Every so often I am asked to teach someone ‘how to trade’ or ‘how to make money’ or ‘what stocks are’, then list could likely go on, but you get the point. After some time, I think the best thing I could do in answering these questions is to address them in a blog post. The purpose of this post is not to stop people from asking me questions (I am happy to answer them), but rather to educate people on the subject matter before delving into it with inaccurate preconceptions.

First and foremost; trading is difficult. I do not think I realized this when I first started to trade equities. Subconsciously, I believed that trading was just like doing a math problem; you learn the process (the only process) and then that’s all, you would know how to trade forever. This, of course, is far from the truth. By no means I am intending to scare you in saying this, but I feel like you need to hear the truth. Trading is not a ‘walk in the park’, if you open up an account today, do not remotely expect to be able to make money by next week (or even next month). Unlike doing a math problem, there is not only one right way; there are thousands. We are all different and each one of us interprets reality in a slightly different way, the stock-market included. If I were to trade like someone else and try to copy their strategy I would be, in a sense, trying to replicate their cognitive process of interpretation, which of course – is impossible. This being said, it is still very much possible to learn from other people. In fact, I would encourage it. However, be careful not to copy what they say as being absolute truth. What they tell you, may very well be true – but it does not mean it is the only way/truth towards the stock market.

Once you have established the basics and learn some more about the stock market and perhaps have begun to trade, it is time to start to implement some of the implicit rules of trading – risk management. I talk to people on a weekly basis – unfortunately – whom do not implement any sort of risk management into their trading. They go through trades believing they are right (and they could be), but refusing to establish a point in which they are incorrect. This is absolutely detrimental to anyone’s success in the markets (or in life). Consider this, if you were going to to walk into a casino and say to yourself ‘I am going to play until I will’, you will (without a doubt), walk out of that casino with no money left at all. By assuming you are better than the game, you will always lose the game. Humble yourself in face of the market. There is nothing gained from telling yourself you ‘will’ be right. Nothing, other than a lot less money.

Now, the way in which you decide to determine where you are incorrect is very much dependent on your individual process of trading (what we spoke about previously). So, I cannot answer the question of whether or not you should sell something – no one can – except you because you know your process.

I would like to add another note on the process point. It is a daunting task, I know. I have been there. It seems as if you will never be able to create a process that is robust and profitable. It seems as if you have no where to start. I know this feeling all too well. I spent a lot of my early career trying to come up with something – out of nothing – to be my process. This is failing way to develop a process. May I recommend the following tips:

  • Study other’s process – see how they work and don’t work
  • Try to trade a couple stocks based off a pattern – learn from them. Did they work?
  • Read about more patterns and trading strategies. Don’t settle.
  • Trial and Error.

There is nothing more I can say without overstepping my bounds other than what is above. Creating a process is a grueling process and it isn’t fun as you will likely lose money – at first. Remain confident and steadfast in your pursuit, which leads me to my last point.

The reason for your trading is the most crucial thing you have. If you are trading solely for making money, you will lose. The market does not like greedy people and if this is you, please humble yourself before every placing a trade and realize the market is bigger than you and isn’t a piggy bank full of money. Trade because you enjoy it, not because you it makes you money. The most successful traders are trading because they like the concepts, the psychology, the mindset, the introspective learning that it brings; not centrally focused upon the money.

This hardly covered it all but in your learning how to trade, I would strongly recommend that you refer back to this article and reflect on the what and they why of your trading. Feel free to reach out if you have any questions!

The Steps to Learning (How to Trade)