Every trader wants to be successful, but learning how to succeed as a new trader can be challenging. The amount of information is overwhelming, from books to blogs, and everything in between, it’s hard to know who and what to trust. Many claim to be “experts”, but in reality they’ve never actually traded anything. Education is important to be a winner in the market. To help you succeed we're starting a new blog series for Trader Tips. We'll be curating advice and resources from reputable traders and industry experts and making it available to our TradeLog community - made up of thousands of active traders and investors.
For this first Trader Tips post, we asked two experienced traders what advice they would give to help new traders succeed:
Blain Reinkensmeyer is the guy behind StockTrader.com. He has a huge passion for investing and making his living off the internet while trading stocks as a hobby. He is a partner at Reink Media Group, which owns and operates a variety of finance websites including Investor.com, StockBrokers.com, and ForexBrokers.com. Here’s what he had to say:
Sixteen years of market “experience” has helped me realize that I am a statistic in a game that never ends. Looking back, there are some hard facts I wish I had understood when I got started.
The dream advertised by stock picking subscription services, instagram accounts, and the like are all built on a foundation of sand. Sadly, it’s all clever marketing and not a reality. 99.9% of stock picking service providers make more money from their subscriptions and product sales than they do their own trading. They are able to live the “lifestyle” because of you and your desire to day trade part-time or make some money on the side or get rich investing. Professional trading is not for the faint of heart and rarely includes the “lifestyle” portrayed by the web.
In fact, one trade can easily make or break your year (or career). You can spend your whole year seeing small wins and losses. Have an off day, break your rules, and hold a large position into earnings and “wham!”, you might wake up poor the next morning. The opposite is also true. Make a great call, follow your rules, and sell a monster winner that represents over 90% of your gains for the year. Despite dozens or hundreds of uneventful trades over months prior, you’ll be very happy you showed up ready to trade that day. Never underestimate the impact a single trade decision can have on your portfolio.
Because of this reality, you should allocate no more than 5% of your portfolio to personal trading and invest the rest in low cost index funds. And the power of compounded returns over the course of several decades cannot be underestimated. Your long term future is more important than your short term desire to get rich overnight.
To see what else Blain wishes he had known before starting to trade, you can check out his article: 10 Trading Secrets I Wish I Knew When I Got Started.
After a lifelong fascination with financial markets, Steve Burns started investing in 1993 and trading his own accounts in 1995. It was love at first trade. A natural teacher with a gift for cutting through the bull and making complex ideas simple, Steve took to blogging and social media by founding New Trader U in 2011. Here’s some advice he had for new traders:
Trading is not all math. It’s not just a system you plug into a chart or a path to easy money; you are going to have to earn it. Some foundations required for being successful include your work ethic, mind set, and capital.
You have to do a lot of work in backtesting, researching, and the study of price action. Hundreds of hours of work are required.
You must have passion that can sustain you long enough to breakthrough to profitability. Once you reach that breakthrough, you have to embrace the risk and reward of trading real capital.
You must battle the unknown, not allowing it to stress you out, or give in to bailing when the uncertainty of short term results come calling.
You must have an entrepreneurial mindset, rather than one of an employee. But without enough capital, you will be ineffective and unable to trade effectively. Commissions and slippage will be a high percentage of your capital. If you have only a few thousand dollars to trade, you would do better off with long term trend trades and hold investments as you grow your capital.
Some days I wish I could travel back in time 20 years and teach myself what I have learned in the markets the hard way. That, in trading, less is more. Less activity generally leads to more profits and smaller positions sizes leads to better odds of keeping profits over the long term. Less activity costs less commissions and less activity in trends allows an easier way to make money. Less position size leads to smaller losses when wrong. That it is better to specialize in trading, pick a market, pick a method and master it. It is better to be a master of one set up, pattern, stock, market, or system, than to dabble in many. And that trading is not about being right all the time; however, it is about limiting losses when you are wrong and maximizing profits when you are right.
If you trade in the direction of the trend for your time frame, manage the risk of ruin, and stay disciplined, you can make money in the markets. But if one of these are missing it will cost you money to trade, sometimes a lot of money.
To check out Steve’s extensive blog resource with more than 1,000 original articles, as well as online courses and best-selling books, visit his site at www.NewTraderU.com.
These are just two notable examples in the wide world of trading. Steve Jobs once said "If you really look closely, most overnight successes took a long time." If it sounds too good to be true, it usually is. Don’t let yourself be overwhelmed by the plethora of information available. Do your research to find reputable websites, educators, and companies, just as you would when contemplating purchasing goods from an unknown site. And remember, trading is not “one size fits all”. Find what works for you and stick to it for ongoing success.
Are you an experienced trader with tips to help others succeed? If you are interested in providing content or resources for the TradeLog community of active traders and investors please contact us.
Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Cogenta Computing, Inc. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.