Chapter 4 Knowledge

In this chapter …

I outline the knowledge that traders require in order to become sustainable and profitable. Gathering knowledge is not a one-off mission; it’s something that good traders continue throughout their journey as new markets and ideas develop.

Over the past few years, when I have presented to groups of private traders I have often asked a few questions to gauge the level of knowledge of attendees. One of the consistent themes is a lack of what I would consider to be basic knowledge. For example, typically only around 5 per cent of retail traders that I have questioned have a basic understanding of bonds — yet over 90 per cent can correctly identify a head and shoulders pattern. The financial junk-food industry has done a poor job of educating new traders with real knowledge, and has instead taught unreliable short cuts. I have continually encountered a view among private traders that they do not need in-depth knowledge — that’s for the professionals to learn — and their job is just to follow the herd. This is both simplistic and dangerous.

I strongly believe that every trader should try to educate themselves to the highest possible level. You may not become a professional or investment bank trader, but you should at least try to gain the knowledge required. If we are to enjoy a sustainable trading career that encompasses the four core points highlighted earlier, then knowledge will be a key ingredient. Further, in order to become an independent ...

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