Trader Basics: Survive Now, Prosper Later 

It all sounds so glamorous and most beginner traders expect to leap off and start seeing the profits flowing as soon as they start trading. Indeed often they need the money as that is their very reason for becoming a trader.

They believe the money will make a difference, they need to have lots of it, and indeed they are greedy. Not a word that conjures up very pleasant images but more pervasive in the trading world than elsewhere and made acceptable in the movies that made trading sexy and exciting, such as “Wall Street”.

Expectations start out high but there is only going to be immense disappointment as the reality is nothing like the movies.

Successful trading is built on time spent investigating opportunities, reviewing data, analysing the markets, strategizing and focusing on finding the lowest risk setup and high probability opportunities.

You can’t be adequately focused if you are constantly caught up in the dream of the money and driven by greed. The markets have to be learned but this is obviously not something the overeager trader seeking instant gratification is going to want to hear or invest their time in.

Most novice traders almost certainly do not want to hear the observations made by Michael Marcus in his interview with Jack Schwager in the book “Market Wizards”. “I would sometimes think that maybe I ought to stop trading because it was very painful to keep losing. In ‘Fiddler on the Roof,’ there is a scene where the lead looks up and talks to God. I would look up and say, Am I really that stupid? And I seemed to hear a clear answer saying, ‘No, you are not stupid. You just have to keep at it.’ So I did.” The key is perseverance as Michael Marcus definitely did make it in the end.

So when we talk about learning the markets, what do we mean?

Many people read the books, study the processes and establish strategies to identify opportunities. However it takes years to work with the markets enough to get a real feel for them and build up the intuition. In the mean-time, we therefore must have and stick to systems which have a positive edge.

Even till this day after almost two decades in the game, I still rely on my systems because that creates consist results without any form of emotions that get in the way.

It was summed up well by a seasoned trader we spoke to, Josh; “Books mainly teach basic techniques and give you basic advice: the trend is your friend, buy double bottoms, buy breakouts, draw trend lines. But books don’t talk about emotional experiences.’ It is these that will teach you and guide you and help you establish yourself over time.

The early days are about adaption to the concept of trading and working out what your preferred method is, you risk level and overall style.

They are unlikely to deliver big rewards, indeed are more likely to bring losses with the odd gain, unless of course you have been taught positive edge systems which dramatically improve your chances of success.

You need to work out where your strengths are and whether your personality lends itself better to long-term investing or shorter term trading. Obviously all of this takes time and it is your investment in learning which many novice traders don’t want to do, or don’t expect to have to do.

Those who storm in and do the big trades from the outset are the ones who crash out relatively quickly as they don’t have the cash reserves to continue supporting them while they learn the ropes.

So what is the key to making it to the prosperous stage?

Focus on survival and learning the ropes and the basis for survival is risk management.

Start slow. Take it sensibly. Focus on the long play and get through the trader learning curve. Be open to the learning and benefit from the mistakes you make along the way to get a better feel for the process.

Work out how support and resistance levels work and when you can spot a real shift versus a blip based on volumes and other markers. Build up your expertise on a few stocks, narrow in on one sector or possibly two and gain the tools of the trade along the way.

Before you know it, the tides will go more for you than against and you’ll shift out of survival mode into a prosperous trader.

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