The day someone decides they are going to get involved in active investing or 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 world of trading challenges that have the potential to really hurt their bank account and their self-confidence all in one.
When I look at new traders and investors who do well and those who don’t, there are some clear observations to take note of. The group that focuses on the prize tends to lose money and never achieve their goals. The group that focuses on the trading challenges tend to succeed and reach their goals. As always, it’s one group providing income and wealth for the other; welcome to market speculating.
This is a must. If you don’t have self – control (discipline) in other parts of your life, don’t think you will magically have it 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. Proper trading and investing means 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, you need to buy when everyone else has sold, after red candles, with down sloping indicators, accompanied by bad news and so on. The act of buying low and selling high is NOT comfortable for the human mind when trading and investing. In other parts of our lives we have no problem trying to buy things on sale. However, when speculating in markets, most people do the opposite for the reasons I just mentioned.
Profits and Losses
People love profits and don’t like losses. 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 VERY common and doesn’t lead to trading success.
Successful traders take losses quickly when their plan tells them to, and they hold on to gains until they reach their target. In other words, they plan their trade and trade their plan. For investors who only buy the stock market, most don’t have a plan for profit or loss. I could write an entire article on this topic.
Have you ever heard of the person who spent lots of time digging for gold. They dug a deep tunnel in the side of a mountain and found nothing. Dug deeper and 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.
Life-long consistent profits in markets is the same. Trust me, you will be challenged. Trading is like a mirror. It reflects every emotional flaw you have and Murphy’s Law exposes all the new trader or investor’s flaws very quickly.
The journey to financial freedom is a marathon, not a race, so make sure you use small position sizes while you are learning and practicing. Don’t take on risk until your demo trading proves that you have an edge that your competition doesn’t have. Then, begin with as little position size as you can. Let your results dictate when you should increase that size. The problem you need to be aware of is, typically 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 conquer your trading challenges and follow your rules.
Hope this was helpful, have a great day.