Not claiming to be a subject matter expert by any means, but I have traded long enough to have gained some insights that might prove useful for those interested in embarking on the same journey. Feel free to take 'em or leave 'em.
Insight #1 Stocks can only move in 2 directions. As a result, any strategy, no matter how dumb or reckless, will have an average winning chance between 40% and 60% at any given time. Why not higher or lower you might ask. See #2.
Insight #2 A trade always requires 2 parties, a buyer and a seller. That means, for any strategy that consistently produces winners 70%-100% of the time, there has to be a counter strategy that produces losers by the same amount. Now ask yourself, who on earth would want to keep using that kind of strategy? The answer is no one. For trading to work, both parties must be convinced that their chance to win is at least 50% or higher. The actual outcome comes down to a multitude of factors, most of which are beyond the trader's control.
Insight #3 The most important lesson any beginner trader must learn is how to lose. This involves accepting that losing is a natural part of trading and recognizing that your job as a trader is not to avoid losing but to limit it. Fear of losing is reason #1 why most traders blow up their account, as they refuse to let go of positions even after it has become obvious that they are wrong. Do not let this happen to you.
Insight #4 Trading is a game of probability. To succeed, you must learn to think like a statistician, not a gambler. Granted, the most successful traders are also gamblers, but you are not there yet. Your goal starting out is not to get lucky once or twice, but to be profitable over many trades. Remember, YOLO works both ways. If you want to master trading, or to at least become reasonably good at it, you must survive long enough for the statistics to work in your favor.
Insight #5 A trader's edge is not what you think it is. It does not come from any particular strategy or fancy technical analysis skills. Rather, it's the number of trades a trader is able to execute according to plan over time. Note that I wrote "execute", not "win". That's because for an experienced trader, the outcome of a single trade is irrelevant. It's a data point, nothing more and nothing less. What they care about is the aggregate outcome of 100 trades. Flawless execution, good risk management and emotional discipline is how you become a good trader, not chasing after the next "winning" strategy.
Insight #6 Before entering any trade, you should have 3 numbers written down: Where to get in, where to get out if you are wrong and where to get out if you are right. Once you hit buy (or sell if you are short) you must be able to walk away from the trade completely since you know you have covered all your bases. If you find yourself getting excited or scared while trading, you are doing it wrong.
Insight #7 Paper trading is useful to learn the mechanical side of trading (how to place certain orders, etc.) or to test out a new strategy. It's less useful for actual trading because psychology is a major component of it and handling fake money simply is not the same.
Insight #8 Finally, never try to predict the market. This might sound counter-intuitive, but remember, you are not investing, you are trying to profit off of short-term price fluctuations, which are more likely to be completely random than not. Only trade based on what you can see right now, not on what you think or wish is going to happen next. If something is easy to predict or obvious, you must assume it's already priced in.
Submitted September 11, 2020 at 08:35PM by Pleitegeier_ https://ift.tt/35vmRgs
