It is critical for every new trader to fully understand the disciplines required and more importantly, why they are required, right at the very start. In this piece, I am going to share the four key areas to focus on which will not only help you determine if self -directed trading is right for you but also help you to achieve your goals.
Education is where the journey starts and unfortunately for many, this is where it ends as well. Most people say education is the answer when it comes to successful trading and investing in the financial markets, I completely disagree. Education is really why most people lose money and fail because most financial education is either very flawed or intentionally misleading. “Proper” education is the answer and without it, you are likely to quickly find yourself time and time again on the wrong side of the market and with that, your hard earned money being transferred into someone else’s account. Many new traders forget that trading is a skill which needs to be honed and developed. It is a profession that requires superior skill and understanding as it is competition at its finest. Much like a doctor trains at medical school or a lawyer trains at law school, successful traders have also been trained and educated in a very similar fashion. To learn how to do something well, one needs to be instructed by someone who is already doing that it and who can do it effectively. However, many hopefuls decide early on in their trading to skip the education process and jump right in, good luck. Ask yourself an honest question: What are the chances of this working? If trading was as easy as just diving in with very little understanding or guidance from a professional, then everyone would be doing it and making money. As mentioned above, trading is extreme competition. Each and every time you push the button to place a trade, there is someone on the other side of that trade trying to take your money. The trader who is more informed, properly educated in the profession of trading is typically going to come out ahead.
The stark reality, though, is that the vast majority of speculators out there end up failing. The facts don’t lie, yet many choose to ignore this prospect and think that things will be different for them. The alluring thing about the market is that it tempts the newcomer with dreams of easy money and wealth, and with humans being the emotional creatures we are, these temptations usually end in frustration. One of the many pitfalls of trading is that it is easily accessible and anyone can get online and open an account in a matter of minutes. Does this mean then that we should take this route? It’s almost like believing anyone could perform open-heart surgery after reading a book about it…not likely. So, while I am certainly not pushing you to trade on your own.. If you do decide to become a self-directed trader or investor, make sure you really understand what you’re doing before you get started.
Once you have received the right education, you now have the tools to succeed, but this does not mean that it’s smooth-sailing from the very start. Consistent success is gained from a consistent set of actions and proven rules. There are a few ways you can achieve profits in the market and each trader needs to decide which tools are the right ones for them. Will you be a short term trader for income or a long term trader for wealth? Which asset class or classes will you trade? These questions and more need to be answered as the last thing anyone needs is doubt in their strategy when they are live in the market. A sound trading plan needs to be adhered to from the very start and the rules have to be in place. As a trader gains more experience in the markets, they will no doubt develop their skills to new levels, but from the very start the rules need to be set. It takes discipline to adhere to profit targets and stop losses, to know why you are buying or selling and to repeat the process over and over again.
In fact, trading actually becomes quite boring after a while. The difference with trading is that it takes up far less time than a job, if you do it right. Once again, like in any profession, there are ways to do it right and many ways not to. One of the many traps I have seen new traders fall into is changing a solid strategy for the wrong reasons. Sometimes, when a new trader finds success with some consistent winning trades early on, everything is great. Then, they fail one or twice, leading the trader to then abandon the strategy in search of another with a higher rate of success. This is a dangerous approach, as it can lead to a game of holy-grail chasing which often ends with further frustration for the new market speculator. If you can have the discipline to accept that no one strategy will have 100% winning trades and stick to your rules over a sustained period of time to ascertain the strategies real potential, then and only then will you have a chance at sustained success. After all, following a set of rules shouldn’t be that hard yet I see this as a challenge and potential pitfall for the new market speculator.
It would be great if proper education and discipline were enough but I am afraid not. Patience is a key piece to the trading puzzle and it comes in three forms. First, you need to have the patience to let the market come to you. Meaning, your rule based strategy identifies the low risk, high reward, and high probability trading opportunities in the market. It tells you exactly at what price to enter and exit the market. So, you will find yourself waiting for market prices to come to your key entry and exit prices and that can take time sometimes. People in general like to be doing things, taking action, not waiting. This is in direct conflict with success in the trading world. You must have the patience to wait for market prices to come to your pre-determined entry and exit points. Second, once you’re in a trade, you must have the patience to let the trade work out as planned, win or lose. I have seen so many times new traders enter a trade as planned, only to cut the profit short and/or remove a stop loss order from the market because they didn’t want to take a loss! This is account suicide. Third, you must have the patience to let your newly learned skill turn into profitable trading. Many make the mistake of being a little too eager to pull the trigger when they sit down at their computer and end up clicking buttons a bit too often. They think that just because they took some education, they have the ability to immediately start making money right away. Be realistic with your new skill. It’s very much like taking your driving test: the minute we pass doesn’t mean we are ready to drive a Ferrari.
Truth is, there are not many ways to make money in the markets. You buy low and sell high, period. This means having a strategy that helps you identify market turns and market moves in advance, with a very high degree of accuracy. Knowing that the only thing that causes market prices to turn and move is significant demand and supply, your strategy must be able to objectively quantifying demand and supply in any and all markets. This needs to be the foundation of your strategy whether it is for short term income or long term wealth. Knowing what the picture of real bank demand and supply looks like on a price chart is key. Whether you use price and price alone like we do at Online Trading Academy or conventional technical analysis like the trading books teach, real market supply and demand needs to be the foundation of your strategy. Make sure you have VERY specific rules for this which will then allow you to have your entries and exits 100% rule based.
As I said earlier, if I suspect a new student clearly doesn’t understand one of these four key items above or dismisses them as not important during the Market Timing Program, we encourage them to not get involved in the markets and Online Trading Academy as the chances for success are slim.
Think of the skill to fly an aircraft and the discipline needed to follow your plan. You first go to school to learn the rules and skill and then you train with someone for a while who is already an experienced pilot. This takes time and the highest amount of discipline as following rules is a matter of life and death. While losing money in the market is not life or death, the key personal traits needed when speculating in markets is not all that different from those needed to fly.
Written by Sam Seiden, Online Trading Academy Instructor. As the Chief Education, Products, and Services Officer at Online Trading Academy, Sam shares his ideas on day trading, investing for beginners, online Forex trading and his personal passion—the futures markets. Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange where he facilitated institutional orderflow. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated thousands of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.