Today I want to look at the amazing similarities between being a stock market trader and driving your car. If you understand this you will also understand why some people are successful traders and others are not. I would like to debunk the idea that you have to be very clever to be a successful trader or even have to be a financial and mathematical wizard.
Firstly there are the rules. In England, we have the Highway Code which is rules to drive by. They ensure your safe navigation of the road network in the U.K. If everyone using the road network in the U.K. abide by this code we will have very little accidents. Problems normally occur when these codes are broken.
In the same way, there are also rules to abide by when trading the stock markets anywhere in the world. Unfortunately, it is not written anywhere as an official set of rules but that doesn’t mean there are no rules. People mostly burn their trading accounts because they do not have rules, they do not know the rules or they think they know better and rules do not apply to them.
Secondly, there are road signs. You have traffic lights, entry and exit signs, speed limits and many other signals. Going against any of these signals can cause damage and loss to you. Just imagine the carnage that can be caused by someone going against a red traffic light at a busy junction.
Stock market trading also has signals that should be followed. You need to have a strategy with definite entry and exit signals. It should also help you to minimize risk. Trading stocks and shares is a journey that takes us from the lifestyle we currently have to the one we really want as it helps us to make our money work for us.
Lastly, I like to address the driving style or also seen as the driver’s attitude. A disciplined and patient driver follows the rules and signals on the road while driving. Such a driver has a very high probability to reach his or her destination. The problem is with the undisciplined and impatient drivers. Not adhering to speed limits and swerving from lane to lane in heavy traffic increase the risk of occurring damage many fold.
This is probably the most important point in trading. Not following the rules, impatient entering and exiting of trades, risking too big amounts for your trading account, this is reckless trading and will end up in regret just as reckless driving.
My point here is, it’s not how clever you are that makes you a good trader, it is how disciplined and patient you are that contributes to your trading success.
The good book says, we cannot have clean and dirty water flowing from the same fountain, so check your driving when you next wonder about that loss you occurred in the stock market. It is very difficult to be undisciplined in one area of your life and very disciplined in another.
Enjoy your journey!