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The analyst framework occupies 80% of the time that goes into making an investment decision. The execution of ideas (trader framework) requires only 20%.  So, It's very important to develop your analytical skills so that you are not swayed by daily market swings, tips from friends, advice from pundits, the news media etc.

Everyday, financial markets are influenced by political news, earnings, economic indicators (unemployment numbers, GDP growth etc), energy prices, inflation/deflation, FED statements, natural disasters etc etc etc…

For ex// In March, Japan was hit with a 9.0 magnitude earthquake and tsunami.  How you trade this news?

An as independent Trader/Analyst I found this to be very challenging indeed but eventually figured it out!  And I will share that with you in future posts. 

Infact, I'll talk about each of the components (listed below) in more detail so you have a better idea of how to interpret and analyze these items. 

The name of the game is: How do you formulate an investment thesis and turn it into a executable trading strategy?  I spend majority of the time thinking in this mode.  It requires 80% analysis and 20% trade execution.

what do I trade?  I mostly trade stocks/ETFs!

So, where’s the trading plan?  Personally, I believe you should start with figuring out your investment philosophy and your beliefs about the markets.  Ask yourself why want to trade?  Why do you think you can  do it?

Most start with the idea that they can make easy money.  It’s far from the truth.  This is a profession like any other and can’t be learned or mastered overnight.  That is why I believe most people give up or end up losing their capital.  The ones that do make it  overcome many obstacles and persevere through the tough times and make it in a big way.

The framework I posted above is how I approach the markets everyday!  It’s an intuitive process now but not when I first stared out.  I had a piece here and there figured out but I could  never put it all together. It was only after I realized that the most important component (‘psychology of trading’) was missing.   Indeed, this final piece of the puzzle is what enabled me to become a consistently profitable trader.

So, If you’re just beginning to delve into the markets, take your time and understand that this is a long process that requires you to make many mistakes, lose a bit of money and have sleepless nights!  And if after weeks/months of frustration you’re still there but barely surviving, congrats, you’re halfway there…good luck!

I got into trading and investing because I wanted to build an expertise in financial markets.  I knew the only way to learn is to trade with real capital and dive into the markets with both feet. 

I knew it would help my career in the financial services industry if I developed a trading/investing skillset and pursue the CFA designation.

But quickly realized that many variables have to be factored in to analyze markets and stocks in general.

So, my quest began:

1st component was to learn to trade/invest

• so I started trading with real capital
• I studied great traders/investors on how they achieved success
• And I read many many books about trading and investing to enhance my knowledge.

2nd component was to learn to be an analyst

• For this, I am currently pursuing the CFA designation (Just wrote CFA L2 this June)
• Although it's a very tough program, the CFA curriculum is top notch! and I gained tremendous knowledge and  enhanced my analytical skills while preparing for the exams.

So, is the distinction between the 2 components that significant?

Can you master one component and do well in the markets?  I think it's possible.  But, personally, I think mastering both components gives you a upper hand vs the other market participants.

The diagram below gives you a breakdown of a company and it's stock:

An analyst looks at the real world metrics of a company and formulates an expected stock price based on fundamentals.  A trader on the other hand looks at the technicals to make short term bets on the movement of the stock. 

In the end, fundamentals trump technicals because earnings are what drive a stock price higher.

* – The above diagram is inspired by a presentation I watched by Ralph Acampora explaining the 2 components of analysis

I hope this post was helpful in assisting you to chart a path for your own quest to become a an independent trader & analyst