Are You a Good Fit for Trading?

Posted On 13 Sep 2016

37862942 - businessman takes the bait to the hook

I remember when I bought a tear down a few years ago and built a new house on the land. Had someone with experience explained to me what I was getting into, I may have still moved forward but I would have been much better prepared. On second thought, there is a very good chance I would not have taken on that project.

The day someone decides they are going to pursue trading, they are typically making that decision because of the potential financial prize. In other words, they are making that decision because of the perceived benefit. What most people don’t understand, let alone consider is that they are about to step into a mine field of trading traps that have the potential to drain and destroy your bank account and your self-confidence all in one.

When I look at the traders who do well and those who don’t, there is a clear observation. The group of traders who focus on the prize tend to lose money and never achieve their goal. The group of new traders that focus on the trading traps and risk tend to succeed and reach their goal. As always, it’s one group providing income for the other, that’s trading. I wanted to write an article that clearly set proper expectations on what you’re getting into, before you get into it. Trading is for sure not for everyone so make sure you understand all the reasons not to get involved, and if you still want to after that you’re probably a good fit for trading.

Before jumping into trading be aware of these trading traps.

Screen Time:

As you age, one realization that you’ll think about more and more is how short life really is. Do you want to spend your life in front of a computer or on your smart phone or do you want to spend time doing things that are important like spending time with loved ones and so on. Many people get into trading thinking they need to be in front of the computer all day every day. This is completely not the case. One trading trap people fall into is getting into trading for the excitement and to watch markets all day. If that’s what you want to get out of trading, the chances of you being successful are low. You’re much better off going to the amusement park and riding roller coasters or something. Proper trading means finding low risk high reward and high probability opportunities which, as a day trader and longer term trader, should take no longer than an hour a morning. Then, you simply enter your entire order into the market and leave it alone. Trading profits are not the prize, the time and choices those profits buy you is the prize.

Discipline:

This is a must. If you don’t have discipline in other parts of your life, don’t think you will magically have discipline when you start trading. In fact, trading will challenge your discipline more than you can imagine. From birth, we run to things that make us feel good and run from things that we are afraid of. In trading, you have to think the opposite if you want to succeed. What I mean is that we want to buy low and sell high. To buy low when prices are cheap and at demand where they are likely to turn higher, you need to buy when everyone else has sold, after red candles, with down sloping indicators, and a down trend typically accompanied by bad news, and so on. The act of buying low and selling high is NOT comfortable for the human mind. If you lack discipline, I strongly suggest you don’t try trading. Fix your discipline issues first.

Profits and Losses:

People love profits and don’t like losses. This “can’t lose” mentality is a trading trap. This simply leads to people taking profits quickly when they have them and refusing to take losses because they don’t want to lose. This action is common and leads to losses and a short trading venture. Successful traders take losses quickly when their plan tells them to and they hold on to gains until they reach their profit target. In other words, they plan their trade and trade their plan. Think of Michael Jordan and all the game winning shots he made during his amazing NBA career. Have you ever realized how many of those he actually missed? The number is big but he doesn’t care because he knows that part of winning games and making game winning shots is missing some. Therefore, the key is for him to execute his winning skill set and keep taking shots which include losses.

Determination/Longevity/Position Size:

You have likely heard the story of the person who spent lots of time digging for gold. They dug a deep hole and found nothing. Dug deeper and found nothing. Dug a little deeper and found nothing and then gave up. What they didn’t realize is that they were only 5 more feet away from the gold. Someone else came in and only had to dig five feet and the gold was sitting right there. Trading is much the same, you will be challenged.

Trading is like a mirror. It reflects every emotional flaw you have and Murphy’s Law exposes all your flaws very quickly in trading. The journey to self empowerment with trading is a marathon, not a race so make sure you use small position size while you are learning. Don’t take on risk until your demo trading proves that you have an edge that your competition doesn’t have. Then, begin your trading with as little position size as you can. Let your results dictate when you should increase that size. Typically, the problem you need to be aware of is that determination, while a good thing can lead you into a trading trap because determination goes hand in hand with aggressive action. Don’t let the burning desire (determination) to reach the “prize” lead you to take on too much risk, too soon. Longevity is the key and properly handling risk with position sizing and small losses is the key to longevity. Instead, channel your strong determination into energy that allows you to follow your rules.