Trader Talk: Understanding the Reality of Trading
It's important to stay realistic about trading and realize there will be times where you will face difficulties.
Recently, I have been introducing rules to Becoming a Better Trader, reviewing how your Style Matters More than your Stock, How to Ride Winners, Try the Losers But Weed Out the Laggards, A Successful Trader's Routine, the Anatomy of a Trade and given some tips on trading with a smaller account.
However, I want to sit you down today and have a heart to heart. Today, we need to make sure your head is out of the clouds and start to deal with some harsh realities. You have been reading and you have been studying but today, before you head out into that big bad world of stocks, we need to have a little trader to trader. So settle in and relax for a few minutes and let's take a look at some things you just need to know before venturing out.
1) You will be wrong: Yes, it is true, there will inevitably be times when you are wrong. Heck, most of the time you may be wrong and that's ok. Accepting that fact is half the battle. The key to successful trading is how quickly you can identify you are wrong and make a change.
2) There is no place for pride: The market is the most humbling place in the world. Check your pride at the door, as there is no place for it at all in your trading. Ironically, Mr. Market knows just when you are starting to get cocky so be honest with yourself. If you start to feel a confidence level set in that makes you feel like you could try anything, consider paring back and possibly take a cold shower.
3) You will have blow-ups: If any trader ever tells you they have not had a stock blow up on them, they either just started trading or they are lying. More than likely it is the latter. Blow ups happen, whether it be from some unexpected news, some expected news that isn't favored well at all or just a normal turn in the market. Whenever it happens, and it will, I always find it important to first and foremost remember that it is part of the game, and secondly that as long as you kept your position sizing appropriate you can recover from anything. Take the blow up off your screen as quickly as possible. Book the loss and move on. I have found it is always easier to start making it up in other areas rather than clinging onto hope that this disastrous piece of garbage of a stock can come back.
4) Sometimes when you are down, you will be kicked: I have had times in the past when I couldn't think it could get any worse. I had been on such a cold streak that I was afraid to drive our family car as I thought I might make the wrong turn and put us in harm's way. Of course things were going so bad, my thoughts immediately shifted to the fact that they would soon turn but they didn't. Mr. Market decided to kick me a few times when I was down just so I would know he was truly in charge. Did it get better? It sure did, and it always does, but I had to simply keep plugging along and take my lashings.
5) At times you will underperform: There will be times when the market is running and you are on the sidelines or in the wrong areas. This is to be expected at times and much like when you are wrong, it isn't if you are in the wrong areas or out of the market when it is running, it is how you reposition yourself when you realize it.
6) You will be zapped of your confidence: After a series of poor decisions which result in a loss of capital, your confidence will be shaken and you will have to start again. Like our dear friend Rocky says, "It ain't about how hard you hit, it's about how hard you can get hit and keep moving forward."
So why in the world would anyone want to be a trader? Well, that is quite simple, really. Trading is one of the most exhilarating and wonderful activities on the planet. When handled appropriately it can change your life forever. Call me a dreamer, but I am one of those people who truly believe that anyone with passion, drive and work ethic can become a wildly successful trader if that is what they choose to do. So despite all the harsh realities, each and every day I come in fresh, ready to fight a new battle in a world of endless possibilities. Do you?
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