Last Updated on July 22, 2020 by Alex
Day trading stocks teaches you a lot of lessons, about life, about yourself. And of course about trading stocks—how to win, and how to lose.
Two months in to my stock trading journey, here are my early takeaways.
Most People Lose
There’s a reason 90% of traders lose money, and it’s the same reason 90% of people lead mediocre lives: trading, and life, are very, very hard. They will test you, wear you down, and only the toughest, most resilient and determined will shine.
The market is merciless. It will beat you down. How you react is the key to what happens next. If you are more afraid of losing than you are determined to win, you will definitely quit and slink away.
Loses are inevitable. If you are determined to be a successful trader, just like if you are determined to live an extraordinary life, you are going to have to have a large vision, you will need perspective and you will need to be well grounded to get through the losses.
You need to learn from them, every time. You need to get back up, get back in the game, every time. It isn’t losing you should fear, it’s quitting.
You Need Patience
Day Trading stocks teaches you lessons about life, and one of the most important is that you just can’t get from A to Z in a short period of time.
You want to make a lot of money, fast. This isn’t going to work.
You have to learn—a lot. Even while you are trading, even while you are living. You need to learn constantly.
Technical trading requires a deep understanding of a lot of specialized skills—how to read charts, judging set-ups, understanding and using indicators, managing risk, developing an edge over other traders, finding the right entry and exit point, and more. Even skills you don’t use, knowledge you put aside, you need to master, on your way to developing your own unique trading style.
This means you have to start slowly and modestly, and even that is going to be hard. Master each step. Be rigorous. Work harder, learn more and be more diligent than anyone else who is starting out, even while you learn from your betters.
Modesty will keep you on track, hubris will get you run over.
Master the Process First
Success appears as the goal—the final outcome. Making money or whatever is the ultimate goal in what you are pursuing.
Focusing on the outcome isn’t helpful.
Focusing on the process is essential.
At the beginning you may want to make $50 a day or $100 a day—that’s great but arbitrary and could lead you to do irrational, stupid things.
Instead, you need to master screening for good stocks to trade, define a strategy that suits you, establish your trading rules, and implement your plan. Over and over, learning what works, what doesn’t. Allow for losses, allow for wins, learn from both.
Master the process. If you are doing it right, you will limit your losses, and shouldn’t be afraid to take them—in fact, they are essential. Understanding how small, manageable losses occurred will allow you to avoid making blunders in the future when more money is on the line.
It’s All In Your Mind
Trading and everything else in life is in your mind. More than anything, you are trading with and against yourself.
When emotions take over your mind—fear, greed, frustration, exuberance—you will fall on your face.
You have to master yourself. You have to become the boss in your own house. You have to bring your mind under your control.
This is incredibly difficult.
Yet if you don’t do it, you are guaranteed to be grouped among the losers.
Your Strategy Has to Adapt
First, you must have a strategy. Until you do, you are just gambling, winging it, and going nowhere.
It can really take quite a while and lot of effort to develop a reasonable first strategy. There will be countless ones to choose from. A lot of them would work if implemented. How will you choose yours?
And how will you change it?
Change it you must, eventually. Yes, you have to learn it first, master it, but the point will come when either you adapt or you settle for small change, or even start to fail.
The market environment, like the environment for life, will change, sometimes suddenly. You will run into the limits of your approach. It’s stupid to be dogmatic. Read the situation, adjust, and even be willing to completely abandon your approach.
Consistency is absolutely key, but flexibility and adaptability are no less essential.
Become a person who isn’t afraid to change and change again.
It’s easy to be carried away. Your enthusiasm, some early successes, and sheer determination may drive you to overtrade.
Just like a runner will be tempted to overtrain and anyone can just plain overdo something.
Yes, you need to outwork everyone else. But overtrading, like overtraining, will lead to failure—loss and injury.
Avoid hubris at all costs. Be disciplined. Keep yourself in check.
When you aren’t trading you should be reading or otherwise learning from other traders. The runner isn’t always running. Sometimes she is working on flexibility, on strength, cross-training, and resting and eating well so she can come back strong the next day.
Think it through. Your strategy isn’t just your trading strategy but encompasses the big picture.
Trading is stressful, as is life in general. It is also a game. Your task is to become a better player. Figure out who the other players are, how they play the game, and figure out all the little details of the game. Know all the rules, explicit and implicit. Bring patience, determination, fortitude.
All of the old virtues work.
What also works is to bring a clean mind and body to the game. Alcohol, caffeine, nicotine, and drugs of any kind all cloud your mind, tire your body and impede your performance.
The healthier your mind and body, the more primed you will be to succeed, the more able you will be to weather failures.
A clean diet of fresh foods, exercise, giving up alcohol and caffeine, sleeping enough and cultivating a positive, virtuous mindset will help immensely.
Trading and life are games, yes, but they are bloody hard ones. A hundred percent of the best version of yourself needs to show up to play well.
Day trading stocks teaches you a lot of lessons about life and can make you a better person as well as a more skilled player. That’s even more valuable than the money you make.