After formulating and deciding the parameters and understanding the importance of developing a trading plan i.e. Rules for Money management, Trade management and getting a glimpse of importance of Psychology in our trading next important step for a trader is to “Know Your Market”.
Deciding the parameters to trade is one side of the game and getting in and applying into the market successfully is the other and yes more important one. So, before gushing in and entering the trading arena, understand the importance of Staying Focused and knowing a market very well to be successful in Trading Business.
There are many things which happens in a market, so if you really want to trade big you have to know what the market is doing. You cannot keep on scouting out here and there and looking for different stocks or markets to make small profits.
You cannot keep on trading a single lot of Bank Nifty Future every time and making some 1000-2000 bucks every time. You have to reach to that scale where you are trading at-least 100 or 200 or 500 or 1000 units of bank Nifty and making some where around 300 -400 points on average in a trade or even 100 points on an average in a trade that should be some where around Rs. 20,000 or 50,000 or 1 lac per trade.
As in the market, you will be wrong many of the times, so on those phases why you are scouting to keep on looking for new a trades in the different stocks or market you know nothing about.
Know your market. be ready with the places, time, price or setups or patterns you will be trading. Know your comfortable places. Expect that to happen. Wait for your points to come in or Wait for “Your Places”. Pre-determine the places (Price & Time) where you will be buying the market or you will be selling it short. Do not work in a ziffy. Be Ready and be opportunistic.
Understand the market so that it starts to talk to you by itself telling you where it wants to go. Its very very very important. Always Know Your market. Consider a case, where you are changing the markets or stocks you are trading every time, then how you will be able to trade 10 or 20 or 30 lot size in market at any time. To take that big leap or big quantity, you have to know what actually market is doing. Some of the time, market makes such great patterns , that it comes to you and say Please Buy me or short me.
Big and small prescription of success in the trading business is to stay focused, and know your Market. Know everything you can about a market rather small things about many markets.
Even if we you take the example of some of the big successful traders around the world. They are not successful because they are right most of the times or because they are trading most of time. But because they are focused and they are right some of time in the big way.
Ray Dalio, who is the founder of Bridge Water Associates managing some $150 billion, forecasted that the market will be going through a trauma in 2008 and made some 30% return in that particular year.
An investor would follows a top down approach and get deep into analysis of economy then further down to the industry and find the company he feels could be a valuable asset to invest in. He invests all his time, researching a company by studying the companies fundamentals including the product, financials, future prospects, competition and investing his capital for long term and makes it a wealth creating asset.
The idea here is to be an expert in one market. So, its better to know more about a market then knowing some about many markets. So, start analyzing the markets on bigger as well as smaller charts and try to understand the habits and characteristics of the market you are interested in. Make it in your Trading plan the maximum number of markets you will be tracking and trading. Back-test each technical tool you know to “Your Market” and see what really works for you. Try to filter out the tools which you feel fits under your belt and comfortable zone.
A trader should develop an insight and deep understanding of a market or stock he or she is interested to trade in. Markets are regulated by rules designed by humans and surely traded by them too. So all the markets or stocks are driven by human traits, habits and in-turn has its own individual habits, characteristics, features which leads to formation of repetitive patters, setups and behaviors. People generally has a dilemma that trading is about playing the price momentum of the stocks but its actually trading the behavior or patters or psychological repetitions in the market or stocks. Apply and check all the tools to the market or stocks of your choice and see how well the market fits and works on those criteria`s.
Knowing a market or a stock in deep will give the trader/investor a positive edge that will help him to manage his risk wisely, be safe and remain in the market forever. Ask yourself how can you make it big trading & investing stocks or markets you know nothing about?
KNOWLEDGE IS POWER!