6 Truths About Trading You Should Know
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Let’s face it. Most of us have started in the trading world with the view that in a matter of no time, we’ll spend an hour a day trading from our luxury yacht and then wonder what to buy with the millions we make.
Does this sound familiar to you?
Don’t be embarrassed if you once felt this way too, or if you are currently reading this with that view.
Constant advertisements say buy my trading e-book now and become a millionaire, or get my latest top secret strategy now and make $$$. We all know those adverts, right?
Unfortunately, they paint a very rosy picture that trading is this super easy thing where you can literally become rich overnight if you buy their secret system. Obviously, this could not be further from the truth. I’m not writing this to discourage anyone from trading. On the contrary, I love to see newbies follow their dreams.
However, it’s so important to understand the realities of trading. The real stuff that goes into making it work. Sure, this career pays incredibly well if you do get it right and work your butt off. So yes, there is definitely a lot to be gained. But don’t allow those fake claims of instant riches to cloud your judgement.
1. Consistent Trading Takes Time
This can be a hard truth to swallow when starting out but trading consistently takes time. Some of the greatest traders in the world took years to master their craft.
Some can master it in a year while others take much longer. Fortunately, with the vast amount of learning materials across the web today, information is freely available to help speed up the process. Access to great mentors is not too hard either. It certainly is a great time to start learning!
It is very important you don’t compare yourself to others when learning. Work at your own pace and take small steps. Rushing things and trying to do everything at once is a recipe for disaster.
Going to college and getting a degree takes 3-5 years. Becoming a doctor takes many years. So why should mastering trading be any different? Give yourself time, and the consistency can come.
2. Failures Will Happen
Throughout our lives, we are taught to get the highest grades or scores, and avoid failure at all cost. But failure is part of the learning process of trading. It is pretty much guaranteed that you will experience setbacks on your trading journey. Don’t be discouraged. We all go through it.
Ray Dalio, a hedge fund giant, attributes the secrets to his success being failure and learning from it. So embrace failure. You can learn some very valuable things from your failures. It can feel like a nightmare when going through it, but if you dig deep and come out the other side, you will be much stronger.
3. Trading Is a Business
Sounds like common sense right? Trading is a business and should be treated as such. But how many actually have a trading plan? Without a proper plan, how do we know what our strategy is? How will we learn and improve, etc.?
The reality is trading should always be treated as a business. If you treat it as a hobby, you will just gamble away your hard earned cash over time. You might get lucky in the short term. But you owe it to yourself to do it properly.
Each and every person out there can just blindly buy or sell stocks, forex, futures, cryptos. But developing your own plan and having the discipline to follow it is what separates the average from the greats.
4. Math Can Be Your Friend or Your Enemy
Some people focus a lot on the winning percentage of their trades. So let’s take a look at the chart below and flip this belief on its head for a moment.
By focusing on risk versus reward instead of how often we win, we can transform our results. Risk 1 to make 3 and we only need to be right 25% of the time to break even. That’s not too shabby is it?
Granted, if your risk/reward is lower, you will need a higher win rate. But when I first saw risk reward like this, it was a massive eye opener!
5. You’ll Learn a Lot About Psychology
The emotional rollercoaster of trading will make you question your sanity a few times. The ups and downs of trading will be on full display. Don’t worry though, as there are many people, books and useful resources to learn to master your own trading psychology.
I made every single mistake and still make errors. It takes time to work on your own psychology and really become a master of a zen-like state of mind. But through hard work and discipline, we all can improve our mindset.
6. You Won’t Have Much Time in the Beginning
When you get into trading, you won’t have much time for anything else. Twelve-hour days will become the norm in your quest to becoming a consistently profitable trader.
Once you improve, find a trading strategy and get disciplined, these long hours can start to come down.
With experience and time, you will develop a more structured approach to your day, but don’t forget it’s a hard road at the start.
These are just some common realities of trading. It’s very important we understand what it really takes when we enter this trading world. Again, the journey of trading can see us encounter many ups and downs but if you get it right, you can certainly achieve a freedom and life you always dreamed of.
Don’t forget you will always experience failures along the journey. Power through these tough times and you will be certainly ahead of the majority who struggle in this career.
Like I mentioned at the start, so many people come into trading with the belief of overnight riches. It’s not their fault. Unfortunately, they are sold these false dreams all too often. Hopefully, you can understand and respect what it really takes to get yourself up and running in the markets.
Max, an independent trader for seven years, is the owner of eHelpify, a trading and investing site.