Lessons from the Pros


The New Trader’s Journey, Continued

Hello traders! A few weeks ago I introduced you to a long term friend of mine named Paul, who lost his job and wanted to learn to trade to replace his income. The first installment of his journey can be found here.

Paul’s highs and lows have continued since that last article was written. While the wild emotional highs have settled down a bit as he has realized that trading is actually difficult at first, some of his lows have caused him to question his choice to learn to trade. He did buy a new computer that is dedicated to trading, showing that he is serious. However, his discipline of keeping track of his strengths and weaknesses in trading is a bit lacking. My recommendation to all new traders is to take detailed notes on the whys of your trades, all of the reasons you hit the “buy” or “sell” button at that moment. Using Online Trading Academy’s patented core strategy, we expect traders to use our odds enhancers to score out individual levels on the charts and trade according to the scores. Paul hasn’t kept good records as to the scores and trade performance. Since I travel around the country every couple of weeks for our on location classes, I can’t watch every trade Paul does as he does it. When looking at past trades, he often has difficulty remembering the exact reasons for a midmorning trade from 14 days ago!

This is why journaling your trades is important. Keep track of what was/is working for you. Are you good at trading early in the morning, late in the afternoon, overnight trading, etc.  Also, any technical reasons beyond our supply and demand zones should be noted. Does using a 20 period exponential moving average help you or hurt you when entering a trade? Does it help when choosing to exit? Sorry everyone, but you can’t trust your memory! You must keep track. Without keeping track of these things, your memory might be clouded by any one or two random trades that you choose to focus on. Back in the early 90’s when I was a young stockbroker, occasionally I would have a client who wanted to trade a penny stock. My first reaction was always, “Please don’t trade those things!” However, the client would insist. After filling out the appropriate paperwork, the trade would be placed. Guess what usually happened? This penny stock that was bought for a dime very often would shoot up to a dollar or more! What do you think the client then thought of penny stocks, and their ability to trade them? No more “regular” stocks for him!

What do you think happened to the client’s next ten penny stock trades? Of course, most of the time those later trades caused him to lose all of the original trade’s profits, and then some. Sometimes the client would lose multiples of his original trade’s profits. But what does he remember? The first big win! Sometimes the client would figure out they were losing money on these speculative stocks, and stop trading them. Sometimes the client would stop investing in the stock market altogether, never to be heard from again. I never had a client make money consistently from trading penny stocks.

So back to Paul. Hopefully he will start keeping track of the technical reasons for his trades. The more of this you do, the faster you will figure out which things are actually helping on the charts. By the way, he is still trading on the demo account. I haven’t given him “permission” to trade from his live account as of yet. Since we are using this time to learn to trade, we are playing a bit of a mental game. This demo trading time is like him being an apprentice, at Rick Wright Hedge Fund Worldwide Unlimited LLC,LLP, Amalgamated. (Obviously fictional!) Until I, Paul’s “boss,” approve of what he is doing, he doesn’t get to trade live money. When I am happy with his journaling of trades and his trading performance, he’ll have the permission to trade the live account. You may think that this is a bit over the top, but since I’ve known Paul for so long, I have a pretty good idea of his thought process. This will definitely help!

So in your own trading, please keep track of what you are good at, and what you are bad at, to get you to the next level in trading. Do more of what you are good at, stop doing the things that you are bad at, and this trading life becomes much easier.

Until next time,

Rick Wright


DISCLAIMER 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.

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