Investing and trading is an area full of dangers and open to wild fluctuations based on what appear to be minimal economic changes. What is amazing is that there is a plethora of books, DVDs, seminars, manuals, articles and so forth that claim to hold the secret to learning how to master the markets but is this really a possibility? Is it truly possible to learn all that there is to know about something that on any given day the 'experts' can argue that it is going to go up, down or sideways?
What Are The Barriers to Learning?
Given that for every expert you can find a different opinion on where the markets are going or what the underlying trend is what do you use as your base source for knowledge building? If all these people are using the same underlying information to assert different things then the only this is certain is that you must apply caution to anything to is asserted as being a fact.
When you break down the concept of learning classic subjects such as mathematics or sciences then it is easy to see how one gains the building blocks that end up creating a wall of knowledge. How do you build a wall of knowledge for the stock market? Well you can start with the foundations of economics which help with the fundamentals of the process. Then there are absolutes such as the actual trade types and how they work and other fundamentals such as selling short, arbitrage and leverage. There are the basic, intermediate and advanced level activities and instruments that a trader has available such as futures, swaps, currencies and so forth.
So there are fundamentals that can and need to be learned in order to get to grips with the markets and investing. Indeed, the very basics of the stock market and stocks remain the same as when the concept of trading was established. However, the application of these activities and the 'rules' leave absolute knowledge short. Consider for example the assertion to "buy low and sell high". Such a fantastically simple and easy to remember rule but it presumes on absolute that it is possible to know what is low or high and which direction the market and/or stock is going. But surely that is the very nature of the game of trading, to try to predict and benefit from getting it right. Luckily one thing that the markets are built on is the psychology of trading and human responses to events and these remain pretty consistent over the years in responses to good and bad news.
Understanding Indicators:
So whilst the fundamental of a stock and the market fixed almost nothing else is. Stocks are established based on key data of a company and sector but two investments could be launched the same day and end up at completely different ends of the spectrum without there always being a clear reason why. There are so many variables within the markets that never remain static and that on different days influence events differently. It is the convergence that can dictate why today it is going up whereas last time when it was almost the identical set up it went down.
So after gaining the fundamental building blocks of knowledge it is almost impossible to see how the markets could be learned in any way other than experience. Or is it skill? Or luck? Many would argue any of the above but the fact is that being in the markets and experiencing them is the only true way to have gained the experience, luck or skill required to benefit. Many say that there is an innate element that goes with seeing the market numbers, looking at the activity and using all the indicators to 'know' what is going to happen and which way to trade. However is this were true the seasoned, experienced, successful trader would be able to get it right 100% of the time and this is clearly not so. Indeed they can get caught out in a spectacular fashion just like the novices so that implies that there are elements that are incalculable and therefore cannot be learned in any kind of prescriptive manner.
The German Expert Bernd Niquet ("Keine Angst vorm nächsten Crash, aktualisierte Taschenbuchausgabe," Piper Verlag, München 2003) notes that at any given time there will be conflicts in opinion as to which way the markets are going. This is based on individual experience which, as opposed to the absolute right and wrong knowledge, relative to the individual and a given situation so influences vary considerably.
Controversy Is Built In:
The stock market reflects the economy within which it resides oft as not but there-in lies some of the issues. There are several schools of thought but the clash of opinion is most evident if you look at the contrast between the Keynesians who presume to intervene in the market and the neo-classicists who say they should be left alone. These differences filter the whole way through the major and minor issues of economic management such as managing unemployment and are very evident now with the creeping inflation while economies struggle out of recession. Increase interest rates or leave alone? Pump in more cash to the economy or increase taxes and reduce the money in circulation? And so the debates and differences go on.
The fact is that there is no one absolutely correct answer or way. Each theory holds its own merit for given situations and combination of factors. The only absolutes are that the economists will keep tinkering with the economy and their theories and they will get it wrong as often as they get it right. This should tell you that if you are someone who needs to have a precise set of tools or responses to a given set of events there are going to be problems, or choose your preferred economic approach and blindly follow their lead and stipulations but be ready for many bumps on the road.
Are There Any Certainties?
One thing about the markets that is evident if you take a look is that there are many variations in the short term but if you look longer term there are trends that are more apparent. The short term reflects very much the psychology of people who are reacting to a situation such as an announcement, or rumour or media opinion. The long term much more reflects the growth situation of the company or sector or economy.
So what is certain is that there are no certainties as you look to trade day-to-day other than that markets are made up of people and people bring with them some unpredictable elements. There are however some things that you can take as a given such as that people might take risks and apparently irrational but they won't do things that are totally illogical. So whilst some might take a risk with a stock that is high risk they won't take a position with something that is clearly going to fail. Beware those stocks that are clearly doomed but seem to have positive activity as without a doubt it is someone looking to create interest to cash in on those individuals.
This brings us to the fact that there are always two sides to any trade and this means that there is plenty of opportunity for those who are dishonest or unethical. The old scams are known, taught and discussed so need to be learned. Unfortunately new technology means that there is greater capacity for new scams or rackets to appear so the key is to consider any "golden opportunity" very carefully as remember that there are very few 'golden' opportunities in the world of the stock markets. Common sense and a sound basis of knowledge and experience are your best protection.
Finally there are other certainties that have been and will always be valid for long term successful trading. One such thing is that a portfolio should be diverse enough to weather whatever economic storms arise. Long term investments in blue chip stocks will help provide a solid base for returns while you play with whatever area of short term investing you feel offers you the best opportunities. This short term investing should always be done with adequate risk management which should be appropriate to your level of knowledge and experience within that sector or industry. And all portfolios and trading strategies should be reviewed on a regular basis to ensure they are diverse and balanced enough.
The theory of investing and the markets should be read and understood and provides typically a review of what has gone in the past and events that have shaped the markets or stand out as key learning points. Learning strategies and the different tools and investment strategies provides a good and essential foundation. However it must always be remembered that the differing opinions and theories mean there are no absolutes and each trader has to figure out their own path.
In Conclusion:
All the training programs and books provide the individual wishing to enter into the world of trading with a good base of knowledge about the fundamentals. They need to remember that the conflicting economic theories mean that for every opinion as to what will happen next there will be dozens that can reasonably argue something different. Also in amongst all these events are hiding those who use the chaos and confusion along with the greed of the markets to scam people through misselling or out and out fraud.
Take things slowly, use all the resources available to review and digest theories and opinions, including your own rational thought and common sense, and you can get to grips with the basics. Experience counts for a huge amount so you need to be in the markets to learn the markets but always with the appropriate level of respect for the uncertainty and unpredictability that always exists. Expect to make mistakes but take each one as a chance to review whether it was something that could have been avoided or what you could have done differently.
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