1. Trading is an art before it becomes a science.
Trading isn’t something you are going to learn in a short period of time. There are several moving parts and it certainly takes some time. Fortunately, once you have a thorough understanding of technical analysis, money management, and trading psychology, it starts to become much easier and your trading account will start to grow exponentially. It’s almost gone from being an art to science as your knowledge and emotional capital increase.
2. Losing trades are a requirement to succeed in the market.
Nobody can make money 100% of the time except for some of the crook high-frequency traders on Wall Street. For this reason, every trader needs to get comfortable with the fact that losses are going to occur whether you like it or not. The only task of traders is to minimize these losses by making sure that they follow in line with the risk profile of one’s trading plan. As long as you’re plan is designed to account for a specific size loss, then you must accept the fact that they are inevitable and necessary.
3. To become consistently profitable you only need to win a fraction of the time.
Most people that are already profiting in the market are searching for a magic program or product which will allow them to follow some “guru’s trades” or press a button and earn money 100% of the time. The truth is alert services for penny stocks do not work consistently because penny stocks are too illiquid and move way to fast to follow somebody else. In addition to this, there’s no such thing as a black box system that will allow a person to press a button, go to the beach, come back 5 hours later, and result in guaranteed profits.
Earning profits requires a person to build a personal plan and then train themselves to follow that plan through thick and thin. A trading system won’t win every time but if it has a statistical edge, and is combined with care risk management, it is guaranteed to result in profit in the long term.
4. Earning small to medium size profits make you rich.
Once you start to trade with a defined plan and a profitable trading plan you will realize that you don’t have to make thousands of dollars a day to get rich. In the beginning, all it takes is $250-$1000 a day in profits to quickly allow a person to build up their trading account ten-fold. As your account gets larger your profits will follow, but trying to start and earn $5,000 – $10,000 per trade in profits using a small account is a recipe for disaster.
You must remember that the stock market is risky and your chance of failure increases as your position size becomes disproportionally larger than your account size. By shooting for small to medium size predictable profits you increase your chance of success dramatically.
5. Putting in a few months of study time, in the beginning, can result in life-long profits.
People sometimes talk of “playing” stocks and while this is a common term in the trading world, trading is not a game. You need to take trading seriously or you should stay far away from the stock market. Professional traders love to take advantage of people that take a half-ass approach to the stock market. It’s almost a guarantee that you will lose money if you jump right into the market without taking the time and spending a little money to educate yourself about how the stock market operates. By going into the market with several months of studying under your belt you decrease your chance of failure by a large amount.
6. Any particular trade means very little.
You must realize that profitable trading is a game of statistics and in particular, averages. The purpose of trading is to operate as a business and follow the same routine day in and day out. Focusing too much on any one trade is not only foolish, but it is a complete waste of time because a single trade that falls within the confines of one’s trading plan means very little. It is the combination of winning and losing trades which will result in consistent profits in the long term.
7. It’s difficult to find high-quality trading opportunities.
There are literally thousands of stocks out there for a person to trade at any given time. The problem is 99.9% of these are a sucker’s game. Mainly this is due to their lack of volatility and institutional participation. On most days there are just a handful of high-quality opportunities available. It’s easy to find these if you know how to scan for them. If you position in these stocks at the correct time of the day, with the property position size, your risk is reduced, and your ability to profit increases tremendously.
8. Bagholding Is NOT okay.
Many people do not know the difference between trading and investing. A trader is like a sniper. They sit in the bushes waiting for the exact moment to take the shot and then determine how to get away undetected. A sniper only makes a split-second decision but in most cases, a lot of planning and thought goes into that fraction of a second that it takes to pull the trigger. Traders hold onto positions for seconds, hours, or a few months at most.
The important part of trading is to determine your average expected holding period and stick to that time frame. This means if you take a short term day trade that doesn’t go your way, it is NOT OKAY to have it turn into a swing trade or an investment. This is called being a bagholder and is one of the golden rules that must be avoided. If you want to hold a stock long term then you are an investor.
There’s nothing wrong with holding longer-term except when it comes to penny stocks. Since penny stocks are frauds or very badly managed companies, the longer you hold them the greater the chance that the stock will go down. With higher-priced stocks that earn profits, there is a long term upward bias, but the problem is you have to have a lot more money to buy these type of stocks.
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