Analyst or Trader: Architect or Builder?

Ali Mirzaei | Ali’s Analysis

A building needs both a sound design and good construction. Architects and builders do different jobs, but their work depends on each other. Structural integrity is a shared responsibility across design, engineering and construction. I see analysis and trading as complementary skills in much the same way. Analysis helps us understand the market we are dealing with; trading turns that understanding into decisions involving real capital and real risk.

In my view, anyone who wants to learn to trade must first take understanding the market seriously. Seeing someone else make money is not a sufficient reason to enter it ourselves. Behind every buy or sell decision, there should be enough knowledge to explain why we are entering, what would change our expectations and when we should leave.

Understanding the Market and Taking Responsibility for Execution

An analyst develops a scenario: What condition is the market in? What evidence supports a continuation of the move? What would challenge that interpretation? A trader needs more specific answers to act on it: What are the entry criteria, position size, stop-loss level and exit rule?

This distinction does not mean that analysts always take a long-term, fundamental approach while traders always work with short-term technical signals. One person can perform both roles. My point is about connecting understanding with execution. A good plan needs good execution, and disciplined execution needs a basis that can be evaluated.

Understand the Trend Before Looking for an Entry

In my approach, building a strategy starts with understanding market conditions and the trend. Before looking for a buying or selling opportunity, I need to know the timeframe of my decision and the context in which I am interpreting price movements. If my scenario is based on an uptrend continuing, I look for an opportunity consistent with that scenario.

This discussion focuses mainly on equities and higher timeframes, particularly four-hour, daily and weekly charts. For someone beginning to learn, I prefer starting with daily and weekly analysis, then moving to a shorter timeframe to time an entry. I am cautious about beginners relying on patterns on very low timeframes. That is a preference within my approach, not a claim that all short-term methods are invalid.

In the first of his 10 Laws of Technical Trading, John Murphy writes: “Study long-term charts.” He recommends beginning with monthly and weekly charts before examining shorter timeframes. That advice is close to the sequence I emphasise in learning to read a market. Source: John Murphy, Rules 1 and 2

To me, understanding a market goes beyond the shape of a chart. For longer horizons, it also means understanding the news and economic factors relevant to the asset. What matters to an individual stock is not identical to what matters in oil or gold. That understanding requires study and expertise.

Trendlines: Simple, but Worth Taking Seriously

I consider the trendline one of the foundations of technical analysis. Sometimes it seems so simple that people put off learning to use it properly. If someone cannot explain why they chose particular points or how they interpret the trend, adding more tools will not necessarily solve the problem.

In his fifth rule, Murphy describes trendlines as simple and effective tools and stresses the significance of how long they have remained in place and how often they have been tested. This is a paraphrase of his view, not a direct quotation. Source: John Murphy, Rule 5

I do not mean that a single line is enough to justify a trade. My point is that we should not rush past the foundations. Understanding trends, corrections and patterns should help us explain market behaviour, rather than merely memorise the names of tools.

Decide How to Exit Before You Enter

Execution is where the trader’s skills come into focus. Believing that a market is likely to rise is not yet a trading plan. Before entering, we need to define the entry conditions, where we will leave a losing trade, how much capital is at risk and the rule we will use to manage profits.

CME Group’s lesson Proper Position Size states: “Stops should not be set at random levels.” It identifies the stop location and the amount of account risk we are willing to accept as the two inputs needed to determine position size. Source: CME Group, Proper Position Size

We need to be precise here: a trade’s stop being triggered is not the same as the entire market trend being invalidated. A position can close while the broader trend remains intact. A considered stop-loss means having a reason for exiting and a defined risk; it does not mean finding a level that will never be reached. Nor is a stop price a guaranteed execution price. FINRA explains this distinction in its guidance on stop orders during volatile markets. Source: FINRA, Stop Orders: Factors to Consider During Volatile Markets

A profit target is also an expectation, not a promise from the market. Our exit plan should explain what we will do if price fails to reach that target or the evidence changes.

Why Are We Patient with Losses but Impatient with Profits?

One behaviour I want to draw attention to is the different way some traders treat profits and losses. They wait for a losing position to recover, yet close a profitable one after a few positive candles. Sometimes the first red candle is enough to make them leave for fear of giving back their gains.

In my view, an unclear understanding of the trend can contribute to these decisions. But not every early exit reflects poor analysis. The strategy’s rules, position size and tolerance for risk also need to be considered. We need to distinguish an exit made according to plan from one driven by momentary fear.

In Trading Strategies in Your Trade Plan, CME Group emphasises defining and writing down entry and exit criteria before trading, so that an immediate emotional response does not replace the plan. This is a summary of the lesson, not a direct quotation. Source: CME Group, Trading Strategies in Your Trade Plan

When I say that the cost of trading is not limited to money lost, I mean the opportunities we may miss through unplanned exits. But failing to capture an entire market move should not be treated as failure. To me, a better question is whether we managed an opportunity that fitted our method appropriately.

Consider a hypothetical trader who enters a stock on a scenario expected to unfold over several weeks, then exits simply because a red candle appears on a shorter-timeframe chart, even though the planned exit condition has not occurred. This illustrates how the timeframe of the analysis and the criteria for execution can become disconnected. Conversely, if the exit condition has occurred, staying in the trade and hoping for a recovery should not be confused with patience grounded in analysis.

Start Learning with the Foundations

I think of learning as a progression from general knowledge towards specialisation. Just as medical specialisation builds on earlier training, in the path I recommend, trade execution should build on an understanding of the market. I am not suggesting that a university degree or a fixed number of years is compulsory. I mean structured learning, practice and evaluation.

My suggestion is to study the economic fundamentals relevant to your chosen market, the principles of trends, Dow Theory and trendlines, before moving on to subjects such as Elliott Wave analysis. This is the learning path I recommend, not the only possible one. Experience also becomes learning when we record our decisions and correct our mistakes.

For me, this is where strategy development begins: understanding the market, choosing a timeframe, developing a scenario and translating it into rules for entry, exit and risk management. We then need to evaluate the method and see whether it suits our personality and circumstances.

One of the most important lessons from my own experience is that understanding trends and market behaviour gives meaning to execution decisions. Even so, good analysis does not guarantee a profit on every trade. We should assess the quality of our work through our decisions, our execution and the evaluation of a series of trades.

So when I say, “Be an analyst first, then a trader,” this is what I mean: Before committing your capital, learn to explain the reasoning behind your decision. Then learn to execute it with discipline—and to abandon it when the conditions supporting it no longer hold.

Wishing you success, good health and better days ahead.