Three obstacles to successful trading

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According to James “Rev Shark” Deporre of TheStreet, successful trading and investing is simple – in theory.

“You buy ‘good’ stocks with promising charts or fundamentals at attractive prices and then wait for them to rise,” Deporre wrote recently on Real Money. “If you make a mistake you cut your losses and move on to the next stock and wait for it to work. Over time, you should have enough winners to produce solid returns if you quickly take out the losers and stick with the winners.

If investing was really that simple or easy, then buying stocks wouldn’t be that potentially lucrative.

“It’s because it can be so difficult and challenging that we can produce great feedback,” said Deporre. “Choosing good deeds is the easy and fun part of the process. It’s what happens next that will determine whether or not you succeed.

According to Rev Shark, there are three main obstacles when selecting an action. How you deal with each of these issues will determine your level of profit, he added, so you might as well get to know the three principles of the stock market.

Luck.

Many market participants fail to appreciate the role of luck in trading and investing.

“No matter how smart you might be or how much research you might do, you’re always going to have good luck and bad luck,” Deporre said. This is the nature of speculation. You cannot control it because there is no way to predict the future.

Since we will always have the potential bad luck problem, we need to diversify our trade and investment enough that no situation can hurt us too much. “It’s going to hit us at some point, and we have to be able to take it in stride and move forward,” he added. “The worst thing you can do is try to fight it and not take action to reduce the damage.”

Random.

Luck is a business certainty, just like chance.

“One of the biggest mistakes I see traders make is underestimating the level of randomness in the stocks they own,” said Rev Shark. “The majority of the price action is just not significant, and if you’re overly sensitive to it you’ll be shaken up by good trades all the time.”

The challenge of dealing with chance is deciding how far it can go before cutting a position due to careful management of money. “Although a stock may suffer a significant drop for no real reason, we still need to focus on protecting capital,” noted Deporre. “Too often traders convince themselves that nothing has changed, lower the average, and then find that luck is not on their side.”

Patience.

A third stumbling block for many traders is lack of patience.

“I find this problem constantly causing underperformance,” noted Deporre. “A trader will be sitting on a good stock that doesn’t do much, but the trader wants the action and gets impatient. As soon as they sell, the stock does what has been planned for so long.

Lack of patience often goes hand in hand with limited capital.

“When you have limited funds, you want your money to work hard for you all the time,” he added. “You can’t just sit there and wait for other opportunities to develop, but you will be disappointed if you expect instant action. The best jobs take time to develop. My best scores come when I “stalk” a stock over time and create a position while waiting for a trigger. “

When investors combine good stock selection with recognition of the roles of luck, randomness and patience in trading, they will produce superior returns.

“The only other thing you need is persistence, and it’s totally in your control,” Rev Shark said.

Get more trading strategies and investment analysis from real money contributors.


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