Drive to Learn
The danger is that once you start to see a degree of success, you stop making the effort to learn any more as it’s easy to feel that either you’ve already got things figured out or simply that the extra effort is unnecessary. But it’s precisely when you feel this way that you need to be learning more.
It’s all too familiar a story that a trader can see a good run of results only to follow that up with a losing streak that more than wipes out those initial gains. Recognizing the fact that there’s always the chance of your strategy stopping working or even that your trading execution performance could take a nose-dive, should be motivational enough to drive you to keep learning. However, most people are reactive to a drop in performance instead of proactive.
Stubbornness of Success
There are sometimes extended stretches where traders can see a great amount of success without things having changed too much. It could be in a prolonged period of low interest rates and QE for example. But what tends to happen is that traders get stuck in their ways and become overly reliant on a particular method. Unfortunately, this tends to be the basis of their success but also it’s laying the foundation for their future failure.
It’s like that old sports coach who might have had some minor success at pro level some time way back in history. They persist with the same tired old methods whether they have any merit or not because that is what brought them success in the past. What they fail to see is that it was their alignment with the market conditions in their field which brought them success and not necessarily the methods themselves. Keeping up with the times might seem like a lot of extra effort and a big risk when you already have a successful way of working, but not doing so will ensure you get left behind (or bankrupted) when things change.
All There is to Know
I don’t think I know any trader who claims to know everything about all aspects of the markets and trading. However, there are plenty of folks who know very little about certain topics purely because they denounce them as useless folly. Now of course there are plenty of questionable ideas out there, but to dismiss ideas out of hand is not a particularly wise approach either.
Developments are always happening in the areas of auction theory, technical indicators, charting platforms, money management and trader psychology to name but a few. Human psychology in particular is something which experts are constantly developing new theories on and some of which are particularly useful to the trading industry. But even if none of these topics are ones that you feel you need to continue learning about, the current market conditions are always developing and it takes a high level of commitment from a trader to constantly adapt and evolve their views to interpret what a market is doing right now.
Changing Market Conditions
If you find success in one type of market condition, when conditions change it’s more than likely that at least initially you’ll struggle unless you have ways of adapting to the changes. In fact, it’s such a common issue that traders lose a lot of money by being slow to adapt when conditions dramatically change. Take for example when the stock market corrects lower. A steady push up for many months can be arrested by a sudden sharp sell-off which can be very costly if you’re not wise to this. To compound the issue, many traders then see the added volatility as a precursor to a bigger sell-off. If it was just a minor correction however, these traders also get caught selling on the surge back up.
Never Stop Learning in Trading
Of course there’s a balance to be struck. Abandoning one strategy for another before you master it simply papers over the cracks of poor trader performance. Changing from trading based on a theory that’s currently making money to the latest and greatest method carries risk too. But simply standing still in the belief that you know all you need to in order to maintain a profitable trading career is simply not wise. So make sure that you are humble and recognize the need for incremental learning. Be a perpetual student of the markets and yourself – never stop learning in trading.
For more updates from Mark and the team at NetPicks, be sure to visit their trading tips blog at NetPicks.com.