Part 3: Rational Analysis And Stock Trading

Provided By Ultimate Trading Systems

What Technique do We Need to Learn for Stock Trading?

Obviously these are abstract concepts and certainly not something most involved in stock trading are going to concern themselves with. Yet understanding the relationship between beliefs, attitudes, and perception is as fundamental to stock trading as learning how to serve is to tennis, or as learning how to swing a club is to golf. Put another way, understanding and controlling your perception of market information is important only to the extent that you want to achieve consistent results in stock trading.

We say this because there is something else about stock trading that is as true as the statement we just made: You don't have to know anything about yourself or the markets to be successful in stock trading, just as you don't have to know the proper way to swing a tennis racket or golf club in order to hit a good shot – occasionally. The first time you played golf, for instance, you might have hit several good shots throughout your round, even though you hadn't learned any particular technique; but your score was still probably well over 100 for 18 holes. Obviously, to improve your overall score, you needed to learn technique.

The same is true for stock trading. We need technique to achieve consistency.

But what technique do we need to learn for stock trading? If we aren't aware of, or don't understand, how our beliefs and attitudes affect our perception of market information, it will seem as if it is the market's behavior that is causing the lack of consistency. As a result, it would stand to reason that the best way to avoid losses and become consistent in stock trading would be to learn more about the markets.

This bit of logic is a trap that almost all involved in stock trading fall into at some point, and it seems to make perfect sense. But this approach doesn't work. The market simply offers too many — often conflicting — variables to consider.

Furthermore, there are no limits to the market's behavior. It can do anything at any moment. As a matter of fact, because every person in stock trading is a market variable, it can be said that any single trader can cause virtually anything to happen.

That means no matter how much you learn about the market's behavior, no matter how brilliant an analyst you become, you will never learn enough to anticipate every possible way that the market can make you wrong or cause you to lose money in stock trading. So if you are afraid of being wrong or losing money in your stock trading endeavors, it means you will never learn enough to compensate for the negative effects these fears will have on your ability to be objective and your ability to act without hesitation. In other words, you won't be confident in the face of constant uncertainty.

The hard, cold reality of stock trading is that every trade has an uncertain outcome. Unless you learn to completely accept the possibility of an uncertain outcome in stock trading, you will try either consciously or unconsciously to avoid any possibility you define as painful. In the process, you’ll subject yourself to any number of self generated and costly errors.

Now, we’re not suggesting that you don't need some form of market analysis or methodology to define opportunities and allow you to recognize them within stock trading; you certainly do. However, market analysis is not the path to consistent results. It will not solve the stock trading problems created by lack of confidence, lack of discipline, or improper focus.

When you operate from the assumption that more or better analysis will create consistency, you will be driven to gather as many market variables as possible into your arsenal of stock trading tools. But what happens then?

You’re still disappointed and “betrayed” by the markets because of something you didn't see or give enough consideration to while stock trading. It will feel like you can't trust the markets; but the reality is, you can't trust yourself.

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