Skills Vs Challenge
With the commencement of the 2019 Cricket World Cup, it is only natural that in our cricket
crazy nation, fans are already rooting for the Indian cricket team. We experience jubilation and
dejection with every single win and loss of our cricket team, as cricket is nothing short of a
religion in India. We go to lengths to cheer for our team in all situations and stay excited till the
very last ball of the match.
But for a die-hard fan, the excitement level varies for every match. Compare, for instance, the
excitement quotient for an India Vs Afghanistan match to an India Vs Australia match.
Why the variance? Because in order to experience the thrill or enjoyment, there needs to be
the right balance between skill and challenge. In case of the match against Afghanistan, our
team’s skill set is far superior to tackle the challenges offered by the opponent’s team, so we
may not savour the victory to its fullest. But while facing Australia, we celebrate the success
completely, because of the comparable competence the opposition possesses.
Taking inference from the above hypothesis, we can implement the same belief to stock
market trading. The Stock market itself is a very tricky subject, so by classification, it is termed
as a High challenge activity by the regular traders. When it comes to Stock Trading for Beginners one
possesses little knowledge of the market. Hence, Low Skill * High Challenge = Anxiety.
The industry is flooded with a large number of tools to understand price action chart patterns and to
undertake chart analysis. Say, if you wish to learn about Trend Lines, then you should stick to
only one tool, till you understand the concept in-depth. Only after gaining expertise in one
particular tool, should you proceed to the next available tool and keep practising in conjunction
with the earlier learning. According to experts, we need only 4 to 5 tools to understand the
Price Action Chart Patterns as quoted aptly ‘Too many cooks spoil the broth’.
Another obstacle is that there are too many companies listed on the exchanges. Hence, you
should create a small universe of stocks by selecting the top 10-20 companies from Nifty 50.
Once selected, you should apply your learnings of each tool to this set of stocks. Since your
initial bucket size is small, you can easily analyse and understand the pattern.
Lastly, you should focus on sustaining the risk balance, by gradually increasing your risk
appetite and temperament and develop the ability to learn from your mistakes at a minimal
cost.
By following this procedure, over time you will be able to prove that Equivalent Skill *
Challenges = Satisfaction. Of course, it is a time-consuming process, but, you need to
understand that, before you EARN, you need to LEARN.
Article authored by:
Kapil Shah
Technical Analyst at Emkay Global
