4 Steps to Profitable Trading – Part 1

One of the most rewarding aspects of being a part of Online Trading Academy is getting to work with new students as well as instructors in the Extended Learning Track (XLT) program, our live online trading rooms. I have the pleasure of welcoming new students to the world of trading and investing when I visit OTA centers around the world. A little while back I was delivering a 3 day Market Timing class. This class is part of a program for people that are considering becoming a self-directed trader and investor. It covers core strategy, the multiple asset classes and other key pieces of information you need to know before you get started. The goal of this program and class is to determine if trading and investing is right for you, if you are a right fit for Online Trading Academy and, if you are, what asset classes will be the best solution for your needs and goals. Each time I have delivered this class, at some point in the class we politely give someone their money back and ask them to leave. We do this because during the program/class it becomes clear to us that they are simply not a good fit for The Academy. When I talk to new and existing students, I ALWAYS make sure and tell them that before they start trading and investing, before they look at a chart and well before they implement a strategy, it is critical to understand what it really takes to become a consistently profitable trader/investor. In my opinion, if one does not prepare themselves properly they really are decreasing their odds for success well before they even click a buy or sell button. It is critical for every new trader to fully understand the disciplines required and, more importantly, why they are required, right at the very start. I am going to share four key areas to focus on which will not only help you determine if self -directed trading is right for you, but also hopefully help you to achieve your goals. This week we will look at proper education and discipline. Next week, in part 2, we will look at patience and proper strategy.

Proper Education

Education is where the journey starts and unfortunately for many, this is where it ends as well. Most people say education is the answer when it comes to successful trading and investing in the financial markets, I completely disagree. Education is really why most people lose money and fail, because most financial education is either very flawed or intentionally misleading. Proper education is the answer and without it, you are likely to quickly find yourself time and time again on the wrong side of the market and with that, your hard earned money being transferred into someone else’s account. Many new traders forget that trading is a skill which needs to be honed and developed. It is a venture that requires superior skill and understanding as it is competition at its finest. Much like a doctor trains at medical school or a lawyer trains at law school, successful traders have also been trained and educated in a very similar fashion. To learn how to do pretty much anything well, one needs to be instructed by someone who is already doing that thing and who can do it effectively. However, many hopefuls decide early on in their trading career to skip the education process and jump right in; good luck. Ask yourself an honest question: What are the chances of this working? If trading was as easy as just diving in with very little understanding or guidance from a professional, then everyone would be doing it and making money. As mentioned above, trading is extreme competition. Each and every time you push the button to place a trade, there is someone on the other side of that trade trying to take your money. The trader who is more informed and properly educated in trading is typically going to come out ahead.

The stark reality, though, is that the vast majority of speculators out there end up failing. The facts don’t lie, yet many choose to ignore this prospect and think that things will be different for them. The alluring thing about the market is that it tempts the newcomer with dreams of easy money and wealth, and with humans being the emotional creatures we are, these temptations usually end in frustration. One of the many pitfalls of trading is that it is easily accessible and anyone can get online and open an account in a matter of minutes. Does this mean then that we should take this route? It’s almost like believing anyone could perform open-heart surgery after reading a book about it…not likely. So, while I am certainly not pushing you to trade on your own, if you do decide to become a self-directed trader or investor make sure you really understand what you’re doing before you get started.

Discipline

Once you have received the right education you then have the tools to trade, but this does not mean that it’s smooth-sailing from the very start. Consistent success is gained from a consistent set of actions and proven rules. There are a few ways you can achieve profits in the market and each trader needs to decide which tools are the right ones for them. Will you be a short term trader for income or a long term trader for wealth? Which asset class or classes will you trade? These questions and more need to be answered as the last thing anyone needs is doubt in their strategy when they are live in the market. A sound trading plan needs to be adhered to from the very start and the rules have to be in place. As a trader gains more experience in the markets they will no doubt develop their skills to new levels, but from the very start the rules need to be set. It takes discipline to adhere to profit targets and stop losses, to know why you are buying or selling and to repeat the process over and over again.

In fact, trading actually becomes quite boring after a while. The difference with trading is that it takes up far less time than most traditional careers if you do it right. Once again, there are ways to do it right and many ways not to. One of the many traps I have seen new traders fall into is changing a solid strategy for the wrong reasons. Sometimes, when a new trader finds success with some consistent winning trades early on everything is great. Then, they fail once or twice leading the trader to then abandon the strategy in search of another with a higher rate of success. This is a dangerous approach as it can lead to a game of holy-grail chasing which often ends with further frustration for the new market speculator. If you can have the discipline to accept that no one strategy will have 100% winning trades and stick to your rules over a sustained period of time to ascertain the strategies real potential, then and only then will you have a chance at sustained success. After all, following a set of rules shouldn’t be that hard yet I see this as a challenge and potential pitfall for many new market speculators.

Next week we will the discuss the other two key areas to focus on to help you determine if self -directed trading is right for you: patience and proper strategy.

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