successful traders share (by Kamil . Schumann):
- Discipline - Highly successful traders write down their set of rules and follow them with military style precision down to the last detail, at all times and for every trade. They do not let emotions interfere with their trading decisions. They never second guess themselves and promptly take action on market signals according to their rules. They never trade outside their trading system because they have learned that doing so will just mean reducing their chance of success, risking not only the loss of more capital, but a loss of their winning edge and the ability to recognize other potential market opportunities.
- Passion - Traders who become successful in the stockmarket are passionate about what they do! They are usually driven by other things than just making the money. They trade because they love trading! They want to be the best possible traders they can become.
- Desire to Learn - Great traders never stop learning and improving at their game. They stay open minded to new ideas and concepts because they know that in order to keep winning, they have to stay ahead of the crowd and keep up with market changes and new emerging trends.
- Confidence - Traders who reach the top of their game have enormous faith in their own abilities as traders. They are confident about their trading system and rules and their ability to continue to win in the markets. They know that they will win over the long term and therefore are confident taking small losses quickly by following their trading rules because they understand that their wins will far outweigh the losses they kept small.
- Patience - Successful traders will patiently wait until a suitable opportunity arises before entering the market. They have long learned that they do not need to be in the market and trade all the time. After having entered a trade, they will exercise patience to give it enough time to work out in their favor, according to their trading rules. They know that profits take time to grow and therefore have learned how to stay with a winning position to maximize their returns.
- Persistence - Top traders stick at what they do and trade the rules that they find work best for them and keep applying these to the market consistently.
- Willingness to Lose - Traders who achieve any level of success have learnt that losing is a part of winning the game. If a loss presents itself, traders who are successful take it quickly and move on because they know that cutting their losses fast will restore their objectivity. If their trade does not work out as originally planned, the pros do not hang about hoping for things to work out – THEY GET OUT IMMEDIATELY!.
- Balance - Successful traders have no problem with taking time off from the market. They keep their trading in perspective and maintain a balance because they know there is a lot more to life than the market. Besides, it will always be there to trade when they come back.
- Always use Stops! - The primary objective of a professional stockmarket trader is capital preservation. Cash preservation is King! It is so important that it takes preference over making money. A stop loss is the safety net that allows the trader to keep their losses small. Every trader who has achieved any level of success in the stockmarket has done so because they have learned to use a stop loss in their trading in the following two ways: (1) To protect their capital and limit losses when wrong, and (2) To manage their profits on a winning position. Stops should be placed with your broker at the time of placing an order for the trade. They should be automatic orders rather than mental stops because even if you’re the most disciplined person in the world, anything can happen in the market and you need to protect your trading capital whenever you put it at risk.
- Always Trade with a Plan! - Successful traders meticulously plan every aspect of each trade that their system shows as a potential opportunity. A trading plan is a combination of each trader’s personal trading method with specific money management and position sizing rules, precise entry timings and absolute stops. It tells when to cut your losses short if a trade does not work out as originally planned. It addresses how to raise your stoploss to protect your position and profits on a trade that moves in your favor, shows when to take your profits, how to add to a winning position and how to re-enter a trade should you be stopped out prematurely. It should also have rules for staying with a winning position in order to maximize your profits when a trend unfolds.
The Psychology of Trading - Goals & Objectives
Just as having an objective target price for each trade you enter helps you to stay disciplined to your trading plan, setting personal goals of what you want to achieve helps to cultivates focus and maintain a clear vision of where you’re going. Having written goals to aim for allows you to measure and make improvements to your performance and stay on track.
Decide on the returns you want to achieve in the timeframes that suits you. For example, if you hold positions for long term growth, set yourself yearly goals to aim towards. If you’re a short term trader, have monthly or quarterly targets to aim towards.
One of the best books I’ve read about how to set and achieve your trading goals is ‘Trading in the Zone’ by Mark Douglas.
July 22, 2019