Identifying your weakness is a major step towards winning in the market.

“A trader, in addition to studying basic conditions, remembering market precedents and keeping in mind the psychology of the outside public as well as the limitations of his brokers, must also know himself and provide against his own weaknesses.”- Jesse Livermore.

I’d like to share my thoughts on this quote by Jesse Livermore. For those that do not know Jesse Livermore, he was on of the greatest speculators of his time. His trading career is serialised in the greatest book on trading psychology, “The Reminiscences of a Stock Operator”.

As human beings, we find it difficult to admit our weaknesses. This is one characteristic that we take into trading. A lot of traders start off by attending a course on technical analysis or buying a book to study. At the end of the course or on completion of the book, the “new trader” will know a lot about indicators, trend lines, candlesticks. They can tell you a lot about moving averages, MACD, OBV, RSI, hammers, hanging man etc. However most trading courses to not adequately address trading psychology and the emotions of greed and fear. There is a saying that goes “we have known the enemy and the enemy is us”. The two most powerful emotions, greed and fear rule supreme when it comes to trading. Most losses of missed opportunities in trading can be traced down to one of the two. It is greed that makes a trader enter too many positions, i.e. overtrade, while it is fear that makes a trader miss out on a trade that he had monitored for weeks. These emotions are very subtle and people don’t even realise that they are being driven by it. If you can identify and provide against your weakness then you are likely to win more than 50% of the time.

How much do you know about yourself and how are you addressing your weaknesses? For instance, a self-confessed alcoholic wouldn’t go into a wine or beer store just to window shop. Also, he wouldn’t hang around pubs or wine bars just to see what is happening. Leave him in the bar long enough and before you can say Jack Robinson, he is sipping his first glass of alcohol, which would lead to another and then another. Likewise, if one of your weaknesses is overtrading, then you shouldn’t be looking at intraday day charts to see what is happening in the market, whether the Dow or NASDAQ is up or when the MACD has just moved above average, etc. You might do it with good intentions, but I can guarantee that if you continue looking for 10 minutes or more, you would jump into a trade. All it takes is a click of the mouse. After you have entered the first unplanned trade, it becomes a lot easier to enter the next unplanned trade. Like someone rightly say, if you trade daily charts, you don’t need to look at intraday charts, it is dangerous and it can cause you to jump.