Everyone comes into the world of trading with some type of expectation. Some people see trading as a shortcut to riches while others call it a Gambling Den.
The truth is trading is NOT easy but it’s also NOT “rigged.” Like any worthwhile enterprnuer Journey, trading has a steep learning curve followed by lot of challenges.
Understanding the journey and the problems you will face at each stage can help you align your expectations with reality. Today, we’re going to discuss the different stages of trading and what you should expect at each level. Be honest with yourself about your progress so you can better identify with the corresponding challenges.
At one point or another, everyone who has interactions with the market asks oneself, “Why is trading so hard?”
There are legitimate reasons why trading should be difficult:
- Markets are highly random.
- Whatever edge we can find is eroded by competition from smart, well-capitalized traders.
- Markets are subject to very large shocks that can have devastating effects on unprepared traders.
- You need to have an idea of what to do before it happens , thinking logically in the moment is difficult . All important decisions should not be made under stress . Know what you will do under a set of circumstances before it happens , be a machine with no prejudice or biases . Fear and anger have no place in trading
- Even so, it seems like something else is going on, almost like we are our own worst enemies at times. What is it about markets that encourages people to do exactly the wrong thing at the wrong time, and why do many of the behaviors that serve us so well in other situations actually work against us in the market?
Part of the answer lies in the nature of the market itself. What we call “the market” is actually the end result of the interactions of thousands of traders across the gamut of size, holding period, and intent. Each trader is constantly trying to gain an advantage over the others; market behavior is the sum of all of this activity, reflecting both the rational analysis and the psychological reactions of all participants.
This creates an environment that has basically evolved to encourage individual traders to make mistakes.
That is an important point—the market is essentially designed to cause traders to do the wrong thing at the wrong time. The market turns our cognitive tools and psychological quirks against us, making us our own enemy in the marketplace. It is not so much that the market is against us; it is that the market sets us against ourselves.
Most tradersare trying to predict the future based on the the past and present data sets of information. Then you are making assumptions that what happened in the past, will repeat that pattern over the same time period that happened before. The problem is that the future is unpredictable. You can’t be right all the time and the past does not repeat in the same way all the time. You need to find a process to use the past to be right more than wrong and manage your risk, to be around to be right again. That requires good information, a good process to use that data, discipline and enough money to be wrong. Too many trader do not have enough of each to make it.