Seven insights I wish I had when I started my trading career
“Financial Markets.” What comes first to your mind when you hear this word? Something like ‘Gambling,’ ‘Speculation,’ ‘Everybody loses money,’ ‘Trap,’ right?
You might have heard something like this from your family or friends, but this may not be true. There are a lot of people there to whom trading is their bread and butter, and if the above statement is true, they might not have managed to be a trader throughout their life.
Today I am going to discuss seven trading insights based upon my trading experience in the market which might guide you when you start with your trading career.
1. Do not listen to other people’s ideas especially when they are smarter than you.
You might meet hundreds of people in the market who give you calls or ideas and another hundred people who follow them. It is always better and smarter to stay away from such people or even if you are following them, try not to blindly copy them and use your analysis and techniques for trading.
For that, you should know what the entry and exit points are and on what basis are they trading and tracking that might become very difficult after reaching a particular stage.
2. Do not jump into the markets just for the sake of it.
Most people get influenced by the lifestyle of prominent investors and traders and jump into the markets thinking that they would make lots of money in a very short span of time. This perception is entirely wrong and going by this assumption before starting trading can prove to be very dangerous in the long term.
Instead, you should acquire some knowledge about the markets first, start paper trading and eventually invest your real money with the strategy that works well for you.
3. Efficient Market Hypothesis is not a myth.
Market prices are not always right, and if market prices are dead wrong, then the whole idea that underlies the Efficient Market Theory (EMT) (that all new information is immediately discounted in the asset prices) does not hold order because if prices are wrong, then the whole theory falls apart.
The markets are challenging to beat but not because the markets are efficient but because what moves the market are both fundamentals and human emotions and human emotions are very difficult to gage, i.e., how far does a bubble go or when does a bubble break, these things are difficult to predict and trade.
4. Over-confidence may kill.
It is often seen in most traders that once some of the trades go right and they start making money, they feel a little overconfident or in simple Hindi terms, “apne aap ko tees-maar-khan samajhne lagte hai.” If one wants to stay in the market for a long-term, then it is essential for him/her to keep calm and composed and not let his/her trades affect his/her emotions.
Author of “Trading for a living,” Alexander Elder once said: “The goal of a successful trader is to make the best trades. Money is secondary.”
5. Not to follow the herd.
Some successful traders do everything you’re not supposed to do and yet still manage to make huge profits each year.
In the book ‘Market Wizards,’ Jack Schwager talks about Jimmy Balodimas, who always goes against the rules and does everything that you’re not supposed to do and yet still manages to make profits each year.
6. Don’t look for the ‘trading secret,’ look for the trading method that’s right for you.
Having the right setup and the right system is essential for any trader to succeed. By having the correct order or structure means identifying your own niche/edge which works best for you.
Jack Schwager in an interview said: “Look for the trading method that’s right for you and it’s not going to be the same for everybody.”
7. Don’t let a single trade decide your fate.
This is one of the most critical insights since if you are betting on a single trade and if it goes against you, can ruin your career. At the same time, you should not even focus on a large number of trades which you can’t even manage properly. In short, trading is all about discipline.
Trading is a slow and steady process which requires time and don’t try to become rich overnight as there is a high possibility of getting broke in doing so. Successful trading is all about the right money management and discipline. Hence, do not put unnecessary pressure on your mind if you get a streak of wrong trades. Step back, relax your mind, review your trading and decision-making system and get back to your trading desk.
Most traders who aren’t successful in their trading career often blame their setup rather than working upon their weak areas. The bitter truth is that the weakest part of any trading method is the trader executing it and not the setup.
Moreover, before jumping into any trade based on any pattern or indicator, it’s better to understand the psychology before entering a trade as successful online trading is all about understanding the psychology. Most people tend to give more weight to indicators or oscillators, but if you can follow the price movement properly, nothing can be better than this.