Successful Trading Depends on Experience and Guided Execution

 

Every investor, at some point during his circuitous route to successful investing, must encounter the dichotomy of the industry.  Nearly all investment management and advisory firms preach the virtues of “buy-and-hold” investment strategies to consumers on the street, while in their back offices, they act completely the opposite, searching every day for trading opportunity gains using a variety of time-tested trading techniques.  Day-trading is deemed too risky for the uninitiated, and unfortunate failure rates are highlighted as evidence that “buy-and-hold” is the only way to go.

Each trading modality requires knowledge, experience and the ability to control one’s emotions to achieve success, and you do not need insider knowledge or a stratospheric IQ either.  Warren Buffett has told us as much many times over.  Yet, the dichotomy persists.  However, for the curious minded soul who has chosen to do a little more investigative work, the world of active trading does not appear as perilous as his broker would have him believe. 

If timing trades were such a difficult task to perform, then why are so many traders good at it?  Why do we have “High Frequency Trading” hedge funds with automated trading “black boxes” and even trading robots available in the general marketplace?  Despite intellectual arguments from academics, active management is here to stay.  It is an economic reality.

Technical analysis is a trader’s best friend.  Observing price behavior in the market for stocks, commodities and currencies over varying time periods led to chart analysis.  Accepting price as the ultimate representation of all market forces, noticing a repetition of market price behavior, and observing the market tendency to move in trends formed the underpinnings of the art.

However, technical analysis does have its critics.  Random Walk Theory posits that all information related to a market is public, including chart information, and that the price already reflects past trends.  Future price movements have to be random, thus unpredictable.  There have been studies that utilized super computers to disprove this theory, but academics still cling to their intellectual beliefs. 

To the chagrin of academicians and politicians alike, the physical reality of the universe is based on wave theory, and markets gyrate until forces find their desired equilibrium.  You need only throw a rock and then another into a pool of water to observe the wave action as it moves and dissipates over time.

Aided with today’s computing technology, access to mountains of price behavior data, and a variety of pattern identifiers and momentum indicators, a skillful trader can easily prove the academics wrong.  However, time is of the essence in trading.  Time spent staring at a computer screen searching for insights is time wasted from a trading perspective. 

A successful trader needs timing support in the form of guidance from professionals who focus on proprietary methods that provide insights into the market.  Like every other profession, trading has specialists in every aspect of the discipline, some more skillful than others.  However, consistency is the objective.  No timing method is perfect.  There will always be winning and losing trades, but the “net” of the two must grow in the positive direction over time.

Cycles do repeat.  Trends can usually be confirmed in multiple time frames.  Crossovers between the futures market and the forex market, for example, can telegraph entry and exit positions.  Choose a specialist with these tools and execute based on his guidance, but only after doing your own homework and practice trading before putting your own funds at risk.  With time and effort, you, too, can be successful and earn the title of “trader”.