An email came to me recently from a lady living in Boston who was very keen to start and but has been procrastinating any action as she felt very overwhelmed by the vast amount of information now available online.
Seeking information is great, but beware. Information overload can diminish your ability to not only think straight but also make you believe you are not ready.
Procrastinating with Knowledge Seeking
Have you ever thought to yourself this?
I just need to learn this, this and this…
then I will be ready, but until then I am not going to start.
An issue you may then come across once you get to that point of learning something is that you then discover more knowledge you think you now also need to learn about.
So you then go on to learn that before you begin, constantly prolonging the time before you officially trade.
I was one of them.
As I have written before, I decided to dedicate a whole 18 months wanting to learn everything I could before I really began.
However, one difference is that after about 6 months I decided to bite the bullet and I began with just a small account, knowing well the number of mistakes I would probably make and also the fact that I had no confidence yet to place large trades.
Expectation Management – The Right Mindset for Beginners
Although making a living from investing and trading was my ultimate goal, I intuitively knew this wasn’t going to happen within the next week or even the next month let alone year.
So my mindset changed from wanting to make a living to being content to wanting to be the best trade executor I could be through rigorous processes using my trading plan and checklists.
Did I always follow my plan and checklists? To be brutally honest, No.
At times I always thought I was better than following silly checklists as I was ‘in tune’ with the markets and hence I could move away from checklists and my trading plan.
No prizes for guessing what happened next…
Yes, before I knew it, I blew my initial account of $20,000 and borrowed an extra $80,000 through mortgaging my house, which I also lost.
Thinking and intuition at my beginner level got me into a lot of trouble. Hopefully, you can learn from my experience and not go through what I went through. Let me tell you, it isn’t fun.
Working for a full two years and not only not making a cent but also paying my employer ‘the market’ about $100,000 is very disheartening.
Most importantly it almost made me quit the game as I really began to doubt myself.
Thankfully I did have a very supportive partner allowing me to keep on going which led me to where I am today.
Anyway, enough about me, but I wanted to share this so you know ‘Why’ the following actions if taken to heart will save you from self-destruction I initially endured.
Learn how to invest before learning how to trade
This I know will ruffle a few feathers. I will start with this because this alone, will change the fortunes of many traders for the better that are just beginning or have struggled to date without making progress.
What has investing got to do with trading, especially if I won’t own the asset I’m thinking of buying for the long term?
Pure technical analysts that trade nothing but price patterns and charts will likely disagree with this. I know this as I have also been one of these people.
However, I want to ask, how many traders on the planet have made it to into the Fortune 100 list?
I have studied them. Apart from a relative few, it is rare. The ones that made it there are investors first, traders second.
Although this site is titled The Freedom ‘Trader’, I have always maintained that Investing and Trading are one of the same, just on a different time frame.
Just this simple mindset shift will transform your performance. This I can guarantee.
Even if I am thinking of trading a stock or option, I will not buy this security based on price patterns and charts alone. It must first be a fundamentally strong company with absolutely zero probability of becoming a Chapter 11 bankruptcy case.
Approach every trade as an investment because in the end it is, just in a shorter time frame and the likely chance of any of your trades becoming a financial disaster is remote at best.
Create a trading plan
The saying ‘if you fail to plan, you plan to fail’ is just as true for trading as is in business. Trading, in the end, is also a business venture. It is not a hobby and should never be treated as such. You are better off finding a cheaper hobby!
Take the time to create this. It can be as simple as a one-page document with a few big points you must follow during your trading day that will guide you in your habits and decision-making. (Please look out for my future posts about Trading Plans)
Just having a few simple rules written down you can follow will immediately free up your mind to think about the execution and not second-guess yourself during the most stressful moments, when you are buying and selling during market hours.
Another benefit trading plans have is that they allow you to sift through opportunities like they are in abundance (they are by the way), and any tips from well-meaning people that don’t fit the criteria you have previously set in your trading plan will be eliminated very quickly.
I learned this not from trading but from my life mentor ‘Tony Robbins’ who I followed around the world for 24 months, and no I was not stalking him!
I was on his mentor program where he taught me most of my life skills I still use today and visualization was one of them.
Everyone can visualise, even if you think you cannot.
Let’s do a simple exercise he uses:
- Close your eyes and…
- Tell me what you see when I say; ‘Do NOT visualise a big purple elephant’.
There is no chance you did not see a big purple elephant in your mind even though I told you specifically not to.
Yes, this sounds basic I know, but I just want to show those who keep telling themselves they are not a visual person and therefore cannot visualise, that in fact, they can.
Before your trading actually begins, simply sit back for 3-5 minutes and just see yourself calmly executing your planned trades based on your trading plan you created.
See yourself, in front of your workstation, and watching the screens, placing the trades you had already pre-planned and getting the confirmation without any emotion at all, whether you had just bought or sold at a profit or loss. It doesn’t matter because this is just a few of the thousands of trades you will make in your lifetime so no one trade actually matters in the big scheme of things.
Integrating the 3 Actions…
So there you are, three very simple but important steps you can immediately take to dramatically improve your trading success.
Will you be perfect on every one of these straight away? No. It took me months of practice and refinement.
Because I came from investing long term the Warren Buffett way, the first was actually quite easy and very beneficial from day one.
The second took me a little while because I tried to perfect my plan, documenting every detail I could. The problem was when it came to execution, it was too complex to follow. Hence I stripped it down to 2 pages and off I went. Simple sometimes is best and once you get those few steps in the trading plan right, build on it and add more along the way because your first few steps will have already been ingrained as a habit.
The thing I practised for months and I admit still don’t always do right is visualisation. I miss doing it on some occasions when I am in a hurry but I find that on the days I do, my trading becomes effortless without emotion because it feels like a deja vu experience since the event has already happened once before and it’s like reliving the moment without any surprises.
I hope the above helps you because it has for me. I can’t tell you things I see other people do (although I do incorporate them if I find what they do beneficial), but I can share my own experiences on my trading journey to date.
This really is how I trade everyday.