The Knowledge of Trading

When I studied the principles of buying university, I was taught that the cost of a share reflected the value from the company. With fundamental analysis, there are lots of methods on how one could analyze the financial statements of companies to discover whether a share is an excellent or a bad investment. You possibly can conduct horizontal and vertical analyses on standardized financial statements that happen to be just fancy terms for evaluating numbers. You can calculate certain financial ratios to have a better understanding of a corporation's liquidity, working capital management, its ability to remain in business over the long term, and its profitability.

I applied these concepts when i started trading the stock current market. Soon I found that basically wanted to trade shares in a timeframe of less than three months, decisions based on these analyses weren't useful. I did not want to buy shares only to receive payouts. I wanted to trade pertaining to capital gains.

I was not satisfied with my knowledge, the tools and the methods that I had for you to trade the markets. With my desire to trade a timeframe shorter than three months and my strengthening belief that emotions greatly influence on trading, I began to search for different approaches to selling and buying shares.

I went back one of my textbooks in college. I wanted to know how else I really could analyze the markets. From the actual passage I read, I learned that one could analyze the markets in one of two ways: fundamental analysis and complex analysis.

I bumped into a newspaper ad one day for a trading seminar. While reading through the ad I saw the word what: technical analysis. An expert trader would definitely speak on the exact topic I was enthusiastic about learning. It was a free workshop and everybody was welcome to come along. So I called a good friend of mine and I asked if he would be considering attending this trading seminar. He / she were.

The seminar was organized by way of business selling trading courses: courses to teach people on how to trade the share market. When we arrived, we were led into a small room. There were concerning thirty people. The spokesman seemed to be apparently a veteran trader that wrote two books on exchanging. Let's call him Bauer with regards to this article. Bauer had a really strong presence. He was a massive, tall man with a clean-shaven mind.

I was on the front row seat attempting to listen and understand every term this man said. It was his teachings in which planted the seeds of buying and selling domains eventually grew as a trader over time. Many times, I heard his voice in my head, reminding me of the instructions I learnt from his books and the lessons I learnt from him that day. I will try to enumerate the actual lessons I learnt from this man that may help you the way they helped everyone.

This man had my attention from your very beginning. "The share market is really a game where people try to steal money from other people. That is the objective of the game and it's legal", he began. I wondered what the professionals in Wall Street would have thought about that statement if they read it. I smiled. I liked him already.

He continued: "If you are going to join this game, you are essentially given concur to steal money from other people and in exchange, you are okay with these stealing your money also. A lot of the brightest people in the world is going to be playing with you. Therefore, if you are going to war and fight an military with real weapons, you better you should definitely do not go there that has a plastic gun. "

He said that folks rush to the markets to lose their money. It sounded laughable but I guess it was the only conclusion one can draw from the point that most people begin trading with no sufficiently preparing and educating themselves. Of course, most of us do certainly not put on a trade with the expectation of losing our money; nevertheless, that is what we are effectively doing if we trade without adequate preparation.

"They just cannot wait to lose their money. They do not bother researching the market first. They believe it is easy. Most people know that they can need training before they could fly a plane or carry out surgery, but I do not know why they think you'll be able to make money trading", he exclaimed. He was quite emotional about it.

"Trading is hard", he expressed. Only about 5% of people learn how to trade profitably. And so the probability of finding someone else who knows what they are doing can be quite, very small. "Do not rely solely about the advice of your brokers, ones fund managers or whoever otherwise. Your best hope for success should be to educate yourself. The sooner you do that, the better off you'll be. "

"When it comes to selling and buying shares, there is no this sort of thing as investing. What people normally make reference to as investing means long-term exchanging to me". When people preserve their investments for five or more years with the intention to market later, then all they are effectively doing is trading: just with an extended period frame.

"Do not buy shares solely for the dividend payments. They offer a person measly rewards", he said. "Do trade only with the intention of making money from capital benefits. Buy low, sell high that is certainly how you should make ones profit. "

At the period, I was juggling between the actual concepts of short-term trading or investing for the long-term. I did not know whether I was taking the right approach by attempting to help make short-term profits. He made his stance about the matter strongly.

He asked us if we knew what drove prices up or down. Recalling what my lecturer said in university, I responded, "the price moves down and up close to the intrinsic value from the share".

He turned his focus on me and asked, "What share are you trading? "

"XYZ (I changed the name with regards to this article)", I replied really happily. Perhaps I could squeeze any tip or two from him around the stock.

"Do you know precisely what the intrinsic value of XYZ Company is", he asked.

I nodded the head sideways and muttered, "no".

"I'll explain what the value of XYZ is actually: it is zero! " He / she barked.

I was taken aback by means of his response. Zero? Then what exactly are we paying money for if we buy a share? I considered. Then he clarified himself.

"Price should be only a perception — it is actually people's perception of what they think the worth of the share price is".

"The key to success in trading is actually psychology", he continued. Psychology? My partner and i thought. How did psychology get involved with this? "The stock market is much like an opinion poll. It is a measure of what people think could happen. If they think the cost will go up, you will see an upward movement about the chart because there are more buyers to ensure the sellers increase their price because a few of these buyers are willing to invest in at higher prices", he explained.

He then used an example to spell out a typical trader's behavior when he trades with not a system. As he explained this, I recognized my own behavior in his demonstration.

This was all a revelation for me. When I was buying as well as selling shares I wondered the type of people were on the other hand of the trade because collectively, they were pretty smart. Now I realize. It was people like Bauer who were on the other hand of those transactions, doing the exact opposite of what I seemed to be doing, using similar methods like the ones he was using. These were looking at the share market that has a philosophy and an approach that were completely alien to me. Traders like him were making all the money and traders like everyone were losing.

I shook my head in disbelief that other people saw things the way they did. I felt excited knowing that there was another alternative, an additional approach in analyzing the areas.

"What you need, is in order to develop your own trading system. " He exclaimed to everybody inside the entire room. "Without a exchanging system, you will fail. My partner and i guarantee you. This trading system need to be something that is suited in your case and you only. Even if I give you my trading system Almost certainly that you will fail to produce money, because my system just isn't designed for you. It is designed for me. That is why you should learn how to use the knowhow and acquire the skills must be a trader".

I accepted his advice without fully understanding this notion of matching a trading system to match the trader's own personality. It lingered in my mind for years. The wisdom of his advice became apparent to me as I slowly learnt more around the nature of trading.

Bauer diverted our focus on the charts on the monitor projected from his laptop. Just about all I saw were lines, curves, rectangular boxes and more squiggly wrinkles. The tools of a expert trader: I thought. I was being shown the tools that my market 'adversaries' are already using to 'clobber' me with all of this time. My heart was defeating faster than usual. I was at awe. I wanted those methods.

I asked Bauer what program he employed to analyze the markets. He said. I also asked him the number of indicators he used. I had read enough about technical analysis by that period to know that technical analysts use indicators to analyze share prices. There are many indicators to pick from so I wanted to know how many of those are used by professional dealers. He started counting his fingers. 'Seven', he said.

I think many people there had not really review technical analysis but I had done my homework and by that period, I was pretty much the only person in dialog with him, asking him questions. I desired to gain as much knowledge and wisdom he was happy to give me.

Then I heard the most important lessons I've learnt which minimized my losses within my early years of trading: "Trade so small it is almost a waste of your time and energy. Assume the next trade will likely be the first out of a thousand trades you are going to be making in your existence. Even though your profits are smaller, your losses are smaller sized too. There is no should rush. Do not worry about getting rich too quickly. "

He was suggesting in which novices like me should trade using small position sizes. That means to buy few shares at the start. My partner and i was intrigued. I did not know somebody should trade that 'small'.

Gradually, the seminar ended. I grabbed the booklets as well as brochures given out by some of the staff. In one of these brochures was the name from the program he uses. They were selling the software program with the courses they were offering. I could not pay the entire package but I knew I did to buy the same charting software package Bauer used. I decided to learn up to I could about how to work with charts and graphs to analyze the market industry. I needed to develop my own trading system.

As for my good friend, he said he had a car loan to manage first. He would look into exchanging shares later when he had a bit more money to set aside.

A week later, I got a call from your organizer of the seminar, telling me that based from your questions I had been inquiring that night, I was the sort of person that would most take advantage of their education package. Bauer was asked to demonstrate the need for trading training because he traded the areas. In the process, he seemed to be selling the courses well. Bauer felt knowledgeable and experienced. He has enlightened me and probably several other people in that room about how precisely much there was to discover. I was sold. I just could not afford the courses at the time but I wanted them so badly which i asked the sales person about the other end of the line basically could work for them as a swap for the course.

I failed to get to do the course but I acquired the software from a different distributor at a cheaper price. I also bought both books Bauer wrote. I figured which i could acquire the skills as well as wisdom through self-education. I learnt lots from those two books and from while using software. Having that opportunity to wait that seminar was a 'gift from your heavens', as far as My partner and i was concerned. Wherever you are, Bauer, I thank you. You — yet others like you -- have made me recognize the worth of passing on knowledge and experience for others to visit.