You can only trade what you believe in.
Your beliefs drive your behavior. This is true not only of trading but also in real life. If you know a person's beliefs, you know how he will behave.
If you "believe " the markets are efficient and there is no way to make money by selecting stocks, you will go and buy ETF.
If you "believe" the only way to trade is using mechanical methods ( that is a belief) and discretionary trading is too vague (that is a belief), as a result, all your behavior will flow from it.
If you "believe," you should only trade triple ETF and not waste time on individual stocks (that is a belief), and as a result, all your behavior will flow from it.
If you "believe" that the only way to trade is with big risk and fully invested on margin, as a result, all your behavior will flow from it.
If you "believe" market will crash (it is a belief) you will spend time constantly shorting.
If you believe trading options is the path to big success (that is a belief), you will spend time trading options.
If you believe momentum stocks offer the best opportunities, you will trade them.
If you believe growth stocks offer biggest opportunities to profit from the growth you will build methods around your belief..
You will become a value investor if you believe growth investors are fools buying expensive companies.
If you believe stocks move in a momentum burst of 3 to 5 days, you will find ways to exploit that phenomenon.
If you "believe" barring liquid stocks, all other stocks are junk, you will only trade liquid stocks.
If you "believe" anticipation setup allows you to make money with the least amount of drawdowns, you will spend time trading them.
If you believe working people can not trade, then you will find a hundred reasons to justify your belief.
If you believe working people like you can still profitably trade, then you will find creative ways to find time for trading.
Every trade has deeply held beliefs like these.
The bundle of deeply held beliefs drives what kind of setup they will trade, what kind of timeframe they will trade, and also all elements of trade like entry, exit, risk, and number of positions held.
The beliefs determine where you will spend your efforts.
2 comments:
Excellent thought. Our belief is what makes us act the way we do. But what makes us believe what we do? May be it is time to also peek into what goes into forming our belief and when in doubt revisit them.
I just started watching all videos and started going thru the blog. I really want to get into right way of trading and willing to learn. I want to know how and where to start. Appreciate any inputs. Thank you.
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