Learning how to trade properly can seem overwhelming for a beginning trader, given all the different trading systems, methods and opinions out there (I’m sure you know what I’m talking about).
You’re fortunate if you’re reading today’s lesson, because I am going to leapfrog you forward on your trading journey and save you from a lot of emotional and financial pain (possibly physical pain too, if you lose someone else’s money). Like so many other traders, I spent years experiencing emotional ups and downs, mental stress and confusion, and hundreds of hours of research and study as I learned to trade. Some of this is sort of like a prerequisite to trading success, and it can’t all be avoided (I don’t sugar-coat), but a lot of the mistakes that lead to this mental anguish and lost money can be avoided.
I’m here to help you avoid the trading mistakes that are avoidable and this will significantly shorten your learning curve and get your trading career started the right way.
This is the ‘getting started guide to trading’ that I wish I had when I first started, so I am writing it for you in hopes that it gives you a clear and illuminated path to follow so you can avoid many of the mistakes traders make as they learn to trade. It’s also going to give you a bit of a reality check, and hopefully get you on the right path from day one.
Avoid Day Trading and Scalping…
Sitting at your computer for half the day, jumping in and out of trades, is really no different from going to the casino and playing the slot machines for half the day. Any type of trading ‘edge’ is dramatically watered down and less effective when used on short time frames in a high frequency manner, as in day-trading and scalping.
Think about it logically for a second: A trading ‘edge’ is basically just an ‘event’ (price action setup) in the market that clues you into a potential up or down move in the market…it tells you that the market has a higher-probability of moving in a certain direction, even if only a slightly higher probability. However, logic dictates that something which is higher-probability is not going to happen with high-frequency, at last not as it relates to trading.
It’s sort of like evidence at a crime scene; there will only be a few pieces of evidence that really provide solid clues as to what actually took place in the crime, the rest of the things at the scene will basically just be useless distractions. In trading, you will get a few high-probability signals a week or every two weeks perhaps, on the 4 hour and daily chart time frame. But, as you go lower in time frame, the useless / distraction price bars become more and more prevalent, and thus, less reliable.
The most reliable and highest-probability trade signals simply do not occur with high-frequency, if they did, everyone would be a rich trader. Patience and discipline win the game of trading, everyone agrees with this (if they don’t they need to), so it simply makes no sense that day-trading and scalping are the best ways to trade. They are very low-probability trading styles that are horrible fits for most peoples’ mindset, personalities and genetic makeup.
I know that the cliché idea of a ‘day-trader’ seems ‘cool’ when you first get into trading, but I promise you that day-trading and scalping are the opposite of ‘cool’ or ‘easy’ ways to making money in the market. People that day-trade do so because they have some type of addiction to the feelings they get from it, just like a gambler in a casino. The adrenaline, the ‘rush’ of anticipation, all of these things are easy to get addicted to, and the market supplies you with a never-ending ability to get your ‘fix’.
It’s this cliché image and the addictiveness of the emotional roller-coaster of day-trading that gets people hooked, and that make it a very easy thing to market and sell (especially to beginning traders). The market will chew you up and spit you out if you try to day-trade or scalp it, the scammers will convince you it’s the path to riches, but it’s not. Day-trading by itself is not actually fun, making money is fun, day-trading is not the easiest way to make money in the market, in fact it’s about the hardest, and this is why I avoid it like the plague and why you should too.
Forget the Systems, Robots and EA’s
Another trading pitfall that you need to avoid like the plague, is black-box trading systems, robots and EA’s (expert advisors). These things typically promise to totally automate your trading and pump out profits like an ATM machine, unfortunately the reality is basically the opposite.
First off, trading cannot be fully automated successfully over time. Maybe for a week or month while a market is in a crazy strong trend with low volatility these things will work, but it’s when market conditions change, and they always do, that these rigid trading system fall to pieces, along with your trading account.
Life is not as easy as just putting everything on ‘autopilot’, and neither is trading, sorry, wake up and smell the roses. You’re dreaming if you think rigid trading systems, robots or EA’s are going to make you rich long-term. The systems sold are typically complete crap, with fake results and clever marketing. They show curve-fitted equity curves to make the results look great, then in live trading they all eventually crash and burn, and that is usually very quickly.
You will burn your money, and at best, break even after all the trading commissions eat away at your equity because these automated trading systems typically enter SO many trades with little to no profits being generated. They are a brokers dream because they generate a lot of trades (think commissions and spreads lining the broker’s pockets), but they are lethal to a trader’s account in my opinion.
Trading success is the end-result of learning to trade an effective trading method properly (a method or strategy allows for flexibility and fluidity in a trader’s decision making, unlike a rigid ‘system’), gaining a good amount of screen time / experience with that method so that you start developing your own gut feel and trader’s intuition, and then combining that trading feel and skill with strict discipline and patience to stick to your method and to manage your risk properly at all times. In other words, you aren’t going to beat the market with the “Turbo Pip 5,000” trading robot.
You don’t have to take my (very experienced) word for it if you don’t want to, go and Google some of the most successful traders and investors of our time like George Soros, Warren Buffet, Jim Rogers and other ‘Market Wizards’, you’ll be hard-pressed to find any of them use black-box trading systems or some $99 trading robot called the “Turbo Pip 5,000”. Remember: If it sounds too good to be true, it probably is!
No Fancy Trading Computers or Gizmos
I trade from a laptop with one screen, and so can you. I use a simple MetaTrader 4 trading terminal with mostly daily charts and no mess; just price action on a simple white background with black and white candlesticks.
Information overload and equipment / data over-load are very real things that affect beginning traders, typically in a very negative way. Simply put, you don’t need all the ‘crap’ being sold. You don’t need expensive data feeds or $3,000 trading computers, these are likely to cause you to commit too much time analyzing variables and over-committing yourself to the market, which of-course leads to over-trading; the number one reason people lose money in the market.
Choose your trading method wisely
There are literally thousands of different trading systems and strategies out there. Many of these methods, if not most, are complete junk; from day-trading systems, to indicator-based systems, to trading robots that promise to completely automate the trading process, there’s a near endless number of trading methods out there. Some are just plain ridiculous, like Elliot Wave, Gann angles, fractals, even astrological-based trading (yes this is a real thing people try to trade with) and so on…
All these methods are just confusing, haphazard and mentally draining if you try to use them long-term. I’m sure whoever invented some of this stuff could have been admitted to the local looney-ward at some point.
The point is this, these methods are mostly all sold based on hindsight, they are made to look good to the newbie or unsuspecting trader, they are marketed nicely to convince you they are the “Holy-Grail” of trading, but in reality most of them are complete B.S.
It took me years to find that Price Action analysis was the best method of reading charts and predicting price movement, and when I devoted all my attention, study and time to this method, it started yielding results I had never experienced before; it was the turning point in my trading career. The aim of the price action trader is to look at raw price (clean charts), study the technical picture and study the price action, develop a view of where price will go and place a trade accordingly, there’s nothing messy or complicated about it.
Once you decide on a method, you need to commit to it for a period of time, give it a chance and don’t just quit after a week or two, jumping from one thing to another. If you keep changing all the time and losing patience, you won’t get anywhere (that’s true for trading and life in general). See things through. What I’m basically saying is, don’t fall victim to the ‘system hopping’ syndrome that afflicts many beginning traders.
Choose Your Trading Mentors Carefully
I am sure you would agree that any person who is serious about improving their skills and learning a new craft, would take an instructional course, get an education and (or) seek mentors. With trading, getting an education is especially crucial…you need to pick a trading style (hopefully price action), and a mentor who you relate to and who you understand, somebody who ‘makes senses’ and fits your personality.
If you use common sense you can quickly see if a person is trying to help you and is making a real effort to connect with you. You also want to make sure you learn from a mentor who regularly provides updates and real-time commentary on the markets based on the trading strategy they teach, this will help you put the ‘puzzle’ together much faster than simply reading theory and being left on your own. You also need to make sure you have an open line to your mentor when you need clarification on theory.
I designed my education service back in 2008 to offer all of what I just discussed above and more, I wanted to offer upcoming passionate traders the kind of service I needed when I started my career, but never had. I wanted to change the face of what was available to traders online.
If you would like to get your trading career started in the right direction, you can learn more about my trading education courses and trading newsletter – here. Whatever path you decide to take, remember to keep it simple.
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