Trading rule number 5: think for yourself
I have applied this rule for a few years, and coincidence or not, I have become a winning trader by applying it. I am not sure that this rule could apply to everyone. In my opinion this depends on each individual's personality and psychology. In my case, it has enabled me not to be easily swayed and to abide by my swing trading objectives.
The impact of the environment on trading
Previously, I spent a lot of time reading technical analyses, I spent many hours combing discussion forums and reading the specialised press… I felt that I was "working", collecting information, trying to see what the general trend was … In fact, during the time I spent collecting information, I was trying not to think, to analyse my trades, contemplate my charts and especially to work on my behaviour and my psychology when I was positioned. All the expended energy was in fact nothing more than perhaps a display of activity so that I didn't have to face the key point: trading success is 80% psychological. Worse, when I had a kind of conviction about the financial markets, reading 2 or 3 different opinions unsettled me and made me doubt. Doubt is an essential part of trading, it enables you to stay cautious, to check your leverage… but it can also have a negative effect, it can inhibit decision-making.
I got the bug a few years ago when I was preparing to place a buy on the Nasdaq 100 after several months of strong declines. I was confident of my analysis, it was essentially based on the recovery of a major psychological threshold with other supporting technical elements. A very nice swing to attempt. Unfortunately, I read a few analyses with contrary views to my belief, I browsed a well-known trading forum where 95 per cent of the traders were bearish. I became doubtful, could I be right against everyone else?, I did nothing and I missed one of the best Nasdaq 100 recoveries in its history…which would have pretty much launched me as a trader on my own account. From that day forward, I content myself with the raw information: the American unemployment figures, the GDP figures… I don't read, especially not interpretations, analyses, etc. I have my own personal opinion and above all I look at how the financial market reacts when the information is released.
Too much information drowns information and adds fear
My behaviour is perhaps excessive but I find there is a balance, a form of serenity. For example, I have been bullish on all indices since November 2011, it was my personal analysis that relied on market psychology and on fear. I have a forum on my blog, Andlil.com, and read the comments. For months I had comments, sometimes violent, of people who recited what they had heard on the television. I was obliged to justify myself because my opinion was opposite to the ubiquitous doomsayers forecasting the end of the world, the collapse of the euro… They traded indiscriminately because of X or Y, analysts recognised both figuratively and literally because they appear on television…, repetitively said that the indices were going to fall to their lowest historical levels… We were simply in full mass hysteria or at least trying to maintain an audience.
One fact must be taken into account: the business of television is to create fear among people, because fear breeds an audience. There are many theses on this fascinating subject including in sociology and behavioural psychology. For example, if you say that the current crisis is not the mother of all crises but that it has been the economy's natural state for 40 years, that the euro cannot collapse… This is of no interest, you will not appear on the TV, you will not be invited to a debate program. If you don't put on a show people will channel surf... If tomorrow you write a book entitled "Napoleon died a natural death" you are not going to sell a single book. If you publish a book called "Napoleon is dead, poisoned by the English", it will be a best-seller. The media give people what they want to hear, human nature is more attracted by fear, death, catastrophic situations, etc.
This must be taken into consideration in our trading, know how to judge the quality of information supplied to us and what motivates the media. In the end, the best interpretation will remain our own. But to be able to really think, you certainly need to have a form of autism these days, otherwise we can be totally overwhelmed by information of varying degrees of quality. I also think that if I had not voluntarily cut myself off from these "influences", I would not have been able to hold my Bull position for as long as I did, and I would have missed the best 2 bullish years of this decade.
For a trader on his own account the essential objective is being free: no longer dependent on a boss, a hierarchy, being autonomous, responsible for his acts, his choices... but intellectual freedom is also a guarantee of success in trading. In a nutshell: "Advice is cheap".