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  • Trading: From a newbies POV

    *This is an article I wrote at the beginning of my career. It was written when I had less than a year of experience under my belt.*












    Trading: From a newbies POV








    The painful experience of learning to trade the markets can become dull over the years which is why even the best traders can sometimes be the worst teachers. Its not because they aren't capable it's just that they gloss over things that they consider common sense, but when teaching a novice there's no such thing as common sense. Take a student driver and his teacher for example, when the student is driving down a street the instructor might say "take this right up ahead". Without thinking, the student might get to the turn and not even put on his turning signal because his teacher never told him to. The instructor glossed over something that is critical to safe driving but that he considers common sense. Certain aspects of trading can be communicated better from a newcomers point of view which is why I have typed up an article based on some of the things I live by when trading. Enjoy.





    Adopt a sniper’s mentality

    In my opinion every trader that wants to be successful should adopt a sniper’s mentality. Before we get started let’s define each role. A trader is anyone who attempts to use brainpower and analytical tools to make money by exploiting the price movements of financial markets. A sniper is a highly trained and specialized marksman that uses tools to immobilize enemy combatants. A sniper will wait in a concealed position for hours on end until his prey is lined up perfectly just to make one kill shot just as a trader should sit back and not make a move until every component of an excellent trade is in front of him. The basic qualities present in the best snipers are also present with the best traders. Both groups adapt quickly to what is presented before them, they are never complacent, and snipers know that two shots are never the same just as a trader knows that no two trades are ever the same. Snipers kill people and traders take other people’s money. Are snipers cold-blooded killers and are traders nothing more than common thieves? The answer to those questions is no. Both snipers and traders have a job to do and if that job isn’t done successfully it will have a negative effect on the individual and those around him or her. Snipers can not do their job successfully if they start to identify with or feel compassion for their prey just as traders can not win if they start caring about the person they are about to take money from.




    Realize who you are going against

    When you trade financial markets for a living you have to realize that the people you are trading against are doing what they do in order to pay their bills, feed their kids, and live a comfortable life. With all of that responsibility on their backs the last thing they are going to do is play games with you. As a trader you absolutely have to realize that your opponent came to win just like you and they don’t have any problem taking your money to pay their kids private school tuition. Nobody gets into trading just to be an average guy; they get into it to get rich and they behave like sharks waiting to eat less prepared and under experienced fish.






    Trading is a game of exclusion


    Trading is full of fluff. A lot of what you see and experience in the markets can be dismissed as bull. As a trader your job should be to completely eliminate all the things that don’t work for you and use all the things that do work to your advantage. Traders should always keep that mantra in their minds “trading is a game of exclusion” when formulating a strategy, making split second decisions during market hours, and trading overall as a career.





    Learn from experienced and successful traders


    This sounds a bit contrary to the original point I made in the opening of this article but the best thing you can do as a new/inexperienced trader is to get a trading mentor, someone who has seen and done way more than you have in the markets. The learning curve for trading is one of the most difficult ones I know of. It would take forever to learn enough about the markets on your own to become successful and unless you have a bottomless pit of money somewhere the best thing to do is get a mentor-like individual to help you. I found it best to get more than one person like this and pick and choose pieces of their approaches to create your own top-notch trading style.




    Keep track of your mistakes


    The word mistake is defined as an error in action, calculation, opinion, or judgment caused by poor reasoning, carelessness, insufficient knowledge, etc. Now doesn’t that definition have some if not all the qualities of the bad trades you’ve made in your career? Keep a record of all the mistakes you make and read over them regularly to ingrain in your mind what not to do. I’m the type of person that will make the same mistake over and over again unless I make a conscious effort to avoid that mistake all together. Going back to my first point about adopting a sniper’s mentality, great snipers and traders continually learn from their mistakes. Remember, you learn more from your losses than your wins.




    Become an expert in one area


    A lot of traders get in trouble because they want to trade everything under the sun. They want to trade every pattern, every company, and basically everything that comes across their screen. The only problem with that is you only become mediocre in all those different areas that you trade as opposed to a trader who hones all of his or her skills and abilities into one area. Take the example of Bob and John, two great traders. Bob has traded gapping stocks exclusively since the beginning of his trading career; Jon has a need to trade everything and doesn’t know much about gapping stocks. One day both traders notice that POS pharmaceuticals gapped down on the days open. They both go about conducting basic research on the company. Bob, having traded gaps for many years, instinctively looks at why the company gapped down which we’ll talk about later. Jon on the other hand sees a pretty chart pattern and a decent balance sheet and decides to add it to his watchlist for a long position thinking the company can easily rebound from the gap. By this time Bob has already discounted the company, his years of experience have taught him to be extremely wary of gap-downs in pharmaceutical/biotech companies. Bob looked at what made the stock gap down and it turns out the primary drug that the company was working on failed FDA tests and that stock has a very slim chance of ever filling that gap. Bob knows he has two options; steer clear of this stock or short it and he knows he’ll be making a very low risk decision by shorting it and a no risk decision by staying clear. Jon on the other hand is about to put his money into a stock that will only grind down to nothing for months and months. That was a very simplistic example but it gets my point across. Over the years Bob would have seen tons of gapped stocks, he would have seen what happens to those stocks in different market conditions and he knows at the drop of a hat what to do.




    Have clearly defined goals


    Traders should clearly define what they want from trading because you never want to just make decisions without any clear long-term goals simply because the small decisions you make today could have a lasting effect on your success in the long run. A teacher I once had shared this influential story with our class. In a very long term experiment a group of 30 students were asked about their goals. 20 of the students had goals and the remaining ten had none. Their teacher asked them to write down their goals and keep the sheet of paper forever. 10 of the 20 with goals wrote them down while the other ten with goals just said “oh I’ll just remember them, there’s no need to write them down”. Years after the experiment the teacher got in touch with all 30 students to find out if they had stuck to their goals and how their lives turned out. The 10 that had no goals at all were poor and living paycheck to paycheck. The ten that had goals but didn’t write them down had about half and half results with achieving them. And finally, all of the 10 that had goals and wrote them down actually achieved their goals and were very happy with how their lives turned out. Those top ten all succeeded because they defined their goals clearly, they knew what they wanted and they always had that in the back of their minds. I should also add that a goal is something BIG. Most people waste their time trying to achieve stupid, small, useless crap. A goal is something like becoming a multimillionaire and not something like wanting to get a job paying 100K a year. People are pathetic with the way they live their lives and that is a perfect example.





    Simple strategies are the best strategies


    Newer traders including myself often make the mistake of dismissing simple strategies as crap. They think “this strategy is too simple to work”. They try to reinvent the wheel. When I came across a simple strategy I tended to add a bunch of indicators and things like that in an attempt to make my strategy the best there ever was but that’s just unnecessary. The best example of a simple strategy working for a trader is Timothy Sykes. He turned $12,000 into 1 million dollars in under a year by shorting penny stocks. His basic strategy was to short stocks that were inexplicably high meaning they were about to fall. That's about as simple as a strategy/approach can get. I had to simplify my trading. I needed to see ONE set up and be able to trade it expertly. I wouldn't trade a bunch of different setups because I would start to think of all kinds of weird reasons to justify whatever actions with my positions. I need to be able to scope out and strike on the best positions. Nowhere does it say you have to have a complex formula or strategy to make money in the markets. Don't try to reinvent the wheel.






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    "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."


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