The trading way of life....

Its 9.50 am in the morning. A group of people are sitting in front of their computer screens. The atmosphere is buzzing with thrill and anticipation. 9.55 - the bell rings. Is it just another bell? Well, it is the opening bell of the Indian Stock markets. Where crores of rupees change hands within minutes. Welcome, to the big and exciting world of trading.

If asked, most of us would say, trading is speculation, betting or maybe even gambling. Some will say trading is what brokers do on NSE and BSE. But is it all that simple? Of course not. We all have heard of CNBC, Reuters, Bloomberg, etc.
All of them are billion dollar companies. And where do they all get their revenues from? By covering global financial markets. This would probably give you an idea of how big these markets actually are. And what happens in these markets? Trading.

Now when we talk of markets, let us understand the different types of markets. They can be broadly classifies into four categories. Equities, Commodities, Forex and Fixed Income markets. The product traded in these markets might be different, the liquidity available might be different, the people who trade these markets might be different, but the bottom-line remains the same. And that is to earn money. But how do we make money? Is there a formula which we can use? Obviously, there isn't because if there was a formula, we all would be millionaires today. In fact making money in these markets is tough and losing money as much easier! There is a lot of fundamental and technical analysis which goes into making a trading decision. There are research teams which take care of this work. But if someone gives you a research report, will money making be easy then? Again no. Because you need something more. It is the psychology and character of a trader. So what exactly does a trader need?


A few important qualities are:

Discipline : So that we don't end up mixing trading with gambling. 'Sometimes your best investment decisions are trades which you don't do'

Modesty : So that we can accept that we were wrong in the market. Being wrong in the markets is acceptable but staying wrong isn't.

Quick thinking : Because the opportunity of a lifetime has to be seized within the lifetime of the opportunity and here, the lifetime could be just one second long!!

Greed : In proper doses of course!!

Let me share one of my own trading experience with you. It was 3rd October, 2006 and my market was trading at new lows. I sensed an opportunity and started buying. The market moved down further and I bought more. The technical charts were suggesting an upward move, the fundamental reports were giving similar indications too. What else could I have cared for. I bought, bought and bought. And then suddenly the market spiked downwards. As the market went into a free fall, my loss started increasing. I panicked and started praying for a miracle. But the miracle never happened. In such situations, it hardly ever does.

I suffered a huge loss and the reasons were clear. I was not disciplined and hence did not cut my loss at the right time, I was not modest enough to accept that I was wrong in the market, I did not think quickly enough to react at the right time and of course I became greedy with my position.

Luckily for me, I was a new trader then and was therefore trading with very few quantities. So the total loss wasn't a very big amount. It's been more than a year since that day now and I have seen a lot of ups and downs in the markets. But the lessons I learnt that day are ones, which I can never forget.

Trading is definitely not for the faint hearted but for those who believe, 'only those who risk going too far, can know how far they can possibly go'