Develop structural understanding of market | stockbee


Develop structural understanding of market

Creating structure and process flow helps you stay focused.

In absence of structure mind tend to wander all over the place. Monday you  get excited by stocks near 52 week high because someone says only buy them. Tuesday you read somewhere it is best to buy 52 week low and how someone has made 16 million doing that. Wednesday you hear Darvas like all time high. Thursday someone says real money is in  low priced stock. Friday IBD says buy  high priced stocks. Every Saturday and Sunday you have some new new insight.

That is how many of us are at beginning stages of trading career. we believe lot of things. We can get influenced easily. This kind of behavior is symptom of lack of structural understanding of the market. As novice we do not know how markets work. We do not know how traders actually make money. We do not know what kind of money trend followers can lose. We do not know someone claiming to be making 50% a month might even not know how to calculate his own returns.

As we grow as trader we start to understand market structure. Structural phenomenon in market do not change easily. Stocks move in momentum bursts is structural phenomenon. Stocks react to surprisingly good or bad earnings is structural phenomenon. Neglected stock make big moves when catalyst shows up is structural. Stocks move in direction of range expansion is structural. Stocks exhibit mean reversion and this is more pronounced on long side is structural phenomenon. Range contraction resolves in range expansion is structural phenomenon.

Structural phenomenon like these do not change suddenly and persist for years. They have persisted for hundreds of years and will persist throughout our lifetime. When you own up one of these structural phenomenon and build trading method and process around it you will find better success and less stress.

You can be a discretionary trader and still have a very systematic thinking process to arrive at decision. You do not have to be mechanical trader to have structure and process.

In absence of processes and structure your mind gets occupied by whatever is readily available. It becomes susceptible to improvise on the fly. It gets influenced by success or failure  of a trade. It flirts from ideas to ideas.

Put a process and methodical framework around your  trading. It helps you  stay focused and helps you stay within self imposed boundaries. There is some sacrifice involved in this. You do not need to trade all structural phenomenon. You need to make conscious decision about time frame you want to trade and the structural edge you want to focus on.

In trading there are so many temptation, there is environmental noise , there is constantly changing market and complexity. The complexity kills many budding traders. That is where structured, formatted and regimented approach is what is needed.

If you want to get focused start by putting a process and structure around your trading.

No comments: