Most traders like to start their trading journey from scratch. After all, it's really easy for them to confirm a transaction with a click of the mouse! This digital age has made it easy for us to transact, the process of transacting seems very simple. But financial markets are brutal.
In the trading market, the so-called "smartness" is useless at all, and the market will teach you lessons again and again. Here, we do have some experience, which is worth learning from for all traders.
1. Short-term trading requires extremely professional trading knowledge.
Almost all experienced traders discourage newbies from day trading. Day trading carries a higher level of risk and requires a certain level of expertise to assess the situation and make quick, timely decisions.
But most new traders think that trading is so easy, they think they can simply trade every day and take some money home.
They fall into the temptation of short-term trading, but the market just keeps eating away at their funds. Every day, traders log into their trading systems thinking that today will be different. But without any trading plan, he loses more and more every day.
Day trading is like any other trading. You need to have some knowledge about support and resistance, a good entry point, stop loss method and exit level. If these things are missing, don't take any trades, let alone day trades.
2. The process is far more important than the result.
It is certainly true that everyone can make money in the market. But people who can make stable profits are very scarce.
It is not important to open a trading account and profit from it. Or maybe it just happened to be in the right place at the right time. This is the so-called "beginner's luck" that most novice traders experience and make a few successful trades.
Such victories make them believe that making money in the market is easy. Actually. Your goal is not to make money all at once. Instead, create a steady stream of income to help you achieve financial independence. To get such a stable income, one cannot blindly engage in trading without any plan.
Therefore, making a proper plan and then trading is a very crucial process that every trader needs to learn by himself. One successful trade does not make you a successful trader. However, if you can repeat this success on a regular basis, you have created a solid trading strategy.
3. A good trader is a product of good habits.
So, how do you create a good, solid trading strategy? Of course, to develop good habits. It's easier to pick up bad habits when you're new to it. Once these habits are formed, it is very difficult to get rid of them.
For example, many traders do not consider it important to track trades and analyze them at the end of a trading session. Think it's a boring task.
But when you start writing a trading journal. And write down your own trading plan in the diary: write down everything - the variety to be traded, what is the reason for the trade, what is the entry point, what is the stop loss position, the amount to be traded, etc. After the deal, if the plan followed, then go back to the journal again to write it down honestly.
But you will surely find that most of the time you are not following the plan. Either get in the trade too early or get out too late. Either get overweight, or take an entirely different impulse trade. Only by strictly following the habit of journaling can one understand one's mistakes and then develop the discipline to correct them.
4. You'll never be a market expert, but that's okay.
Many people believe that in order to make money in the markets, one needs to be a market expert.
But markets are too complex, with too many factors at play at any given point in time. No one can track all the information and trade successfully. No one can be a market expert.
That's why when you ask any seasoned businessman who has been in the business for a long time, he will tell you that he is a student of the market. Every day the market teaches us something new.
Therefore, it does not matter whether you are a market expert or not. Instead, we focus on two things that are controllable:
a) Find a system with a good win rate
b) manage risk. Let's talk briefly about these two points.
There are many ways to make money in the market. Technical analysis offers a large number of tools to choose from. Some people may choose a trading system based on moving averages. Others may look for a Fibonacci-based system.
Traders should try out all the different options to find out which system works best for them. Extensive backtesting of the system is also required to find out its effectiveness.
One thing to keep in mind though – backtesting the win percentages you might get won’t tell you when those win percentages will occur. That would be completely random. For example, suppose you find a good system with a 60% success rate.
This means that for every 100 trades you make; 60 trades will be profitable and 40 trades will be losing. But the system doesn't tell you which trades will win trades.
So, to take an extreme example - a trader could have 40 losing trades in a row and then 60 winning trades in a row. In this case, after 40 losing trades in a row, does the person have capital left to trade? The randomness of winning makes it all the more important for every novice to focus on better managing risk.
Instead of trying to be an expert in the markets, become an expert in risk management. Therefore, it is necessary to determine how much to trade (position sizing) and how much to risk (risk management). You must understand the importance of position sizing and risk management, or you will not be able to continue trading.
5. No matter how smart you are, the market will make you feel the importance of humility
The market doesn't care how smart you are. It doesn't care what you achieve. It doesn't even care about your last 10 winning trades.
Every trade is a new beginning and must be done with a fresh mindset. Trading involves too many factors. At any given point in time, any of these factors could work against you and result in a loss on your trade. Failure is very real and needs to be accepted.
Trading is like your closest friend. It will reveal all the deep-seated flaws in our characters. Occasionally we lose our confidence. This will make us doubt our abilities.
But each time, it also gives us the opportunity to build our own good character. Every lesson we learn in the market serves to become a better trader and a better human being. Therefore, one needs to accept failure with an open mind and constantly strive to improve oneself.
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