Are successful speculators born or made? Obviously, having good instincts helps in any situation. But can you trade on instincts alone?

To answer this question, we must look into the makings of good speculators. They come from all walks of life and backgrounds but what they all have in common is passion for what they do and the drive to succeed. They are determined to achieve the results they want, no matter what it takes. I believe it’s that hard work and determination that make one develop and hone good trading instincts.

When it comes to trading, there is only so much you can learn from books; there are only so many good books on trading, and they only cover so much. The rest comes from observation and the daily grind. As you accumulate knowledge, your mind begins to recognize and respond to patterns faster than you can formulate your thoughts: you see a chart and get excited because you have seen it before and know what’s going to happen next. Ask such a trader why he bought a particular stock, and chances are you will hear: because it wants to go up.

The opposite is also true: there is something in the market that just does not feel right. You can’t explain it, you try to reason the fear away but it gnaws at you. So you sell. The next day the market takes a dive. Premonition? Hardly. It’s just that your subconscious has registered that similar situations in the past ended badly, so your “preservation instinct” told you to sell.

Recognizing past patterns means accumulating a long list of zoomers you missed and mistakes you made, which suggests that analyzing past trades and learning from the successes and failures of others, as well as your own, is key to developing good trading instincts. If you never look back to analyze why what happened happened, and ascribe your successes to your investment prowess while blaming others for your mishaps, you will never learn, and will never develop good trading instincts.

Many amateurs put the cart before the horse: they are too lazy (or too busy) to do the homework and just want the stock picks that will make them rich. They never do what it takes to develop good trading instincts and just hope that by acting on their gut feelings alone they will be able to become good stock pickers and successful traders. And as professionals know, hope is a poor investment guide.

Slav Fedorov is a full time stock trader and founder and managing member of TradingZoom, LLC – a provider of proprietary trading data that swing traders can put to work right away. http://www.tradingzoom.com/

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