The Highs and Lows of Being a New Trader

Rick Wright

Hello traders! So I’ve been talking to a brand new trader recently; let’s call him Paul. I’ve known Paul for several years and he has known about my trading for what seems like forever. Paul was unfortunately laid off from his job a few short weeks ago, and has decided to give trading a shot.

Now, I know what you are thinking. “Just lost his job, and now is going to trade for a living! NO WAY will he make it; too much pressure to make money right away!” Normally I would agree with you. When I hear of someone who lost their job and needs to make money next week to pay bills, and decides trading is a way to make quick money, I shudder a bit. Most of us have heard stories of people trying to learn to trade over a weekend, and then proceed to lose a boatload of money over the next few days or weeks. It usually takes someone several weeks if not months of intense effort before they are able to get a handle on trading. There is no magic pill of trading knowledge to immediately become a great trader. Paul is in a fortunate position in that he has about four years of his (previous) salary saved up, and his significant other can easily pay all of their living expenses. Plus the significant other is very supportive about trading for income! Most new traders would be thrilled to be in a position like that!

Highs and Lows of trading

A few weeks ago, I was sitting with Paul showing him a few things to look for on the charts, and pointing out a few platform training videos to watch. As he watched me do a few trades, his confidence in the ability to trade and make money was starting to grow. (I’ve been trading since 1997, so it doesn’t seem like a big deal anymore.) After four days of observing and shadowing a few of my trades on his demo account, Paul was ecstatic! He was even talking about long term travel plans, where he wanted to move his family, etc. etc. Many of the same things all new traders dream about when they are on an emotional high!

So the next week I was out of town. Monday’s market came and went, and I received one text from Paul. “Wow, this is kind of hard.” That evening we spoke on the phone for a bit of market de-briefing. After looking at his trades and discussing them, it seems that he had completely flipped everything we had been discussing over the past days! He was selling in demand and buying in supply, chasing trades and lost on every trade. Now, because he was on a demo account, he continued to trade even after hitting a string of losses, and “losing” much more than what a professional would lose on a given day. (You do have risk management rules in your trading plan, right?)

What do you think Paul’s state of mind was during that conversation? He wasn’t happy, I can tell you that! Certainly not about to jump off a cliff, but he also wasn’t pricing million dollar beach homes anymore.

Tuesday rolled around, and that day’s text was “I’m not seeing anything to trade today.” Actually, it was a slow day, but there were several good opportunities. Paul was just gun-shy, scared to take trades because the previous day rattled him so much. As we went through the day’s activity, he realized how important your psychology is in trading. We can talk about how important it is until we are blue in the face, but until someone has experienced some highs and lows, they don’t want to believe it! Paul believes it now.

So guess what happened the next trading day? One trade, one big win. And the text? “I think I’m getting it!” Hold your horses Paul! One good trade does not make a successful trader. Talking to him that night while looking at the charts, he made a good trade, but did leave some money on the table by exiting too early, and not taking a few other easy opportunities. I didn’t want to bruise his ego or bring him down too much, but overconfidence in trading is almost as bad as having no risk management rules!

I’m not going to bore you with a recap of every day’s conversation and how Paul did those next few days. He made a few great trades, and a few silly trades. His emotional roller coaster on a day to day basis has started to even out a bit, which is a good thing. However, I told him not to trade live money until he has been demo trading for a month. The first reason is to make sure he knows how to use the platform properly, because trading errors can be very expensive. The second is to make sure he is “getting it” as far as the charts go. So far his discipline is impressive, in that he hasn’t tried to “cheat” or justify foolish decisions. Over the next few weeks, I expect him to spend a lot of time in the Extended Learning Track rooms, our online classroom, which should definitely help move him up the learning curve even faster.

My major concern is how live money trading is going to affect him! While I do expect some of the rollercoaster to return, I’m hoping it isn’t as bad as when he was first on the demo account. Only time will tell! I’ll update you on Paul’s progress in a few weeks, be it good or bad.

Until next time,

Rick Wright

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.