“Why sip from the fountain when you can guzzle from the hose”

 

I wanted to start a new blog series for new traders, from a new trader, in an effort to help you learn from my mistakes. And boy, have I made some mistakes.  See I, like many of you, have decided to embark on an incredible new journey.  A journey with endless possibilities, perhaps a journey to financial freedom.  And like you, it all started with a vision, a passion, and a reason “why.” See, for me, that has always been the easy part.  I can visualize the end state as clear as the Rocky Mountains on a sunny day, but it is the start of the journey that has been the challenge.  To put it into context, I compare it to starting a climb to the top of the tallest mountain, and at the top are your financial dreams.  I started this climb about 90 days ago, got about 500 feet up and realized that I am overweight, out of shape and forgot to pack water.  Well, allow me to put some water in your backpack, provide you a diet and workout plan so you can embark on this hike and pick me up along the way! See we are all on this hike together, so what better way than to learn from each other.  So here are my lessons learned, buckle up for the ride:

“There’s no emotion in Trading!”

This has been the hardest thing for me to do.  I am a competitive person by nature, 17 years in the military will do that to you and losing is never an option.  I have learned that this game will humble you very fast and humble me it did.  See I had arguably the worst thing that could happen to a new trader happen to me, SUCCESS! A 20% ROI in the first month had me feeling like I had just fast-roped out of a helicopter on the top of that mountain, skipping the many lessons that I needed to learn, lessons that would no doubt lead me avalanching back down to the starting point.  I mean this was so easy that I was a pro now, hell I know the market so well that should I just throw more eggs in the same basket, what could go wrong right? And along came February, and with it was a big old piece of humble pie.  And within a week I was right back where I started. Questioning everything I had done, everything I had learned, or why I was doing this, to begin with.  I was trading with EMOTIONS! I was making trades to make trades, trying to make up what I lost in a week in a day.  BAD COMBINATION!

See my journey like maybe some of yours started with a small account.  Not because I wanted to start small but because it was all the extra cash I could muster to try to overcome 17 years of saying YOLO.   So now I have my hopes and dreams riding on the back of inexperience and emotion. BAD COMBINATION! My emotional rollercoaster was as volatile as the S&P in February and I couldn’t take it anymore.  So how do I or you control our emotions to make rational decisions?  I can’t begin to tell you I have all the answers, but I can tell you what has worked for me.  It wasn’t until I heard a Coach at Tackle say something to the effect of “take away the dollars and you can take away the emotions..  I thought about that saying for a while, and what it really meant.  See money drives emotion, green means happy and red means mad.  Green means success and red means failure.  But what if I take the color and the portfolio balance out of the equation and start focus on what really matters, the chart, the trend, and the analysis.  If I can get this right, then the success will follow.  So, I have been doing just that.  I don’t even look at what my balance is anymore, I don’t care, what is the price action and the chart telling me.  It has really helped me take the emotions out of my decision making.  It helps me get back to remembering why I entered the trade in the first place, I focus on trading with my eyes and not with my heart, and above all TRUST THE PROCESS! The market is a rollercoaster, but your emotions don’t have to be.  This game can take years off your life if you let it, don’t let them win, stay in control of your emotions, it’s the one thing you can control.

“When the bleeding starts, apply a tourniquet not a band aid” 

One of the hardest lessons I have learned is when to apply that tourniquet or “stop loss” once the arterial bleeding starts.  I cannot tell you how many times I have set the stop loss just like we are trained, only to see the stock take it out and bounce higher, instantly leaving me in an emotional rage.  “You won’t fool me the next time” right? I do not recommend this quote as an investment slogan in the context that I used it. So, doing what any new emotional trader does, I loosen my stops, violating the rules or take them off completely.  Any guesses on how this ends?  Moral of the story is, I would have saved myself a ton of money and stress if I would use my stops and moved on to the next trade.  Don’t be like me, when in doubt STOP IT OUT!

“Plan the Process and Process the Plan”

This is another area that I completely understand but have struggled to adhere to.  You always hear “have a plan and trust the process…  For me, these are two very hard concepts to master as a new trader, especially when neither of them is going well.  Having a trading plan or strategy is one thing but having a plan that is sustainable and achievable is completely different.  It is critical as a new trader to set realistic expectations that feed your trading plan.  Set them to high and you run the risk of letting emotions back in the equation when they are not met, to low and you could miss crucial opportunities.  There must be a balance, after all this can always be adjusted and should be.  How do you know if your strategy is a good one? I would look no further than the exceptional team of coaches and veterans of Tackle Trading.   You see we have been given the answers to the test, the left and right limits, and the rules of the game.  The faster we learn to trust the information that has been given to us, the more successful we will be.  100% of my mistakes have come from breaking the rules.  DON’T BREAK THE RULES!

“You don’t play to win, you play not to lose”

Risk management and greed control has been the name of the game for me.  Another hard lesson that I can hopefully bestow on you.  The easiest way to control this is to use the tools at your disposal.  I am referring to the “bracket” or “OCO” order.  This can be your best friend as a new trader. I can’t tell you how many times I have hit my target and decided not to get out because “what if it keeps going?”.  Well in my experience it usually doesn’t. Your target is your target for a reason.  Hopefully, it is because you properly planned and “prepped” your trade like you were taught, so why would you not get out? Greed! Stick to the plan! The same thing goes for stops if you were wrong to admit defeat and move on.

“PRACTICE, you are talking about PRACTICE… PRACTICE!”

Yes, PRACTICE! I am the first to admit I have been terrible at this one.  I have a hard time practicing (paper trading) for the simple reason that if I am right on a paper trade than I missed out on money in a real trade.  Pretty stupid philosophy, so don’t do that.  I could have saved myself a bunch of money and heartache for all the times I was wrong by testing my theory first.  There is nothing like the experience of live trading.  Paper trading removes all the emotion you feel when live trading, however paper trading allows you gain confidence in your strategy, test your plan and confirm your judgment.  All key factors in becoming a great trader.  I will get better at this and so should you.

“Education is the passport to the future, for tomorrow belongs to those who prepare for it today” – Malcom X

 Take time every day, no matter how small, to study and learn the financial markets, the economy, trading systems etc. This is actually something I have done very well at.  In order to be good at anything, you must understand it.  The wolves of Wall Street have years of experience on us, education is power, and power is money in this game.  Get into the Legacy classes, listen to the Podcasts, the coaches shows, get into the news, pick up a book and equip yourselves with the ammo it takes to battle the market professionals.  Learn and understand what drives the markets, read the reports and most importantly ask the questions.  After all, if you are like me than your future, your hopes and your dreams depend on it!

“When you want to succeed as bad as you want to breathe, only then will you be successful” – Eric Thomas

 

That’s it everyone. Hope to have helped and I would enjoy hearing your newbie notes in the comments below.

See you all next time,

Randal Edmondson