A vital mental skill to
develop for successful online trading is that of being independent of
the opinion of others. You need to do your own research, formulate your
own opinions and have the courage to stick to them when you trade,
regardless of the opinions of the majority. This is true in ANY market;
forex trading, futures or options trades, online commodity trading or
whatever.
Independence is not a
quality that is particularly admired or reinforced in society in
general. Conformity and agreement, and not standing out in the crowd,
are all too often the name of the game, even in areas where it really
should be otherwise. For example, in business the ability to be
independent and unswayed by the crowd should be a prized quality.
Instead, simply toeing the party line and playing politics gains better
rewards in the short/term.
The famous personal
development teacher, Earl Nightingale, used to say that if you want to
do the right thing and you lack a mentor to teach you, simply watch what
everyone else is doing, do the exact opposite, and you’ll probably never
make a mistake as long as you live. How true!
In Trading, the ability to
be independent is even more important than in other life arenas. That is
because in the Trading arena, there is no such thing as “absolute truth”
and there is no end of opinion, conjecture, rumour and fantasy. Hope and
Greed play their part too, and overall create a landscape of illusion
wherein a person with no independent opinion of his/her own will be
swept away to rapid destruction.
The fact is that there is
a whole plethora of valid ways in which to make money in the markets.
You can choose your own way and be perfectly effective and profitable.
You don’t have to buy the latest new-fangled trading system, or adhere
to any particular trading dogma, no matter how well informed it may seem
to be. Likewise, you should guard your own mind from being unduly
influenced by the opinions and theories of others, which may only serve
to throw off both your mental discipline and your resulting trading.
A case in point happened
to me a few years ago. I had a very successful short trade on in
Eurodollar Futures. It had built up in profit over a period of several
weeks, and the market demonstrated every sign that this should continue.
However, at this point I took it upon myself to ask a well known
trading guru his opinion of the market. He expressed the opinion that
the market might turn and trade up in the next day or two. I let myself
be influenced by this and tightened my stop, and was taken out of the
trade as a result when the market did indeed demonstrate some temporary
strength. However, it then rapidly weakened again and made a
considerable sell-off… but without my being involved this time!
Hence, even when you are
right on your analysis and profitable in your trade, you can still
suffer if you fail to maintain your independence of mind and experience
the result of it.
Lack of independent
thought also manifests in watching the financial news channels to see
what they think, asking your trading pals, hunting down stock tips,
failing to do your own research on them, and so on. In fact, it really
comes down to the kind of person you are, or aspire to be. Are you the
kind of person willing to put in real hard work and have the courage of
your convictions? Or, are you the kind of person who wants the quick
fix, wants to make money easily without any real effort, and expects to
get everything without expending any effort?
The point is that you do
need to do your own research, make your own findings and stick to them
regardless of all the chatter that will surely assail you. If you
examine the habits of top traders, e.g. the individuals found in the
Market Wizards books, you will see that despite a huge variety of
different methods of trading, they all possess tremendous independence
of mind. They all do their own research, and hold to the courage of
their own convictions. So too should you.
Sure, you can buy someone
else’s “sure-fire” system, subscribe to a stock tips newsletter or
whatever. However, unless you can develop this independent frame of
mind, and the willingness to do your own research and stick to the
results of it come what may, you will be like a plastic bottle cast
adrift upon the ocean, tossed from one wave to the next, from one
trading system to the next, and even from one tip sheet to another.
So, from the beginning,
strive to develop this trait of mental independence; of being a longer
in the markets. Trading is one of the few arenas where being a loner is
a major advantage, certainly in terms of developing and maintaining your
own independent work and analysis.
Use this to your
advantage. Be independent in your trading and don’t just follow the
crowd!
