38 steps to becoming a trader

Following is a list of most of the steps every successful trader takes during their life. I recently found it in my remarks. I'm not sure of the author of the list so if any of my readers would know, please write me so respectful credits might be given. Happy reading, successful trading and don't forget that things always change! :)

38 steps to becoming a trader

They are as follows:

1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realize we may need more knowledge or information.
4. We accumulate more information.
5. We switch the commodities we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
    
    MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALIZE WORK IS INVOLVED.
    
    
15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realize that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.

ECB interest rate decision

Updated with the current ECB decision and Mr. Trichet's statement

With the approaching of the ECB meeting on Thursday it seems the markets are getting more nervous and volatile. EUR lost more than a percent against USD on Monday and regained that percent back in Tuesday. US equities followed suit although their movements were far bigger and the changes were about 3% in both directions. The "fear index" VIX moved about 10% up and down for the first two days of the week.

The US equity markets finished strongly upward on Tuesday as FED's chairman Mr. Bernanke assured the markets "he’ll push forward with further expansion of monetary stimulus if needed ". After the strong selling during the last weeks and rebounding from the new low for the last two months made on Tuesday, the market seems hungry for good news. Mr. Bernanke's speech fitted well into such market expectations.

On the other side of the ocean Europe is still struggling with its sovereign debt problems. The Moody's Investor Service cut Italy's credit rating to A2 from Aa2 which at first made European equity markets to stay behind the increase of the US market from Tuesday. Later during the day the EU stocks advanced. Such an increase amidst credit rating downgrade (although possibly expected), an unexpected drop in EMU Retail Sales (YoY) of -1% and a decrease in Purchasing Manager Index Services in EMU could speaks of a strongly oversold sentiment. The same sentiment seems to be present in the US equity markets also.

So if everyone is focused on the ECB decision on the interest rate on Thursday, let's elaborate a bit on the possible outcomes.

Chart 1. Inflation in euro area, annual, non-seasonally adjusted; Source: ECB

The market consensus is that the ECB would leave its rate untouched at 1.5%. Any deviation from that consensus could sparkle market movements in both directions. Even if the ECB does not change the rate, the language it would use in the press release could signal the bank's further intentions.

In general ECB is strongly concerned with price stability. The last data on inflation in EMU showed an increase to 3% on annual basis after previously decreased a bit. Thus the market consensus that ECB would leave the rate unchanged seems reasonable enough as any further increase in the money supply by lowering the rate has the potential to increase the inflation pressure.

On the other hand data from October 5, 2011 show the growth in euro area slowed significantly to 1.6% (YoY) from the previous 2.5%. The combination of a high inflation and a slow growth does not seem to be in favor of any further increase in the ECB interest rate in the short-term. Such a combination however, does neither support a strong decrease in the rate which the currency markets seem to be hoping for as that would boost inflation. So basically that puts the two extreme options – an increase in the rate and a strong decrease out of the table for now.

We are then left with those two – rates unchanged as is the market consensus and a small decrease which would be a surprise given the consensus.

If the interest rate is left unchanged that would not have any significant direct effect on the markets as this outcome seems already priced in. The markets could continue to be moved mostly by oversold moods and short rallies. Not lifting the rate given the present weakness of the euro combined with the sovereign debt problems in EU however, could signal the ECB is not so strongly on the euro defensive position at the moment. That could increase the short-term confidence in the EU common currency or at least not hurt it further. All that however does not seem so strong to present a long-lasting and deeper change in the market sentiment if we account for the sovereign debt problems as well.

The second option which seems possible given the slowing growth, is a decrease of .25 basis points to 1.25%. Such an decrease would not hurt so much the interest rates differential between USD and EUR as to strongly send the Euro further down. Such a strongly weaker euro scenario does not seem a desirable outcome for the EU officials either.

A small decrease in the rate would be a surprise given the consensus and could give equity markets confidence the ECB is concerned with growth in EU at least as much as it is with price stability. That could more possibly result in EU markets increase than in US but in general both markets follow suit. The current negative sentiment resulted in a bit oversold market condition on both sides of the ocean and lead to a series of bullish divergences in EU stock markets on a short-term scale. In this light such a decision could lift up the world equity markets for a while as it would mark a possible shift in risk taking. In a longer perspective however, the commodities prices should be watched as they are able to present a big pressure on a macro level and limit growth while increasing inflation.

-----UPDATE-----

The ECB decided to leave its main refinancing rate unchanged at 1.5% so basically there were no surprises. Still the bank sees the situation as worsening concerning the EU growth prospects in the following months. ECB officials believe the inflation will continue to float above the 2% threshold but it will eventually calm down further on the line. Given the growth continues to be sluggish and inflation calms down, a coming decrease in the rate of at least .25 basis points could not be ruled out in the months till the end of the year.

You may also want to check the full text of Mr. Trichet's statement concerning the ECB decision on its rates.