Today I want to follow up on last week’s article and expand on the point of making sure you know what you’re getting into before you start trading and managing your investment capital. Today, let’s focus on the most important first step, making sure you’re “green on the screen”. What I mean is, before you even think about risking any of your capital on a leveraged asset class like Futures, Forex or Options, you must not only know how to trade but prove to yourself that you can consistently make decisions that result in consistent profitability.
In our education path at Online Trading Academy, we have students trading small share size trades of stock using our capital, not theirs, to start. The key is to take on as little risk as possible until you prove that you are what we like to call “Green on the Screen”. To do this, you must learn our core supply and demand strategy and then practice, practice, practice.
When you practice trading, one thing is almost certain, you will lose money. So, the best way to practice trading is small share size in the stock market as that is the market where you can risk the least amount of money and transaction costs are extremely low. You can trade 50 shares and lose almost nothing during your practice period, for example. Also, I always suggest you do this in an Exchange Traded Fund (ETF) like the QQQ which has huge volume and represents the entire NASDAQ market. Once you master this market, you can trade any stock and the equity index Futures.
However, before you master this why in the world would you ever consider trading a leveraged asset class? This would be like giving your 16-year-old a Ferrari the day they get their license and saying go have fun. They need to make many mistakes in a very safe car and environment first. When my son got his permit, he quickly learned how to drive like most kids do. However, I wanted him to get into as many challenging situations with me sitting next to him as he could so when he was on his own, he would know how to handle them. The same goes for trading; you want to learn in the safest environment possible.
In trading or managing your funds, you must become an expert at losing. Once you have mastered losing, the profits tend to take care of themselves. Where people run into trouble is they jump into a leveraged asset class too soon, before they are consistently profitable. This means risking too much and that rarely ends well. Knowing that you will lose; lose as little as possible until you have proven you are ready for greater risk.
Losing is something you need to be ok with also. I love to win and hate to lose, greatly as a result of having so much success in sports growing up. It gave me a sense that there is nothing in life I can’t do. No matter what the task, not succeeding was never an option or thought. So, you can imagine how shocked I was when I entered the trading world and was told that you have to be a good loser in order to win. HA!! That had to be a joke, I thought… There is no way I am going to lose because I hate losing; I hardly ever lose at anything because I try as hard as I can to work harder and smarter than my competition. It didn’t take long to realize that this was 100% true, I had losses and that didn’t sit well with me. I tried to eliminate them but as I did, I also eliminated the winning trades. This was not good, I hated losing. Quickly though, I figured out the secret to trading from experience and a friend of mine. It all depends on your definition of losing. In my early trading days, I had the wrong definition of the word “loss”.
Perception Is Everything
Think about all the setbacks and losses you have had in other parts of your life; financial, relationships, job promotions and more. Haven’t they always made you stronger and led to something “better”? Losing is a very necessary part of winning, in my humble opinion. Life is all about perception. The key is to categorize. If I perceive each trading loss as a loss or losing, it’s not going to sit right with me. I can’t stand losing! However, if I put each trading loss in its proper place, which is in the “winning” category, all of a sudden a trading loss is a must for success.
Losing in trading is great so long as it’s proper losing. To become a professional winner, you have to first become a professional loser. This is a road block that many people never overcome which is why many people fail at market speculating. It’s the few market speculators with the proper perception that get paid from those with the wrong perception, the transfer of accounts. If you want to change, change your perception of loss and, most importantly, practice trading until you have measured success before putting any serious capital at risk in the market.
Hope this was helpful. Have a great day.
Sam Seiden – firstname.lastname@example.org