Acing the markets: Four elements of becoming a successful trader

CK Narayan

Trade does appear easy – at least from the surface, then why does success prove elusive? So much so that many people are then willing to swear that there is no money to be made from this endeavour. Only those that have succeeded with it will beg to differ.

So, if there are success stories then there has to be a way to do it, right? The following is my account of how I have made a success of it through the years.

First up, we need to realise what we are dealing with. What is apparently an execution matter actually has four distinct components—mechanical, system, trade and money management and psychological--that need to be in place for success to even become a possibility.

First is the mechanical part. This involves all trade enablers to be in place. Like a good broker with strong infrastructure, etc. He also needs to be low cost and offer whatever additional benefits like seamless money transfers, news and event updates, market apps wherever possible.

Next is the system part. Market is a dynamic arena and you need to be able to know ASAP what changes are occurring and where. This is paramount, because, in change lies opportunity. So we need a front end that is capable of conveying to us such change opportunities.

Changes are better spotted as visual elements and hence good charting software is mandatory. Perhaps, it may be a feature of your trading terminal. But if not, then get a separate one.

Data feeding the front end has to be live and there cannot be a compromise on this. Then we need to have a scanner that can signal opportunities.

The Mechanical and System portion can provide you with trade entry signals and enable the transaction. Now comes the trade and money management part. This is a portion related to assessing risk (initial, continued) and reward (expectations, changes etc.). It is about position sizing and planning exit strategies.

While some methods may have the opposite of entry criteria as an exit strategy, it need not be so for all markets and all methods. The time orientation of the trade needs planning because day trades are to be executed and handled quite differently from swing and positional trades in the same stock. Short term investing or momentum investing would again require some different parameter as well.

Also, every stock behaves differently and will behave differently in different market situations as well. When we have several trades open at one time we have to learn to manage them as per their vagaries in the context of the current market situation.

The fourth element is the psychological part. Proper mindset is what one has to achieve to integrate the elements one to three so as to produce a composite whole.

Unfortunately, most traders never realise the fact that their mind is their worst enemy and the biggest impediment to success. Just as one has to work to learn to use a software, apply technical and fundamental analysis, read and understand news etc., a similar (if not more) amount of work is required to set our minds in order so that it supports rather than inhibits what we are trying to achieve.

There is much more to be said about each of these parts but by now you get the idea. Unless ALL the four elements are present in full quantity, success will remain a dream. If you are able to get together these elements, the consistency of success grows.

CK Narayan is the chief mentor at Chart Advise and offers trading calls and advice at Moneycontrol Gamechangers. Views expressed are personal. To get trading recommendations from CK Narayan, click here.