This article recently appeared at (InvestorPlace).
One of the themes that appears repeatedly in trader blogs is a list of best practices. Such lists include trading rules, trader hints, necessary habits for becoming a successful trader, etc. Some lists are intended for beginners. The true benefit of understanding these ideas is to prevent the formation of bad or careless habits. Other lists are targeted to experienced traders and may contain useful ideas for tweaking the way they trade or handle specific situations.
These lists are generally helpful in that they provide good suggestions and much food for thought. One recent example is the ‘Top ten ways new traders lose money’ by John Forman. (The Essentials of Trading). As is the usual situation, each item on the list does not apply to every trader. However, this is an excellent list because it contains some information/advice that applies to YOU.
I approve of such lists and the there’s nothing wrong with reading the suggestions of different traders, each of whom may have some idea that truly applies to you, the person reading the suggestions. That’s the good news.
The bad news for people who take the time to read these lists of mistakes is that the individual reader seldom believes that the list is appropriate for his/her circumstances. A common thought may be:
- I know that
- Of course. Big deal; that’s obvious
- Who would make that mistake?
The truth is that too many trader wannabes discard valuable advice. Why does that happen? My belief is that the new trader doesn’t believe the ideas are relevant. They come from too many different places and sometimes the ideas conflict. It’s true that different traders found different paths to winning the game, and therefore have different advice to offer.
But that’s no reason to discard these ideas. Consider each of them and carefully decide its relevance for yourself. On the list above, #2 is: ‘Unreasonable expectations.’ That’s an important item, not to be discarded as obvious. The truth is that it is not obvious. New traders are far more confident of success than more experienced traders because they have not yet moved past the hype that made them interested in learning to trade in the first place.
Let’s face it, brokers want you to believe it’s easy. Come to them for great investment research, and that’s all it takes to make lots of money. Anyone who buys that idea is bound to expect the game to be easy.
Some of the hype-artist educators claim that their courses are designed to allow you to double your money every year, and if you don’t please come back and take their course again at no cost.
Some advisors want to trade your money, and for ‘only’ half of the profits (and none of the risk) they will turn your investment into a pile of cash.
No wonder that new traders have high expectations. That results in trading more size than is prudent, taking more risk than common sense dictates, and holding onto losing trades because they just know that the market will perform in a manner that gives the new trader his/her well-deserved profit. This is the path to ruin, and if those high expectations are not reduced immediately, chances of losing all your money are high.
More experienced traders fail to heed the messages. It’s far easier for them to believe they already know all they have to know to make money. While it may be true that they are earning profits every year, it’s also true that there are ways to improve their results – if they would just take the time to learn what can be accomplished – and then make the effort do learn how to make them happen.
The point of this post is to alert you to a simple fact: When you read a list of suggestions, don’t dismiss them as useless. There is something on that list that you can do to improve your performance as a trader. Of course, if you don’t want to do the work and don’t want to make the effort, that’s a personal decision.