What it takes to be a (good) trader!! - part 2

If you thought 'trading' is just 'buy and sell' in any order as long as it is profitable, you have hit the bulls eye. Yes, it is simply that. But to identify when to buy and when to sell is what that puts an amateur's mind in the fix.

Talking about trading, it is first of all not a zero sum game, it is a negative sum game because you end up paying commissions to the exchange no matter whether you make money or loose money. It is an entirely competitive space where thousands of competent people are vying for the fixed amount of capital that exchanges hands. What makes it complex is the psychology. Yes, if thousands of people without any individual information advantage and almost similar levels of knowledge about the products are the players, it is the psychology that matters!!!

Trading is a totally different ball game. If constant buying can take the price of the product higher, the resultant profit booking can bring the price of the very product lower. A good trader is not happy unless he buys his contract at the least possible price and sells the same at the best possible price in a limited period of time. It is this competition among such good traders that nudges the rookies and forces them to leave..

So it is very important to differentiate 'profit-booking' from 'selling', 'buying' from 'profit-booking(short-selling)'. This is more crucial in intra-day trading because the prices fluctuate so many times within a range that it becomes very tough to figure out when the range is going to break out!!

Put simply,

1. You need patience to wait till your target price is achieved

2. You need to be greedy and again not so greedy to book your profit at the right time and exit

from the market.

3. Be adept at establishing the probability of a particular move to decide the capital you are

going to use in capturing the move (remember, if you know that a 10% increase is 100%

likely, you make 100 rupees by investing 1000 and 10000 rupees by investing 10000)

4. When to enter the market and when not to enter the market.

5. How much of the profit to re-invest and how much to add to your reserves.

Whatever said and done, everything is said easier than done!!! The above list will reach 50 in number when you actually make your hands dirty...