“Everybody knows, that nobody really knows” – John Legend
The above quote (from part of a song) probably could be bastardized to trading as well. Everyone has a mental image of what trading is, but they don’t really know what it is.
A short introduction about myself, i started trading on a real account about a year ago. Made many mistakes and achieved some realizations. You can check out my trade explorer for the results. I'll let them speak for myself.
Anyway the main purpose here about this thread is not to teach you how to trade per say. Nobody can. Except yourself.
What i can do though is to illustrate the pitfalls and beginning mistakes. Hopefully you will find it useful
TRADING 101 - Basic principles
To give a short example, people often confuse trading with investing. They are not the same.
Or they confuse it with gambling. Ok, i can see some similarities there but not quite.
So what is trading really? To me, i prefer to keep it simple. Trading at its core is an exchange of value.
A trade happens because of a divergence in perception. For example, When a trade is made in a contract of the S&P500, the buyer thinks that the price will appreciate, the seller thinks the reverse.
This brings to me my first realization : Nobody in the markets came in to lose money.
Yet for the larger part of us without inside information, most of us saw the same information, the same charts and we arrived at 2 diametrically opposite decisions.
Though the markets are a zero sum game, both of us could make money depending on our exit points. Or lose money.
Perhaps, by reading to this point, you have realized that i have been constantly harping on losing money. For good reason. Most beginning traders have heard the statistic that 95% of traders lose money. I would completely agree. If the financial markets are not your passion, do not trade. You will regret it. Invest, do ball room dancing, whatever. But don’t trade.
For those who are still determined however, then let me illustrate to you 3 concepts.
1) Methodology. Aka How do i make money. What is my edge over others
2) Money management. Aka how much do i put on this trade such that losing it is not extremely consequential and yet i make enough?
3)Mind. Aka, IF I had a winning system, great risk control, how do i not screw up.
To be successful in trading, one has to have all 3.
If you only have methodology, but not money management, then you will eventually blow up.
If you only have money management but not methodology, you will just be bleeding cash.
However, even if you have the first 2 but not the last, you will doubt your system and that will be your downfall eventually.
The markets are rife with stories of wealth. That’s great. However what goes often unpublished are those who met their downfall.
I believe while we have much to learn from the greats like Soros, it is even more important as beginners to learn from the mistakes of amateurs and to avoid them.
I shall be updating this thread with a few other posts about trading.
Meanwhile, you can check out my own trade setups on www.theuniversitytrader.com
The above quote (from part of a song) probably could be bastardized to trading as well. Everyone has a mental image of what trading is, but they don’t really know what it is.
A short introduction about myself, i started trading on a real account about a year ago. Made many mistakes and achieved some realizations. You can check out my trade explorer for the results. I'll let them speak for myself.
Anyway the main purpose here about this thread is not to teach you how to trade per say. Nobody can. Except yourself.
What i can do though is to illustrate the pitfalls and beginning mistakes. Hopefully you will find it useful
TRADING 101 - Basic principles
To give a short example, people often confuse trading with investing. They are not the same.
Or they confuse it with gambling. Ok, i can see some similarities there but not quite.
So what is trading really? To me, i prefer to keep it simple. Trading at its core is an exchange of value.
A trade happens because of a divergence in perception. For example, When a trade is made in a contract of the S&P500, the buyer thinks that the price will appreciate, the seller thinks the reverse.
This brings to me my first realization : Nobody in the markets came in to lose money.
Yet for the larger part of us without inside information, most of us saw the same information, the same charts and we arrived at 2 diametrically opposite decisions.
Though the markets are a zero sum game, both of us could make money depending on our exit points. Or lose money.
Perhaps, by reading to this point, you have realized that i have been constantly harping on losing money. For good reason. Most beginning traders have heard the statistic that 95% of traders lose money. I would completely agree. If the financial markets are not your passion, do not trade. You will regret it. Invest, do ball room dancing, whatever. But don’t trade.
For those who are still determined however, then let me illustrate to you 3 concepts.
1) Methodology. Aka How do i make money. What is my edge over others
2) Money management. Aka how much do i put on this trade such that losing it is not extremely consequential and yet i make enough?
3)Mind. Aka, IF I had a winning system, great risk control, how do i not screw up.
To be successful in trading, one has to have all 3.
If you only have methodology, but not money management, then you will eventually blow up.
If you only have money management but not methodology, you will just be bleeding cash.
However, even if you have the first 2 but not the last, you will doubt your system and that will be your downfall eventually.
The markets are rife with stories of wealth. That’s great. However what goes often unpublished are those who met their downfall.
I believe while we have much to learn from the greats like Soros, it is even more important as beginners to learn from the mistakes of amateurs and to avoid them.
I shall be updating this thread with a few other posts about trading.
Meanwhile, you can check out my own trade setups on www.theuniversitytrader.com