There are basically two methods of market analysis used by most of the successful traders; fundamental analysis (A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security’s value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management – according to investopedia), and technical analysis which investopedia defined as “a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity”. It depends on the trading system that suits your personality, what I have observed is that most of the investors, even though they have tested fundamental analysis, opted instead for technical analysis. Technical analysis has been tested and proven to work more than fundamental analysis, but in all, there are other things that make investors successful or doomed:
Intrinsic traits
- Self – confidence: they are not afraid to test their method, they are calm and focused, they don’t panic when the market seems to be heading downwards, and they have confidence and faith in their method.
- Self – control: they are disciplined, they don’t follow the market hype blindly, they know when to buy and when not to buy, they are not easily coerced into buying stock simply because it is available at a cheaper price, neither are they intimidated into selling because it is going high.
- Decision making ability: they make their own decisions easily without allowing external factors make the decisions for them.
Extrinsic traits
- They use a trading system and rules that they are comfortable with and they stick to it. Changing systems most times causes more problems for the investor than it solves.
- Most of them use technical analysis to forecast their trade with the support of a mechanical trading system. Before applying any trading system in the real market, they back-tested the method in a demo market to see how it works.
- They started small. A bulldog of today started as a puppy, they started with few trades to minimize their risk.
- They approach every trade with the same intensity, seriousness and dedication, treating every trade with the same degree of respect as the other.
- They are not panic driven. One danger about panic is that it makes you to exit a trade too early when you should have stayed a little longer, thereby losing out on your potential gains, and also it can lead you into panic buying – buying any stock you come across with the believe that you will recoup all your losses with that one.
- They are technically sound. Never enter any trade you do not understand. Stock trading is not what you decide in the night to do and start the next morning. It doesn’t work that way, even the most experienced traders do make mistakes. Read stock trading books on strategies, etc, avail yourself with different trading methods of successful people, discover what sets them apart from the rest, what they did and what they did not do and then follow in their footsteps.
- Practice, they say, makes perfect. No matter how experienced you are, you can always improve. Learn a new strategy and then practice it first with a demo account before applying it in the real market. Once you identify a winning strategy, stick to it. They don’t change a winning team.
