2010
07.28
07.28
Ken Long asked:
Trading is one of the most difficult professions to make a living in for the common person. Most other professions require a certain degree of education and certification before someone can proceed into the field. The profession of trading however allows anyone with a couple thousand dollars and the ability to fill out an application form to a brokerage account and engage in the high risk gambling of the modern stock market.
People who enter the market with dreams and money in their hands and without the requisite training should be issued a name tag that says “plankton”, because they provide EEC food for eating machines that will take their money without a second thought and without a concern for the financial and emotional damage that’s caused by stock market losses.
How can you avoid becoming fodder? A good way to begin is to understand a list of common mistakes made by most investors to begin trading without a healthy respect for the game. Here are three considerations to get you started:
Never trade without a strategy. You must have clearly defined time arises, an understanding of your risk appetite, the amount of money that you can afford to risk and most importantly a defined set of goals to use when designing a strategy. Don’t confuse stocks and exchange traded funds as trading vehicles with the companies and regions that they represent. There is all the difference in the world between a stock’s value on the open market as an instrument of exchange and the intrinsic value of a company and its people and its assets and its economic engine. The stock price may vary for any number of reasons that are not related to the internal dynamics of the company. Politics, the business cycle, governmental policy, the economic climate, news events all may conspire to mis-price an assets. In fact, an important insight for you to adopt is that stocks and ETF’s are never mispriced. They are always perfectly priced, it may be that your estimate of the value of the company or the stock at that moment is not in tune with the market price. Remember that the market is always right and that your estimate did not take into account factors that are contained inside the market. Be humble about the limits of your own knowledge and insight. The market is always right and when it is wrong, it is still right. Buying high and selling low. This is a problem that is driven by a human psychology which needs to feel right and confident before entering a position. By waiting too long for confirmation of the trend, in order to be right, the new trader enters the position after the move is been made when everyone can see that the trend is up, just in time to buy from those savvy traders who are leaving that position because the move is over. Holding onto a losing position too long, the new trader waits until he can’t take the pain any longer and finally capitulates at a price that is often near the intermediate low. When you repeat the cycle over and over your capital will disappear and you will be relegated to the sideline to contemplate the rest of your life.
These insights of course simply scratched the surface. They are among the most important and typical problems for new traders to solve. Getting the story right is no guarantee of success, but it will always keep you in the game long enough to learn the next set of lessons. Good luck with your trading!
Curtis
Trading is one of the most difficult professions to make a living in for the common person. Most other professions require a certain degree of education and certification before someone can proceed into the field. The profession of trading however allows anyone with a couple thousand dollars and the ability to fill out an application form to a brokerage account and engage in the high risk gambling of the modern stock market.
People who enter the market with dreams and money in their hands and without the requisite training should be issued a name tag that says “plankton”, because they provide EEC food for eating machines that will take their money without a second thought and without a concern for the financial and emotional damage that’s caused by stock market losses.
How can you avoid becoming fodder? A good way to begin is to understand a list of common mistakes made by most investors to begin trading without a healthy respect for the game. Here are three considerations to get you started:
Never trade without a strategy. You must have clearly defined time arises, an understanding of your risk appetite, the amount of money that you can afford to risk and most importantly a defined set of goals to use when designing a strategy. Don’t confuse stocks and exchange traded funds as trading vehicles with the companies and regions that they represent. There is all the difference in the world between a stock’s value on the open market as an instrument of exchange and the intrinsic value of a company and its people and its assets and its economic engine. The stock price may vary for any number of reasons that are not related to the internal dynamics of the company. Politics, the business cycle, governmental policy, the economic climate, news events all may conspire to mis-price an assets. In fact, an important insight for you to adopt is that stocks and ETF’s are never mispriced. They are always perfectly priced, it may be that your estimate of the value of the company or the stock at that moment is not in tune with the market price. Remember that the market is always right and that your estimate did not take into account factors that are contained inside the market. Be humble about the limits of your own knowledge and insight. The market is always right and when it is wrong, it is still right. Buying high and selling low. This is a problem that is driven by a human psychology which needs to feel right and confident before entering a position. By waiting too long for confirmation of the trend, in order to be right, the new trader enters the position after the move is been made when everyone can see that the trend is up, just in time to buy from those savvy traders who are leaving that position because the move is over. Holding onto a losing position too long, the new trader waits until he can’t take the pain any longer and finally capitulates at a price that is often near the intermediate low. When you repeat the cycle over and over your capital will disappear and you will be relegated to the sideline to contemplate the rest of your life.
These insights of course simply scratched the surface. They are among the most important and typical problems for new traders to solve. Getting the story right is no guarantee of success, but it will always keep you in the game long enough to learn the next set of lessons. Good luck with your trading!
Curtis
