It’s the same in trading. You have found yourself in a new environment (financial markets), where you need to first survive (not go broke), and then succeed (make a profit). Learn a new language for you – the language of the market. There is no other way.
Recommendations:
– Never despair. Having realized your incompetence, think about the fact that you have just made the right first step. The majority (up to 99% of traders) could not do this either. Further improvement is absolutely real. Stable profit generation is possible and achievable. Go forward.
– There is nothing to do in trading without serious self-education. Again – do not look for easy ways – they do not exist. Don’t chase flashy headlines from anonymous authors: “Eight myths… ten facts… five simple steps… a new indicator… a strategy that gives 310% per month…” and similar information garbage. Most often, such nonsense is written not even by traders, but by copywriters who have not earned a cent on the market. Don’t let them earn money from you. Learn to earn money yourself.
– Constantly read professional literature. Without haste, thoughtfully, making extracts, performing exercises. From my personal experience: I realized myself as a professional after about a hundred books I read and several years of constant work on myself. And who said it would be easy?
– Don’t rush things. Don’t set any hard time goals: “I have to become a trader in a year”. This will take as long as it takes. A doctor, before performing the simplest operation, studies for at least six years. Who said that the profession of a trader will be easier? Why on earth would a market with a turnover of trillions of dollars start sharing profits with dilettante? Think about it.
Conscious competence
Let’s imagine a first-grader who wants to get a job and start receiving a salary. For example, to the investment department of a large bank. The desire itself is laudable, but infinitely far from reality. He needs to finish school. Then finish the institute. And when you have some knowledge and experience in your head, tested on numerous exams – then get settled wherever you want.
Everything is the same in trading. It takes time to achieve a professional level, of course, provided that constant efforts are applied. And you will not be able to jump over these steps, do not even try, do not waste your time. Even a capable seven-year-old child will not understand anything in integral calculus, logarithms or Ohm’s law for a section of an electric circuit. And this is normal. He will understand in due time.
However, many novice traders do not understand these simple things. Downloading aВ trading terminal and reading aВ couple ofВ books (or even anonymous articles), for some reason, are considered quite aВ sufficient condition for obtaining aВ stable profit. Only serious money likes aВ serious approach. They are indifferent toВ naive dilettantes.
You need toВ spend aВ lot ofВ time and effort watching the market, noticing market vulnerabilities. You need toВ trade, try, make mistakes. Read and reread the necessary books. And only then, for those who did not give up, who found the strength toВ get up after falls and disappointments, aВ new facet ofВ skill opensВ up.
It is typical for aВ modern person toВ count on the rapid achievement ofВ goals. Advertising actively exploits this psychological vulnerability. We are offered toВ become slim and muscular inВ aВ couple ofВ weeks byВ buying aВ subscription toВ aВ fitness club. Or chew aВ new piece ofВ gum and immediately get rid ofВ caries. Or be insanely happy byВ drinking lemonade ofВ aВ certain brand.
This primitive cunning is also present in trading. Just today I saw an advertisement for training a trading strategy, the use of which is allegedly able to bring 4000% (!!!) profit per month. The person who receives such a profit is an incredibly modest guy, he was even ashamed to open his name and lay out the trading history…
Learn to set real goals, do not chase millions and billions of dollars at once, everything has its own time. Your initial task should be to survive in the market. Everything else later. If you have not lost money for several months in a row, you can congratulate yourself – after all, you have reached a level that 95% of traders cannot overcome. This is a great result for a beginner.
After reaching the break-even stage, start working on gradually increasing profits. Again, thinking about the real size ofВ earnings, and not about money waterfalls. AВ profit ofВ 1% per month is aВ success. Even aВ stable monthly profit ofВ 2% is an excellent result. This is how much Warren Buffett earns from the 50s ofВ the last century toВ thisВ day.
Or are you smarter thanВ him?
When calculating interest on interest – without withdrawing funds from the deposit – the progression generally works wonders. Check yourself on the calculator, taking your trading account as a starting point. How much can you earn in five years at 10% per annum? And in ten years? Surprised?
For your information, investment managers ofВ large hedge funds and major banks are simply happy if they manage toВ earn 15% per annum. As one major investor said:
“Their names are forever in the financial hall of fame”.
Recommendations:
– Do not relax, even after reaching the level of conscious mastery. There is always somewhere else to grow. Even steadily making a profit, from month to month, from year to year – never consider yourself smarter than the market. This is the most dangerous mental trap. Repeated financial crises every ten years (or more often) can suddenly and crushingly correct such self-confidence. Traders who survived the crash of 1987 recalled that the market then opened far beyond the level of the established stop-loss. Just “jumping over” them all in one fell swoop. In such a stalemate, stock market players can only look at the losses.
– You should never stop working on improving your trading system. This is by definition an infinite process. Markets tend to change, and what worked perfectly yesterday may not work at all today. Observation, constant self-education, creative thinking – can not but give birth to new trading ideas. You will begin to notice more and more new market vulnerabilities. And use them to make a profit.
– Do not try to embrace the immensity – to profit from every price movement in any direction. It’s impossible. Our task is to get a decent profit on obvious trends. It is enough to be on the right side of the market even for 50% of the “life” of the trend. For example, if a short-term bullish trend lasted for a week, and you held long positions for two or three days – great. This is more than enough.
Unconscious (intuitive) competence
Once upon a time, a young Russian scientist Peter Kapitsa (future Nobel Prize winner in physics) I was at an international technical exhibition. It was in the first half of the XX century. Then the United States presented a technical novelty – a complex electromechanical device. Suddenly, right during a demonstration in front of the public, this pride of American engineering broke down. It was not possible to perform repairs on their own.
And then someone suggested: “Among us is the great Russian scientist Kapitsa. He will surely be able to fix it, he is a genius!".The price for repairs was promised at that time huge – a thousand dollars. A lot of money.
The physicist accepted the offer and asked to bring him a hammer. He carefully walked around the unit from all sides: looked, listened, thought. Then he swung and hit a certain point. The device immediately started working. The manager of an American company paid the promised amount (for comparison with today’s prices, you need to multiply by about thirty – we get $ 30,000).
For aВ report toВ the accounting department, he asked toВ give him aВ receipt for receiving money. And an estimate for repairs with aВ list ofВ completed works. Secretly hoping that Kapitsa would be ashamed toВ take the entire amount for such aВ small effort. Just oneВ hit.
However, the scientist was not confused byВ this request and he wrote on aВ piece ofВ paper:
Receipt
IВ have received US $ 1,000В according toВ the estimate for the repair:
Hammer blow – $ 1
Determination of the place of impact – $ 999
This seemingly simple blow concealed aВ huge amount ofВ experience and knowledge.
Intuitive trading is the last stage at the end ofВ aВ long and correct way. And it will not be achieved inВ aВ short time. You will not be able toВ jump over the steps (skill levels). First you need toВ understand that you know almost nothing and do not know how. Then you will learn aВ lot, gain experience, including unsuccessful experience. And only then, perhaps, an intuitive understanding ofВ the market situation will appear.
Intuition is an unconscious skill. Jesse Livermore wrote about intuition in trading, being already a millionaire, after decades of stock trading. Jesse Livermore wrote about intuition in trading, being already a millionaire, after decades of trading on the stock exchange. George Soros wrote about the same thing, after successfully managing his multibillion dollars investment fund for many years. If you do not have at least five break-even years in the world of professional trading behind you, do not rush to become on a par with the people mentioned above. It’s too early for you.
A novice boxer who knocked on a pear for a couple of months and imagined himself ready for a fight with Mike Tyson is not just ridiculous. Dangerous to himself. He will lose with a probability of about 100%, and it’s still good if he stays alive and well. To begin with, the right step is to train like Tyson.
Mike recalled in his autobiography “Undisputed Truth” that after training, he did not have the strength to walk, and… he was crawling to his room. He lived at that time in the house of his coach Constantino “Cus” D’Amato. He had to crawl from the first floor, where the gym was located, to the third floor. And only then, after long and hard training, Mike defeated opponents in the ring in a matter of seconds. Most often – a direct blow to the chin. The simplest intuitive movement.
And yet, every trader (beginners even more often) has encountered one or another manifestation of intuition. Many people are familiar with the feeling when, without any clear reasons, it seems that the trend is about to unfold. Or vice versa – it will continue. The irrational principle is generally very strong in a person.
So, in order not to lose profit, you need to fix it right now. Then it will be too late! But after the order is closed, the price moves in the right direction by 3,000 ticks. Or the same trick with losses: it seems that the trend is about to turn around, and the losses will definitely turn into profit. We need to be patient a little more, and more, and more… This may result in “margin call” (lack of funds on the trading account) or “stop out” (forced closing of positions).
Fight with such “intuitive insights” as with the worst enemy. Otherwise, these fantasies will ruin you. And it will no longer seem to you that there is nothing on the deposit. The trading account will indeed be empty.
Recommendations:
– Over the years of practical work in the market, I can say that it is before a powerful price movement that the temptation to close a position will be especially strong. And before a catastrophic increase in losses, it will seem to you that you should not accept losses. As if you need to wait another five minutes (an hour, a day, a week) and the trend will surely unfold. Use these unprofitable illusions to your advantage. When “hands itch” to close an order with a small profit – by an effort of will, breaking yourself, turn off the trading terminal. And just take a walk for a couple of hours. With a high probability, the profit will significantly increase. Try this. You’ll like it.
– Of course, not every one of us is Peter Kapitsa or Mike Tyson. Think about it, for example, how many doctors are there in your city? Many. And how many doctors are there from God who are able to put an almost hopeless patient on his feet? Few. How many school teachers are there in your city? Many. And how many outstanding teachers who are able to interest students so that they do not want to leave the lesson? Few. And this is normal. True talent has always been a rare phenomenon.
– It’s the same in trading: you’re not Livermore, Buffett or Soros. Do not try to appear to be someone who you are not. To reach the level of a professional (steadily earning, and not losing in the market) is quite an achievable task. For anyone who has the determination. Determination to learn every day. The determination to fall and rise, to make mistakes and correct them. And the most important thing is the determination to change.
Step byВ step
Demo or real account?
Trading starts with aВ demo account.
Although there is a dismissive attitude towards trading on demo accounts among many traders. This is considered a frivolous occupation, a waste of time, pampering. Let’s allow ourselves to disagree with this.
You can’t do without this first step, at least in order to understand the trading terminal, learn how to open and close orders. A huge advantage of a demo account is the complete absence of risk. Whatever happens there, up to the loss of all demo money, it will not affect your real wallet in any way. If you have a virtual million dollars in your account, after a couple of months you have leaked it, then you won’t even shed a tear. Again, this is a huge advantage that should be used.
On the other hand, the deceptive ease and lack ofВ risk, taken for granted on the demo, can play aВ cruel joke with the trader. The illusion ofВ simplicity often pushes aВ person toВ hasty actions. We really want toВ skip the demo, this most important preparatory stage, and immediately start earning.
Trading terminals and mobile applications are now intuitive, and a schoolboy will understand them without any problems. And after a couple of days of training on the demo, a person already thinks of himself as a professional who is ready to rush into real stock trading, but…
Don’t forget: “The beginning is half of everything”.
The demo is this beginning, the first step into the world of professional trading. Like training before a competition or studying at school before going to university. No professional athlete in his right mind would call training nonsense – because competitions only sum up long training sessions. And it is difficult for someone who trained carelessly to count on a prize place (making a profit on the market).
The skills and experience necessary for stable profit – making should be sought precisely at these market trainings. And take them seriously, although it resembles a demo computer game: installed, played, tried, switched to real. Not hurry.
The importance of this stage cannot be overestimated, because working on demo builds your trading skills. If you get used to sloppily, without careful preliminary analysis, opening and closing transactions – drag this ruinous habit to a real account. You will get used to moving stop-loss, obeying momentary whims – you will move them on a full-fledged trading account. You will begin to close profitable trades at the slightest price pullbacks – in the same way you will stop the flow of profit on a real deposit. You will look at the growing losses without killing them at the very beginning, you will get used to it, and with a high degree of probability – in the future it will ruin you.
Do you needВ it?
Therefore, trading on demo should be treated as seriously as on real. Conduct aВ full-fledged fundamental and technical analysis ofВ the selected financial instrument. Keep aВ trading diary. Do not be lazy toВ perform calculations and current records (lot size, number ofВ open orders, stop-loss and take-profit settings, etc.). Fighting for every virtual cent on your demo account is an essential skill that will help you out more than once.
InВ trading, as inВ most other processes, haste is not appropriate. The case needs toВ be given time toВ ripen and bear fruit. As Warren Buffett says:
Even if you are very talented and make great efforts, some results just take time: you won’t get a baby in a month, even if you get nine women pregnant.
And if your results on the demo leave much to be desired, it’s just too early for you to switch to real account, no matter how much you would like it. It will take as long as it takes. If you come to stable profitability on the demo in three years, then that’s exactly what you need. In five years, that means in five years. This is better than rushing into the real market in a week, absolutely not ready.
And just give the broker your money.
The correct sequence ofВ professional growth:
Demo account (100% profit with aВ drawdown ofВ no more thanВ 30%)
Cent account (similar benchmarks)
Real account ofВ $1000В or more (without restrictions on the result)
If you “stumbled” at a certain stage, go back. For example, you did not cope with the cent account, practice again on the demo. And don’t set any deadlines: “in a month I have to” or “by the end of the year I plan to earn so much and buy this and that.” The market is not going anywhere from you. The market will be in its place tomorrow, and the day after tomorrow, in a year and in ten years. Whether you will be in the market with money by then is a question.
To sum up: trading on demo should be treated as seriously as if your real money was at stake. Moreover, there is absolutely no difference in appearance. The same trading terminal, price movement charts, financial instruments, stock quotes changing every second. And the same numbers in the columns “Balance” and “Profit”, depending only on you. The whole difference is in our heads. Therefore, calmly, without haste, with pleasure – learn to make money.
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