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Psychology to seek out good deals is an intrinsic quality that cannot be taught to potential future traders. Investors need to decide, whether they are in the stock market for excitement or to make money.
CEO of Marathon Trends Atul Suri told CNBC-TV18 that successful traders used a fair amount of psychology to seek out good deals for themselves. It’s an intrinsic quality which cannot be taught to potential future traders but it does determine how much risk they may chose to take or a while striking deals. Investors need to decide, whether they are in the stock market for excitement or to make money.
Excerpts from the interview given to CNBC-TV18
Q: We keep talking about excel sheets, fundamentals, P/E ratios. How much of it is beyond the screen and in your mind?
A: One of the best ways to actually study trading is to study successful traders and the more you hear about them and the more you talk and read about them, (you will find) that increasingly in their careers, they have moved away from just the mechanics of trading, which most of us struggle with and into the whole area of psychology, into the whole area of risk management, which most traders or most investors who are at a very basic level do not think exists. In fact, I think it counts for about 80% of the success of fairly advanced, mature and successful traders.
Q: Is that the lesson got from many of the great success stories of the world’s greatest traders?
A: Certainly. For example someone like Ed Seykota has been featured in Market Wizards and there are a lot of other good traders who are featured in this very good book called Market Wizards. In the book, Jack Schwager has really gone about and interviewed these traders at the psychological level. He has not just covered mechanics and increasingly what has come about in each one of their cases, has been the importance of psychology. This is something which unfortunately, unlike mechanics cannot be taught. You can teach someone on excel spreadsheets, you can teach someone how to calculate earnings per share, EPS, but you can’t teach someone how to take away greed and fear from their mind. It is the Waterloo for anybody, at any point in time – how successful or how good a track record he has.
Q: How important is it to start off by knowing your own mind, when you are getting into the market? Are people fundamentally conservative, highly risk averse or highly risk prone?
A: This is something people have spent hours discussing and I think it’s worthless because at the end of the day, what matters is what works for you. There is no real prescription. There is no holy grail. What you really have to do as a trader is – fundamentals and technicals all works, information works, astrology works – but you have to make it work for you and for that I really think that there are two basic components, one is your intellectual mind and the second is your emotional self.
As far as the intellectual state goes, you really find that everyone is bestowed with different intellectual capabilities and a lot of it is also genetic. You inherit a lot of it and a lot of it you develop. If you find that you are good in numbers, a lot of people have very good numerical abilities and very good analytical abilities. You will find that something like fundamentals comes very naturally to them. But if someone who doesn’t know anything as far as numbers go, to ask him to work on excel spreadsheets and to remember EPS, P/Es etc, it’s very difficult for him. So definitely people with good numerical ability will gravitate towards fundamentals.
And people with good intuitive abilities, artistic ability, who can read patterns well, who have that little bit of psychic ability, you will find that they will be more successful in technicals. 80% of people trade in this country on information. Even there you need intellectual capacity, you need to be a networking person, you need to know the right people and you need to be able to extract information from them and then use that information. So what is really going to happen is that each one is going to have certain intellectual capabilities and you are most likely to succeed, if you have a system or a method which suits you. The question is can you it work for you? I think that is mportant.