Today's Quote: “Make it thy business to know thyself, which is the most difficult lesson in the world. Yet from this lesson thou will learn to avoid the frog's foolish ambition of swelling to rival the bigness of the ox.” Miguel de Cervantes

There are several good books out there about trading that should be on every trader’s must read list. If you were forced to choose one and only one, the only possible pick would be “Tools and Tactics for the Master Day Trader”. We are going to run a series of excerpts from the best selling book for the next series of lessons. Now in the words of the master trader himself, Oliver L. Velez…

“12 Trading Laws of Success” –

LAW #1: KNOW THYSELF (Part One)

It is crucial for traders to know who they are and what they are. Because only then will they be able to know how they should play the market. You see, traders' styles of play should be based entirely on their tendencies, likes, desires, fears, etc. If traders are trying to fit into a style that goes against their psychological grain, if you will, the results could be disastrous. For instance, take the trader we know who is incredibly impatient. This trader may find it torturous to hold a stock for more than 10 days. In fact, even 5 days would seem like an eternity. So with this dominant trait firmly in place, taking on a long-term trade for 2 months or more would be a big mistake. The trader would, in effect, be fighting him or herself via the market. But knowing this, the trader would want to limit plays to those that potentially offer a faster, more immediate move. And while the frequency of loss would be greater, those types of plays would gel, be in sync with his or her personality, a whole lot better. And as a result, better decisions would be made. Get the point? Here are a few questions you should ask in order to find who, what, and where you are as a market player. Once you know the answers, it will be a lot easier to determine whether you are a trader or investor by nature.

1. Am I patient? If the answer is yes, you are a natural intermediate to long-term market player. If you are not patient by nature, a short-term trading approach would better complement your emotional and psychological makeup.

2. Do I feel safe in the hands of time? Yes would mean you tend to think and trust that all things eventually work out with enough time. This would make you an intermediate to long term investor by nature. If you feel prone to beat time at its work, to fix problems faster than time can heal them, you are inherently a trader by nature.

3. Does the increase in time make me grow more nervous? If the second after initiating a trade you begin to feel a light nervousness, you are definitely a trader. If you grow more and more nervous in a trade (win or lose) as time goes by, short term trading is right for you. If you can buy a stock, and immediately walk away, call a friend, grab a sandwich, or read the paper, or run an errand, you are not a trader.