I have been trading for living for more than 18 months for now, and along the way, I have discovered what kind of trader I am going to be.
As with most traders, I started with discretionary trading as side investment / hobby. I think my first trade was buying a Call Option on ATVI before the release of much awaited expansion pack of it’s massively popular MMORPG. Stock was trading around 10 and I bought 9 month call options strike at 13. I didn’t do much of vol analysis, neither any technical analysis. Just glanced over chart of ATVI and concluded that after every major game release, ATVI stock popped. So there I went betting good couple of grands on ATVI call, only to loose all of it to theta decay. And, I dropped trading again.
I started Trading again couple of years later – this time with FOREX. Success of Kostas1 with his trading system really inspired me to try it out and I spent couple of months trying “imitate” Kostas1′s success for myself. Along the way, I learnt a lot of psychological aspects of trading.
After quitting corporate job, to do trading full time, I have realized that all these trading related endeavors were really more about discovering myself.
Now, I know what kind of person I am. I am a person who doesn’t like to take unknown risk. I am much more comfortable knowing my maximum downside limited to certain fraction of total equity. Risk management, I believe, is far more important than having a very good trading signal. To manage my risk effectively, I understand that I can’t be too fixated on making every trade a winner and making every trade ‘swinging-for-fences’ (in American terms) or a ‘sixer’ (in Indian terms)
Similarly, over past year, I have studied importance of testing statistical significance of any trading strategy. Backtesting has so many more aspects to it than just checking whether equity curve is pointing up.
I am not full-fledged quantitative trader yet, but I think I have understood benefits of rules based trading enough to make it major portion of my trading portfolio.
Even if I don’t manage to make living out of trading, I certainly know how my personal investments portfolio going to evolve.
I will continue with more posts about Trading psychology and my learnings about it.