The Wrong Questions:
Whenever I get emails from newer traders, they consist of questions like "How Can I Make A Lot Of Money?" and "What Method Can I Use To Make A Lot Of Money?" and "How Should I Know When To Buy And When To Sell To Make The Most Money?".
Just by reading the questions asked in the emails I can tell the experience level of the trader. I usually don’t even give a straight answer to these emails since these are the types of traders who are destined to fail in the first place. Remember that about 90-95% of traders end up losing money, and that is simply because new traders are getting involved in trading for all the wrong reasons. My typical response is something along the lines of "You need to learn what to ask and how to trade before you ever worry about becoming rich from trading"-this truly is how I feel about the subject and I really wish someone with experience in trading would have turned me on to this concept sooner-it would have saved me a good amount of money.
Putting The Money Aside:
Rather than asking questions about how to make the most money and how to get rich, these traders should be more concerned about topics such as how the market works, how they can open an account, and how they can formulate a trading plan. If you are looking to get rich quick from trading, I can guarantee that just about all of you will end up actually getting poor quick. There is no easy money in the markets–all the money you make you will need to fight hard for.
If you are getting involved in trading, you need a passion for trading and a desire to be a trader, not a desire to get rich quick.
Understanding Why Easy Money Doesn’t Exist:
Many of my followers know that I am a firm believer in markets solving problems– an Ayn Rand economist so to speak. I do believe that markets in general solve many of the problems that exist, and if we had truly free markets they would do a fair job regulating themselves. Why do I bring this up? Simply because if easy money existed in trading (or in any industry), new participants would enter the market until it no longer makes financial sense for them to do so, or until the easy money goes away. Since there are hundreds of thousands of traders in the markets that we trade, there certainly is no easy money that exists in the markets. This is basic supply and demand in action. While the price action methods I use are extremely simplistic and easy to follow, it certainly is not easy to execute nor will you get rich quick from it. Rather you will need a full understanding of these concepts along with experience in the marketplace before you will make a dime.
What You Should Worry About:
Notice that nowhere above do I mention anything about making money as a new trader. In my opinion, the first 9-15 months as a trader should be used to learn how to trade. You should trade with very small position size and focus more on understanding how the market works and developing your trading plan rather than worrying about making money. Most new traders leave trading within the first 3 months and the majority of those remaining are kicked out of the markets within 1 year. However, one thing I have consistently seen through coaching traders is the ones that stick around over a year typically are the ones who were not concerned about getting rich quick in the first place–these were the ones that took to trading because they wanted to trade, they wanted to be independent and they wanted to learn more so they could, someday, reach financial independence.
Why Some Traders Need To Fail:
Once upon a time I was coaching a trader who purchased 16 hours of coaching from me. This trader was somewhat new to trading and already had a live account. I spent 5 straight days for 3 hours per day with this trader coaching them. I literally taught them everything they need to know to be a Price Action Trader and to do so successfully. I showed them where I would enter trades, where I would exit, where I would set my stop loss and, more importantly, I explained why I would enter, exit and where I would get stopped out if it happened.
By the end of the week, this trader knew my methods just as well as I did. About 2 months later, I sent the trader an email just to check in and see how they are doing. It took them a while to reply, but when they finally did they said that they were "no longer trading because they had a few huge losing trades that blew out their account". The trader went on to say that they had these huge losing trades because they were trying to make a lot of money and took on a position size about six times as large as they normally would do. I knew I had taught the trader better than that, but they simply refused to listen to my advise in their trading.
Personally I did not feel like I failed as an instructor, but rather I felt as if some people just don’t have what it takes to be a trader. This individual clearly did not have what it takes. But that is ok–and they serve a very important part to trading. You see, for me and you to make money in the markets, there has to be someone else on the other side of our position losing money. So if it wasn’t for traders who either don’t listen to veterans or don’t get educated in the first place, it would be increasingly difficult for the professionals to make money.
What I Used To Do:
Once I finally lost enough money and realized that I needed to focus on trading rather than focus on trying to get rich, I would spend hours just watching the price movements on a few of my favorite stocks. I wouldn?t place a single trade-rather I would just watch price and gain the experience and understanding necessary to actually trade. From here, I started out with small position size, and as I became more and more profitable I slowly continued to increase my position size until I reached a size I was comfortable with.
The Bottom Line:
The bottom line of this article is quite simple: as a newer trader, concern yourself with your trading education before you worry about your profits in trading. If you stick around to learn how to trade in the first place, the money will naturally fall into place in your trading soon enough in the future.
Bendan Egan can be contacted at 123LearnToTrade