Winning- Cornerstones of success in Financial Markets

How to Win

Your capital, attention-energy availability, personal tastes, and time horizon dictate how you would deal with capital markets. You may prefer long-term investing, or month-long trades, or day trading. Perhaps you will do a mix of these. But the core four attributes that decide whether you will be successful or not remain the same, and they are listed below:

  • Signal: You need to be comfortable with a strategy enough to have interpreted its signal with ease. It should at least have a slight edge over random buying/selling (more than 50% of the time, it is right). More importantly, it should make total logical sense to you.

  • Risk: Be mindful about how much capital you are willing to lose to pursue an opportunity that arises. Ideally, have a predetermined number/method for the maximum loss, after which you will exit the position. Even a simple rule like "I will exit my position if it goes x% against me." will save you from further losses.

    Risk management would also include considerations about % of the capital you allocate per opportunity, and it will differ for different types of investing/trading. Trust me: exits matter more than entries (even when the market moves in your direction).

  • Psychology: When you see the market go against you in an instant while you lose money- it is not a pleasant feeling for humans. We did not evolve to comprehend the bizarre uncertainties of financial markets. Only way we can thrive in it is by eliminating any psychological distress while taking a position. No remorse for loss, no guilt for missing a trade and no fear while taking a fresh bet.

    It is possible after you understand yourself and the inherent risks of your position- subsequently making peace with the worst possible scenario. If you observe the pro traders, many of them don't even roll their eyes while they accept and book a huge loss, because they treat their trading as a business and their loss as a business cost. Your brain will take some time before it adjusts.

  • Showing Up: Financial Markets are full of opportunities that come and go. You will only get a tiny window to act on these opportunities while you are trying to prioritize others. To capitalize on these opportunities, you have to be consistently present and do your homework beforehand.

I know, it sounds exciting yet daunting, but remember that success is possible. Modules ahead go very deep into empirical theories that are going to help you win!