Updated: January 17, 2018
Trading stocks, commodities, forex, options, or ETFS is one of the dependable ways to build wealth outside of a 9 to 5 job. However, trading is not likely to transform you into an overnight millionaire; yet, many people begin their trading journeys with unrealistic expectations.
Successful traders tend to highlight the glamour points of trading while glossing over the rough patches. This piece seeks to provide you with insight into three things most successful traders won’t tell you when you begin your journey.
Thinking in terms of % returns is poor form
Many beginner traders are lured into the financial markets because they have read news reports of a software developer that quit his job to become a trader who had a 200% return in the first year.
Many trading coaches also lure beginners with stories of how they made 200% on their account last year. The problem however is that percentage result is often a poor metric for recording and reporting trading success.
A rookie trader could get lucky to turn a $250 trading account into $500 – that is still a 100% return.
However, when you begin trading, you’ll find out on your own that you can measure trading success with a lot of more realistic metrics that doesn’t involve percentage returns. Victor Alagbe, a financial analyst notes that a “better metric for measuring trading success is the risk-reward quotient of your trades.”
In essence, measuring how much money you risk in relation to how much money you make can give you an insight into the quality of your performance as a trader.
You actually need to relax and enjoy trading to make money off the markets
Many beginner traders are often under pressure to make their mark in the financial markets. Most people want to become the next Warren Buffet, Peter Lynch, and Stan Druckenmiller among others.
However, the fact is that you most likely won’t succeed as much as Warren Buffet– quite a large number of stars need to align before you can record that kind of success. However, if you enter the market with such high expectations, you’ll be putting yourself under immense pressure and you’ll most likely lose money.
Trading won ‘t turn you into a millionaire overnight – and that’s okay. There’s nothing inherently wrong with being passionate about trading and making money from the financial markets.
However, you’ll need to ease up on the pressure to make your first million dollar in the first year of trading. Most traders often find out that they tend to lose money when they are under immense pressure to make money.
You don’t need multiple screens to succeed as a trader
Any simple for search on the query “successful stock trader” will show you tons of pictures of a trader sitting before at least three screens.
Hence, we are being conditioned to think that having multiple trading screens with tons of those squiggly lines is a prerequisite for trading success. You might learn to associate trading success with the possession of the most expensive and most complex trading software.
However, in reality all you need is a computer (a smartphone might suffice in some instances) and a decent trading platform. The most important trading tool is your brain and its ability to control your emotions so that you make rationally informed trading decisions.
Of course, you’ll need to study different trading strategies in order to find a strategy or mix of strategies that best suit your trading goals and objectives. Nonetheless, a state of the art trading room won’t mean much if you are lacking in trading education.
Successful traders tend to trade for profit on a monthly basis. They know their starting balance at the end of the month and they take note of their closing balance at the end of the month.
Successful traders are not fixated on measuring how much money they made in relation to how much money other traders make; rather, they tend to live off their profits or reinvest the profits into other assets for diversification.
This article was submitted by Ori Levi