Asking The Right Questions: Learning How To Trade vs. Trying To Get Rich Quick
The Wrong Questions:
Whenever I get emails from newer traders, they consist of questions like "How Can I Make A Lot Of Money?" and "What Method Can I Use To Make A Lot Of Money?" and "How Should I Know When To Buy And When To Sell To Make The Most Money?".
Just by reading the questions asked in the emails I can tell the experience level of the trader. I usually don't even give a straight answer to these emails since these are the types of traders who are destined to fail in the first place. Remember that about 90-95% of traders end up losing money, and that is simply because new traders are getting involved in trading for all the wrong reasons. My typical response is something along the lines of "You need to learn what to ask and how to trade before you ever worry about becoming rich from trading".
Putting The Money Aside:
Rather than asking questions about how to make the most money and how to get rich, these trader should be more concerned about topics such as how the market works, how they can open an account, and how they can formulate a trading plan. If you are looking to get rich quick from trading, I can guarantee that just about all of you will end up actually getting poor quick. There is no easy money in the markets--all the money you make you will need to fight hard for.
Understanding Why Easy Money Doesn't Exist:
Many of my followers know that I am a firm believer in markets solving problems-- an Ayn Rand economist so to speak. I do believe that markets in general solve many of the problems that exist, and if we had truly free markets they would do a fair job regulating themselves. Why do I bring this up? Simply because if easy money existed in trading (or in any industry), new participants would enter the market until it no longer makes financial sense for them to do so, or until the easy money goes away. Since there are hundreds of thousands of traders in the markets that we trade, there certainly is no easy money that exists in the markets. This is basic supply and demand in action. While the method I use is simplistic, it certainly is not easy nor will you get rich quick from it.
What You Should Worry About:
Notice that no where above do I mention anything about making money as a new trader. In my opinion, the first 9-15 months as a trader should be used to learn how to trade. You should trade with very small position size and focus more on understanding how the market works and developing your trading plan rather than worrying about making money. Most new traders leave trading within the first 3 months, and the majority of those remaining are kicked out of the markets within 1 year. However, one thing I have consistently seen through coaching traders is the ones that stick around over a year typically are the ones who were not concerned about getting rich quick in the first place--these were the ones that took to trading because they wanted to trade, they wanted to be independent, and they wanted to learn more so they could, someday, reach financial independence.
Why Some Traders Need To Fail:
Once upon a time I was coaching a trader who purchased 16 hours of coaching from me. This trader was somewhat new to trading and already had a live account. I spent 5 straight days for 3 hours per day with this trader coaching them. I literally taught them everything they need to know to be a Price Action Trader and to do so successfully. I showed them where I would enter trades, where I would exit, where I would set my stop loss, and more importantly I explained why I would enter, exit, and get stopped out where I would.
By the end of the week, this trader knew my methods just as well as I did. About 2 months later, I sent the trader an email just to check in and see how they are doing. It took them a while to reply, but when they finally did they said that they were "no longer trading because they had a few huge losing trades that blew out their account". The trader went on to say that they had these huge losing trades because they were trying to make a lot of money and took on a position size about six times as large as they normally take. I knew I had taught the trader better than that, but they simply refused to listen to my advise in their trading.
Personally I did not feel like I failed as an instructor, but rather I felt as if some people just don't have what it takes to be a trader. This individual clearly did not have what it takes. But that is ok--and they serve a very important part to trading. You see, for me and you to make money in the markets, there has to be someone else on the other side of our position losing money. So if it wasn't for traders who either don't listen to veterans or don't get educated in the first place, it would be increasingly difficult for the professionals to make money.
The Bottom Line:
The bottom line of this blog post is quite simple: as a newer trader, concern yourself with your trading education before you worry about your profits in trading. If you stick around to learn how to trade in the first place, the money will naturally fall into place in your trading future.
Good Stuff!
Awesome post man, I'm one of those that have stuck around about a year, on and off learning whenever I have time. I've finally felt like it was time for some learning by doing, so today I deposited some money into my broker($700). It's not much but I will approach very conservatively. Do you have any recommendation or tips of how I should approach with a small account like mine? Keep it up man, your blog is very educational and entertaining.
Hey Cauyeung,Originally Posted by cauyeung
Glad you enjoy the blog and glad to see you are moving towards becoming a traderWhat market are you going to be trading that will help me gauge any tips or pointers I have for you?
I will be looking at micro caps considering how small my account is.
Understandable. I am actually in the middle of writing a blog post regarding trading with low account sizes I think you will find it helpful--I should have it posted to my blog in an hour or so.I will be looking at micro caps considering how small my account is
Here is that blog post that I just wrote on small account sizes:
Trading With Small Account Size
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