Today, I’m continuing my response to Mica, who I met at last year’s Legacy Investment Summit and is looking to become a full-time trader.
Wall Street makes day trading seem like an attractive prospect that anyone can start with zero experience. It’s no accident – the more everyday people join in, the more Wall Street benefits. Whether that’s down to trade commissions or manipulative algorithms.
So today, I’m sharing a few ways to keep your head cool, set your expectations appropriately, and ultimately gain an edge on Wall Street…
Beware of false bias. From your email, it’s clear the past few months have been greatly successful for you.
But we can’t forget: They have also been unprecedented. The QQQ (Nasdaq ETF) ran as high as 79% from the March lows. I wouldn’t expect that level of bullishness in markets very often – if even ever again. Maybe every few years we’ll get huge lifts like that in the general market, especially after huge drawdowns. But the action this year is exceptionally rare.
All I’m saying, Mica, is that it can be easy to gain false confidence after seeing huge success in a short time. I wouldn’t want to see false confidence turn into something that causes self-harm when markets change – which they invariably will.
Do your homework… and then someone else’s… and someone else’s.
It sounds like you’re off to a great start in reading and absorbing information. Continue this. Read other people’s books. Research indicators. Open yourself up to new concepts like volatility and trying to make assumptions on where stocks might move, up or down, to help you understand your risk – as each person’s risk tolerance and personal situations are different.
But when it comes to homework, don’t ignore your own growing body of data. Focus energy and time on researching why your strategy worked. What component was just because the market went up? What component was due to your specific idea?
How crucial was timing? What indicators worked the best? When did they start failing?
Would you be able to test your strategy on highly volatile markets? What would it have looked like in March of 2020? December of 2018? February of 2018?
Then, compare it to strategies and approaches other traders use. How does yours stack up?
The questions are endless, and those truly dedicated to their craft will eternally ask them, try to improve and remove what holds them back.
Above all, know that trading is a 100% psychological game.
When I tried and failed at day trading, I realized my single biggest block was my own emotional response. I lost 19 out of 21 trades over the course of a month. I traded on my gut, which clearly was focused on lunch – not trading.
I got it all wrong. And the more frustrated I got, the more I wanted revenge. I started trading spitefully, thinking I had to be right and the market had to be wrong.
And that wiped me out.
I lost all my money. It took me years to recover psychologically enough to try again. Eventually I went on to win at my own game: identifying outlier stocks and buying the absolute best ones.
Mastering your emotional reaction to losses – and especially wins – is a big key to success. It’s easy to think we win because of smarts and lose because of bad luck. False confidence often masks that it could be (and often is) the other way around. Knowing that losing is part of the game, along with winning, allows you to approach your strategy in black and white.
Win more than you lose, make winners bigger than losers, and know when to take a loss. Much of this is in the mind.
On that note, there are so many great resources out there nowadays as compared to when I started 20 years ago.
If I were you, I’d read Reminiscences of a Stock Operator by Edwin Lefevre. It’s the story of Jesse Livermore, one of the most successful traders of all time. There are countless useful nuggets in there on how to master your own mind and watch what it’s like when a guy falls victim to his own emotion.
I want to be clear… by doing all the above myself, I found what works best for me is picking the best stocks that are bought by big money and hanging on to them for dear life. I let the tide take them where they may over time.
I have found over years and years, that my strength is in stock selection. Yours may be – and likely is – entirely different.
So yes, carefully consider the advice above. But above all, focus on what makes Mica, Mica. Find what kind of trader you are.
Identify your strengths, but focus at least twice as hard on your weaknesses. Commit to becoming a permanent student of the markets, and know that I went down the same path as you, 20-something years ago.
Everyone’s path leads them to different places, but the key is staying on that path. So make sure you mind your risk, because the only way to ensure you have a chance to win the game – is to stay in it.
Patience and process!
Editor, Palm Beach Insider
P.S. I’m lucky I came back to trading. Because following that path eventually led to a game-changer for my portfolio…
My unbeatable stock-picking system, built and refined over decades, is the product of a new perspective on markets. Not one that chases trends or makes undue risks… One that identifies stocks that the best investors in the world are buying – and simply follows that instead.
With an 105% average gain in our model portfolio and multiple wins that tripled subscribers’ money, the results speak for themselves. Learn more here.