The Mental Strategies of Top Traders: The Psychological Determinants of Trading Success

4.15. CHAPTER IN REVIEW

1. It is crucial to understand the variety of factors (outside of fundamentals) that play a role in determining stock prices. In order to make money in the markets, a trader needs to know something that other people don't know yet.

2. The strategic trader is someone who can "think outside the box," someone who will be comfortable dealing with unprovable events or the tails of events rather than having to rely on consensus or conventional ways of approaching problems.

3. The key to thinking creatively is to look for inefficiency in the market and to focus more on issues of psychology, game theory, and behavioral finance than on fundamentals. Ideally, you should develop a differentiated view and decipher the data to determine which trades have the most potential before investing a large percentage of time investigating them.

4. The best way to make money in the markets is to know something that others don't yet know, to think ahead of the curve, and to anticipate when something is going to happen. The more you know, the more you can make a calculation about the likely target or trajectory the stock is going to follow because you have done the work. The objective is to do research that supports a variant perception in terms of where a stock is and where you expect it will be when its full value is realized.

5. The larger the gap between where the price is and where you expect it to be, once value is unlocked, the more profit you can make. The clearer and shorter the event path, ...