(This article will also appear in http://www.moneymax.ph, a finance comparison portal; I, Faceless Trader, will try to contribute at least five articles every week to help promote financial literacy in the best way I can possibly do.)
Everyone who starts to trade whether new or old learns every single day one certainty in life: everything is always in a constant flux. We are all constantly changing. Prices fluctuate every second or millisecond or nanoseconds. You get what I mean. Couple this with the stress of trying to make ends meet, and to make a good living out of one’s trading portfolio and you will find yourself with 99% of the Filipinos out there who struggle in this endeavor. How do I actually earn from the markets if I want to be a self-directed trader or investor?
One thing I’ve learned that has helped me , which I hope will help you too are the following:
1.) Be Completely Fine with Imperfection; Expect to Be Wrong.
Do not beat yourself up because you have a few extra pounds around your waist and do not beat yourself up because you didn’t get to buy at the exact perceived support level before it bounced. Do not hate yourself for failing to sell before the stock has fallen. Be completely fine with taking the next price which can be one to two percent higher or lower. No one is perfect. Be perfectly imperfect.
Most traders I’ve had the pleasure to meet, work and talk with , whether they’ve been trading the markets for twenty years or just twenty days pretty much have something common to share amongst themselves and that is that no one gets everything right. The difference between the two is that most newbies cannot accept their mistakes and think that there’s a path where they can perfect their timing with better moving averages, better understanding of MACD or RSI or other leading and lagging price indicators. The truth is far from reality. The most successful traders often are the ones who do not perfect their math tests or their accounting exams nor follow precise price points in charts. The most successful people in the markets are not keenly aware of the exact NPVs of each company’s cash flow investments or how moving averages intersected for a buy signal. In fact, it is due to their acknowledgment of their limitations on information that they thrive. The markets is a deficient market. It is not an efficient market as claimed by most academics. It thrives in chaos and being perfectly aware of how imperfect, asymmetric and illogical it is makes the more experienced ones less overconfident in placing trades and thereby less vulnerable to possible losses which are not defined by black swans, risk limits and allowable position sizes. Genius in markets fail big time. In full practice, my method of buying and selling always believes that when I buy today, the stock automatically falls tomorrow or by the end of the day within 2-3%, and when I sell a stock, it also goes up tomorrow by 2-3%. This doesn’t bother me anymore. In fact, I’m fully cognizant of this part of my trading. I employ wider stops, adding on confirmation of price levels or buying on wider support zones and selling on larger resistance zones. I would only tighten my trailing stops once the stock goes through extended rallies in a short time frame. Also, I would use a longer time stop horizon before concluding that I am in the wrong stock. I learned to scale in with my buying as well as with my selling and it has made an entire difference with how I am able to ride the different stages of volatility in stocks as it moves along.
2.) Learn to Crawl
In a song by Mr. Jason Mraz’s “Beautiful”, he writes the following lines:
“It takes a thought to make a word
And it takes some words to make an action
And it takes some work to make it work
It takes some good to make it hurt
It takes some bad for satisfaction.
And it takes no time to fall in love
But it takes you years to know what love is
And it takes some fears to make you trust
It takes those tears to make it rust
It takes the dust to have it polished”
As a toddler, we learn to crawl before we walk. We learn to type, one finger at a time, and then with a whole hand. With constant practice, we begin to turn small steps into routines. First, we drink more water, then we get out of bed earlier in the morning by fifteen minutes, then thirty minutes to make way for some exercises. Small, simple things do matter until one day, we just go very, very far. This is just the same with trading. It takes one thought of learning more about controlling your finances. It takes one word of voicing this out to someone. It takes a lot of words to finally open an account and start learning. And it takes a lot of work (i.e. reading books, reading charts, financials, statements, news and latest updates) to at least have adequate knowledge. It takes losses to learn. It takes time to let a stock run. It takes patience to hold on your winners as well as willingness to hold on to cash when opportunities do not exist. These things are not learned on the go. These things are learned through time.
The path to trading consistently with success is a difficult journey. It’s tiring, often boring, frustrating, stressful work. But the payoff is huge. You have to start somewhere, and it’s no good to blame yourself for not being an expert when you’re just starting out.
3.) Be an Eternal Newbie. Become a Beginner Again and Again.
This goes hand in hand with being perfectly fine with imperfection. Investing is so competitive that you should constantly seek to learn as much as possible about the markets, the economy, trading technologies and various schools of investing thought. Social media has opened up new tools to keep yourself more up-to-date with more real-time information but you also need to know how to filter and take things with a grain of salt before acting on such press releases. Also, being an eternal newbie is great because this means that we always have an open mind to learning something new everyday.
“In the beginner’s mind there are many possibilities, but in the expert’s there are few.” – Zen Master Shunryo Suzuki
It is important as a trader and investor to always be your own devil’s advocate. More information is not necessarily better information. Sometimes, it pays heed to some simple calculations such as trusting our own abilities to be mistaken and to take another look on our positions. A beginner’s mind is a great default for any trader (young or old, experienced or inexperienced) because it automatically limits our tendency to be overconfident with our trades resulting in skewed losses and inabilities to cut when necessary. A don’t know mind leaves room for intuition and corrections of past mistakes. Most traders’ go with the mantra that the sin is not in being wrong but in staying wrong. More importantly, a beginner’s mindset doesn’t mean negating experience; it means keeping an open mind on how to apply our experience to each new circumstance. Letting go of being an expert enables you to keep learning.
A professor once visited a Japanese master to inquire about Zen. The master served tea. When the visitor’s cup was full, the master kept pouring. Tea spilled out of the cup and over the table.
“The cup is full!” said the professor. “No more will go in!”
“Like this cup,” said the master, “You are full of your own opinions and speculations. How can I show you Zen unless you first empty your cup?”
The good thing about trading is that it teaches us the way life works. We need to have open minds in that we need to suspend our disbeliefs at times and listen hard to what the markets are telling us. If it keeps on going higher, we simply trail our stops. If it keeps on going lower, we simply wait for the dust to settle before fighting counter-trends. Whatever our thoughts say, we do not go into the markets without the understanding that we can be wrong. The best way to eliminate this “being right” all the time is by emptying our cups and being open minded. This also means that you have more conversations with many different people. If you’re in the field of marketing, you should attempt to ask or meet people in finance and vice versa. The more you try to engage yourself with other people, the varied the opinions and the more clearer your lens of the entire scenario unfolds.
5.) Be Kind to Yourself and Embrace Your Weirdness.
When we are less sure of everything, it is the lightness of being a beginner that frees us up to find ourselves and our own trading personalities and systems. To some, being a pure chartist helps them. To others, being a pure fundamentalist is the only way for them to make sense of the markets. And to yet a few others, it is integrating these two schools of thought and the way they see the world that helps them trade. Whatever it is, embrace your own weirdness as Seth Godin would say and free yourself. May you find your own trading personality and find what fits you.
P.S. It may seem unimportant that in order to earn your stripes in the markets that you have to do more reflections on yourself and start with your psychology. In the end, it really boils down to whether you can accept being a beginner everyday that turns you slowly from losing to breaking even and finally to making a living.
Cheers to Eternal Beginners,
– Faceless Trader