When I first started trading I learnt all about how to value shares and read charts. I had all sorts of books on macroeconomics, company valuations and technical analysis. My head was full of stuff like PE ratios, assets and liabilities, interest rates, trade balances, support and resistances, fibonacci projections, MACD, etc. I thought I was just SO clever! Daily analysis sections in newspapers started to make sense to me. I opened up a brokers accounts started to trade. But a few months later, I was losing money. Something was wrong.

Not wishing to give up, I started reading up about trading as a personal psychology. I learnt about stop losses, risk reward ratios and the distinction between gambling and trading. I started to understand my own impulses and know my weaknesses and strengths and realising at the same time how difficult trading can be. But still, I wasn't making any money, even though I was losing less.

I believe that this is the watershed for most traders. They understand that numbers and charts in themselves cannot predict the future, and that emotions or gambling instincts often get in the way. It is a hard lesson to learn, and financially costly. Learning begins to slow down, because the majority of trading books start to repeat themselves and the trader feels that he or she has come a full circle, back to square one - where all the knowledge acquired seems commonplace and just cannot provide the edge.

So what is the next step?

Conclusion 

In my view, the next and most difficult step in improving one's trading ability is to understand the fact that the market has the same information you do. Unless you are insider, it is safe to always assume that other market participants have the same tools and analysis as you. The ability to make money therefore comes from the ability to see what the majority is looking at and playing along. 

For example, I believe that in today's market, volume is key. Many counters that have shot up in this rebound have been affirmed by rising volume. Yesterday, the KLSE closed on stronger volume, and rose again today on even stronger volume. This is self fulfilling because it tends to suck people into the market, but I believe that the majority of traders out there who have noticed volumes drop off since the start of the world cup, pay close attention to the fact that it is rising take that as a cue to go in. Sure, they could be using RSIs, or MAs, or Stochs, or the economic calendar, but in my humble opinion, all eyes are on volume (what I call a 'catalyst'). 

Now, just like in driving we never look only at the car in front of us but at the next junction ahead. So in trading, we must ask when the next catalyst is going to be. Is it going to be falling volume? Not necessarily. In my opinion it could be the falling shoulder level which I have drawn into the chart. If enough people are looking at that, then a breach would propel the index higher and failure would cause a lot of profit taking. So be one step ahead! Read the market by trying to understand what it is thinking and reacting to. Only then will you be able to put your impressive knowledge of charts and fundamentals into play..

Good reading all!