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Step 2: Self Analysis

A note here - the more detail you put in each of your answers the better the result. Don't cheat yourself by just giving a one sentence answer. Be thorough and honest and you will learn a great deal about yourself.

List you resources - These include capital, time for trading and learning per week, computer size, internet speed, software, broker (if you have one yet), skills (such as computer skills). 

What do you expect from trading? Well what do you expect? If you expect to be a success at it, write it down! If you expect to make $x amount of money a month from trading then write that down. This is the part where you get to tell yourself exactly what you expect from your trading, and therefore what you ultimately expect from yourself.

What does success mean to you? This is where you get to tell yourself why you are trading. Obviously everybodies aim is to succeed, you would think, but there are some who trade for the status it brings, especially when talking amongst friends around the dinner table. If success means being able to quit your job, then write that down. Write down everything that success will bring you and what that means to you. When you're passionate about something, it gives you more strength to ride out the inevitable bumps.

What does failure mean to you? There are some people out there who don't know what they want in life. If asked 'What do you want in life?', there answer will more often than not be 'I don't know'. The reason for this is because we are conditioned into believing that life is hard and therefore thinking or dreaming big seems pointless. I can tell you right now, if you don't know what you want in life then I dare you to write down everything you don't want in life. Then you just have to write down the opposite to see what you really want in life. It's pretty simple. Need I say more about failure and what it means to you?

What motivates you to become a trader? I'll give you one of my reasons. It's because income from trading or any business is uncapped. There is no limit, where as if I was working a job, be it in a warehouse, or as a practising professional, my income will always be capped. There is only so much someone will be paid when working for someone else. Another motivation is the minimal overheads for running a trading business. What are your motivations?

What alternatives are there to trading? I almost liken this to a plan B. Trading does not suit everyone, especially when you consider all the factors such as emotions, patience (and lack of), and even time. You should have other forms of income in life anyway, and I'm not saying this from a trading perspective, that's just my belief in general, but it will help your trading especially early on, if you have other income to take care of your living expenses. Of course there is the other side of this question and that is if you find trading is not your style, what other forms of business could you look at?

What are your strengths? If you're like me, you don't like to fail. Use this as a strength, by saying something like, 'When I get knocked down or face a set back, I always get back up again. Sometimes it takes a little longer than other times, but I always eventually get back up again, dust myself off, and get back on with it.' This is a strength of mine. You can also write down any academic strengths you have, emotional strengths, are you patient, are you disciplined and so on? What do other's say about you as a person?

What are your weaknesses? Do you know how I found out one of my weaknesses? I asked an ex-employer. One of my weaknesses in her eyes was that although I was highly driven and knew what I wanted, I lacked the patience to see things through, because I didn't see results quick enough. I certainly didn't expect that answer but it did open my eyes. You should already be aware of some of your weaknesses but I do suggest you ask some people who you trust will be honest in their answer.

What are your reactions to profit? How do you feel when you have a profitable trade? Do you feel a sense of accomplishment, or do you feel guilty? This is a very important question. There are some people out there that think if one trader wins then another must lose. This is incorrect. You do not know the reason behind the other side of your trade. Just because you sell a stock for a profit after being in it for a week, doesn't tell you anything about the trader who has just bought off of you. They could be buying for the long term, in which case how could anyone say they have lost out. There is also the element of liquidity. Having a lot of traders and speculators in the market creates higher volumes and therefore better liquidity, which in turn provides better spreads and cheaper brokerage costs. If you feel guilty because you make money in the market, start telling your self that you are in fact helping the market whether you win or lose. It's important you explore this question thoroughly. Also, are you one of these people who jumps up and down when you have a profitable trade? Remember this is a business, and if you owned a corner store, you wouldn't jump up and down every time you sold a carton of milk or an ice-cream, instead a sense of gratitude may be a more appropriate response.

What are your reactions to losses? Again, this needs a very honest assessment of yourself. How do you react to losses? In fact if you react at all, it is something you'll need to fix. Successful traders do not react, they respond and the two are very different. Go back over all of your losses in the past and write down how you reacted to each of them, and how they affected the rest of your day or week.

Do you suffer from stress, and if so what causes it? If you suffer from even the slightest stress from sources around you, this will affect your trading and so you must be aware of them. Noisy kids, the TV on too loud, the telephone, or even your own financial situation, health or relationships.

Do you have a way of relaxing or releasing tension? For me, it is sport and exercise. I don't like exercise in the form of running or walking anywhere as much as I like playing sports, but I find that when I'm looking after my health, I find othert parts of my life a lot easier to navigate. I also find that I can't fight fatigue. If I'm tired then I simply must get some sleep, even if it's for ten minutes. These are two of the ways I keep myself tuned and relaxed.

What are you going to do about all of the above? If you're serious about your trading, then I hope you have spent a fair bit of time on the above questions. I think from memory it took me a few days to go through the self analysis process. The next part of your analysis is to write down what you're going to do about all of your answers. For example, if one of your answers to the 'Loss' question was that you get emotional and you blame the market for you making a losing trade, then obviously you need to change this. The solutions to these problems will come easier to those who are honest and want change, and there are plenty of books and CD's that can aid you in changing the habit of blaming the market for your loss. It just takes an honest assessment of who you are, and then asking the right questions. 'What do I need to do in order to change........?' and go look for it.

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