Understand the Game before you Play it
Before you start placing trades or even open a new a trading account you must understand the game of trading. I see so many people that are so excited to start trading before even reading a single book about trading or maybe at best they start reading their first book as they begin their trading journey.
Let’s compare trading to some other activities that require you to acquire some skills before you can even begin to perform them. Take for example playing an instrument like the guitar, nobody can pick up the guitar and just start learning how to play it by experimenting with it. I’m sure there are some exceptions such as musical geniuses, but the vast majority of people need to start from the basics, learn how to read notes, then play these notes and after many years of practicing they can play some songs. Also keep in mind, even after 5 years of practicing they will be nowhere close to a professional guitarist. However, when it comes to trading anybody can open a trading account and start placing trades right from the start. It does not require any skills to just put in a buy or a sell order! But making a consistent return from trading is a completely different story. Did you know that over 90% of new traders who open up a futures account, blow up their account within a year? Ask yourself, why is that? Because they don’t put any effort into understanding the game of trading before playing it!
So, what is the game of trading? How do you even strive to become a profitable trader?
Chances are like many other aspiring traders, you got into this game thinking that you can catch the next big trade. Whether that trade ends up being in the cryptocurrency space, marijuana sector or pharmaceutical industry is completely irrelevant. Truly ask yourself. Even if you end up catching that big trade? What’s next? Will you be able to keep this up? Or eventually a series of bad trades are finally going to take you out of the game.
Frankly, the worst thing that can happen to an aspiring trader is to get lucky in the beginning and catch a few big trades. That will for sure inflate their ego and give them the false impression that they can keep this up! And once they finally have a series of bad trades and see their paper profits evaporate, they wake up from this self-created dream.
In order to become a profitable trader, you need to have an edge! Meaning that you have accepted losing as a part of trading, but you have managed to design a trading system that allows you to make so much money on your profitable trades that they offset your losing trades! All professional traders that I know spend most of their time and energy developing and optimizing trading systems that give them that edge! Let me briefly elaborate.
By a trading system I’m not necessarily referring to a computerized trading system. A trading system is a set of rules and guidelines that you have put together that give you an edge.
Think of the game of blackjack, you can of course go to the casino and start gambling at the blackjack table or count cards like a MIT math genius? If you haven’t seen the movie 21, I highly recommend it!
A professional blackjack player or someone who counts cards only place bets according to their set of rules. They might go sit at the blackjack table for hours and they have rules and guidelines for every action they take at the table. They have a rule for when they actually bet and how much they bet depending on their stake and how many high cards or low cards have left the deck. What they do will be perceived as boring by most, sitting at the table for hours and hours. Gamblers on the other hand, have no set of rules that they adhere to. What they do is actually pretty exciting and exhilarating because the final outcome is unknown. Many factors will determine their final outcome, but luck is the primary determining factor. If you talk to a gambler, they will always tell you stories about the times that they have made a killing at the casino but by just simply observing them you can tell they have never managed to make a sustainable income from the casino or in fact they have never held on to their winnings. Why? Because the casino has the edge over them. The dealer plays the game according to the rules and guidelines of the casino or a system that gives them an edge over all the gamblers. Therefore, over a long period the casino always wins. Now ask yourself, would you rather be the casino or the gambler? Are you looking for the excitement that gambling brings or the consistent income that the casino generates over and over again?
Now let’s go back to trading. Are you trading according to a set of rules and guidelines that give you an edge? Or are you just throwing money around? Do you know exactly when you enter and exit a trade? Do you have a set of rules for how much money you dedicate to each trade? Or are the sizes of your trades based on your day-to-day emotions and you trade erratically? Are you trading for the excitement that speculation brings? Or are you trading to generate a sustainable return?
If you are striving to become a professional trader then you must start thinking about designing a trading system that gives you a consistent and reliable edge in the market and no you can’t just simply use somebody else’s trading system. If it was that easy then anybody would do it, you must design a trading system that is most suitable to your current living situation and more importantly to your personality!! The same jacket doesn’t fit everyone right? Now how do you even start thinking about designing your own trading system? I know that must sound a bit hopeless and stressful but remember if you are willing to strive there is always a way, that is if you have the right attitude and mindset. I have dedicated my entire website to help aspiring traders to properly begin their trading journey and strive to one day become a super trader! And don’t you worry I have decided to offer all the educational content on my website for free so no one has an excuse!