2 posts tagged with "hope"

3 Cardinal Sins Of A New Trader​

The Pandemic and 2020 brought a whole new demographic to the US stock and crypto markets, and as we saw on forums such as Wall Street Bets, making money seemed "easy" with Jerome Powell and the Federal Reserve's unlimited QE (quantitative easing). The sharing of gains between friends, family, and social media added more fuel to the fire, bringing even more people into the market every day. The behavior of these new "investors," in normal market conditions, would be described as "throwing money out of the window", but in this perfect storm, for maybe the first time ever, more money came back to them.

New traders make a wide variety of mistakes, but the most important one, believe it or not, is making large sums of money. While it may seem counterintuitive since we are all in this market to do just that, making money in the short term would be the very reason their portfolios would end up either significantly red or at zero come 2023.

Why is that? Did they suddenly lose their "skill"? Not necessarily since new market participants don't understand the complexities of the markets and trading anyway. We could simply define the issue as not being able to react to changing market conditions, but the problem is much deeper than that.

When trading, short term, long term or even scalping, professional traders use a system that they have built, which includes a very specific set of rules in order to give themselves an edge in the market. As Mark Douglass would put it, "an edge is nothing more than one outcome having a higher probability of occurrence."

These new traders had no built-out system and due to lack of experience weren't able to understand WHY trades went in their favor or against them. In 2020 it did not matter, but now it does.

So what does a new trader need, or what mistakes do they need to avoid?

1. They need ONE system: So many new investors will approach the market every day, make money or lose money and then move along while trading with a strategy that they think is going to make them rich. When they go on a losing streak, they blame the system or the market and not the true cause of losing, themselves. As I have mentioned in previous articles, traders may THINK they are following their rules, but upon further review when JOURNALING, they come to realize that many of their losing trades do not fit within the rules they have set up for themselves. Strategies and systems work for a reason (they give you an edge over time so stop focusing on if one trade is profitable or not, think about the next 100 trades). Stop jumping around to different things you think will yield a magic fix since you are the problem most of the time; the same issues will arise with each different strategy you hop to.

2. Too Much Risk: All new traders take on too much risk. You are NOT going to get rich in a day, but you can surely lose your entire portfolio. Trading is a long-term game, and if new traders are focused on flipping their account rapidly, they are losing more money than they are comfortable with using a system they don't fully understand yet. More money in your account does not make you a better trader; almost everything we do in the market at its core is learning how to properly manage portfolios and money. Sizing down allows new traders to focus on the fundamentals and the mechanics of good trading while setting the dollar amounts aside.

3. Laziness: Traders see the amounts of money that can be made very rapidly in the markets and assume or hope for that one big hit to boost their portfolio. By the time that comes, that one big

New traders must avoid the cardinal sins of having no consistent system, taking on too much risk, and being lazy in their pursuit of success. Developing a solid trading strategy, managing risk effectively, and dedicating time and effort to learning and improving are crucial for long-term success. By addressing these common pitfalls, new traders can increase their chances of becoming successful, disciplined market participants who adapt and thrive in various market conditions.

Kiss Your Money Goodbye!​

Retail traders are often labeled as dumb money by those who hold positions in the financial industry. Some may dismiss this term, but their portfolios often end up at the same place as all the others who thought they could outsmart the market… ZERO.

But why do retail traders struggle to make money? Is it the quality of information they receive? Perhaps, but even with access to tools like a Bloomberg terminal, the information can be overwhelming and may only yield a modest return on their portfolio. So, is it the strategy? As seen by the backtests on this platform and in the videos provided, there are many strategies that can help retail traders make money. The answer lies in the way they think and approach trading every single day.

Imagine a strategy that was 99% profitable (meaning you make money on 99% of the trades that fit the framework of the system), but if you fail to manage the risk on those 1% of trades that this imaginary system would generate, then your portfolio is left at zero.

Anybody can enter a trade and make money, in fact, most new traders in 2020 did just that. So why don’t we see the same level of excitement in trading that was present 3 years ago? Traders failed to realize what trading is actually about.

When entering a trade, the only thing that should be thought of is the risk, not how much money can be made, not what you could buy with the gains IF the trade works, solely focus on the risk.

It is easier said than done, but the problem of managing risk effectively, once solved, can easily catapult a portfolio to an income-generating machine. However, there is another problem that plagues retail traders every second of every day. It’s not stop loss hunting from some big bad market maker, it’s not “manipulation”, it’s the way the trader thinks.

I say this all the time, but in order to have different results in the market, you need to behave differently. But how do you actually change your thought process?

Disconnect from the $ Sign​

Most of you reading this have entered the market for one overarching reason, and that is to change your current financial situation. That desire can be a hindrance to your success. When participating in the market, if you are desperately trying to make money fast (keyword: fast), it can lead to poor decision-making in trade entries, exits, and management. So, to actually have success in the market, you need to detach yourselves from dollar amounts and focus on percentages.

Oh great, now you still lose money… what next?

Most of you reading this think you are following a trading plan, but looking back on past trades, you find inconsistencies in your approach or risk management. You end up thinking you are doing something when, in reality, you are not.

Key Fixes​

• Stop moving so fast, slow down your process and go after the low-hanging fruit (or the trades that so obviously fit the system)
• Write down your plan before entry and stick to it. Your word is everything in trading, and most often, your first plan is the correct one, but when money is at risk, your accountability goes right out the window.
• Review your previous trades and journal. Make sure you are actually doing what you set out to do because most of you, even if you think you are, aren't.

To Sum It All Up​

Remember, successful trading is about managing risk, staying disciplined, and consistently following a well-defined plan. By disconnecting from the dollar signs, focusing on percentages, and implementing these key fixes, you can transform your trading approach and achieve better results.

Take a moment to reflect on your trading habits and identify areas where you can improve. Then, put these strategies into practice and watch your progress soar. The journey to becoming a successful trader begins with the right mindset and a commitment to learning from both successes and failures.

So, go ahead and take the leap – your future self will thank you.