It sounds like a counter-intuitive proposition. And in most walks of life and lines of business, it surely would be.
How can you possibly sell a product or service at a profit unless you first have an idea of what it will cost you to deliver it and how much you’ll be able to charge your customers?
For most businesses and self-employed individuals, the bottom line of profit and loss is the only line, especially when they are just starting.
Trading, however, is different. As a trader, you have no product or service.
The financial markets are immune to your powers of persuasion and the strength of your will or emotions. They are annoyingly indifferent to the mathematical beauty of your trading set-ups.
Approach the financial markets as a source of quick profits, as you might a market for goods and services, and you’re doomed to an expensive failure.
The truth is, almost anyone can learn to be a successful trader. The key factor which separates the minority who become profitable from the majority who don’t, is not talent nor ability, but mindset.
Although the drive to earn quick profits is perfectly natural, it almost always results in losses. What the aspiring trader needs most is a hunger to learn and the will to persevere in spite of temporary setbacks and losses.
Alex Rodriguez of West Palm Beach, Florida has long been fascinated by trading, but as a busy CPA, he struggled to find the time he needed to enjoy success in the markets. Recently, however, Alex decided to commit to finding the time, come what may, and since discovering Total Alpha, he has devoted himself to developing a reliable and repeatable trading system. Alex has already enjoyed some encouraging successes, but he realizes that experience and practice are far more important than profits at this stage of his journey to becoming a full-time professional trader.
West Palm Beach, Florida
Certified Public Accountant
New traders, of course, need to learn as much as possible about stocks, market sectors, fundamental factors, charting techniques, patterns, etc.
Unfortunately, knowledge without practical experience is only of minimal value. It’s kind of like reading books on playing golf without ever setting foot on the course.
This is why ambitious traders should consciously build their experience, not only through live trading, but by paper trading potential new systems and indicators while meticulously analyzing and learning from every trade.
Treating every trade, whatever its outcome, as a gain for the bank of experience is a proven way of mitigating the negative emotional effects of losses to the financial account.
When you’re just starting as a trader, losses should be seen as relatively unimportant, assuming you are risking small amounts you can afford to lose.
“I’ve always loved trading, but never had the time to dedicate the appropriate time to it.”
While a slow and steady approach may be time-consuming, it’s the best way to ensure that you’ll stay in the game long enough to enjoy extended success trading the markets.
It was a keen awareness that he didn’t have enough time to build his knowledge and experience that compelled Florida-based accountant, Alex Rodriguez, to limit his trading despite his fascination with the markets.
“I realized that I needed a system, a setup and repeatable routine to my trading”, he explains, and deciding this year that he was finally able to dedicate the necessary time to his craft, he looked around for the right kind of mentorship and training.
As a member of Jeff Bishop’s Total Alpha program, Alex learned the highly-technical Squeeze Method of trading and in his words, has “been immersing myself in learning it and applying it ever since.”
“This last year, I decided to dedicate and focus more of my efforts and realized I needed a system, a setup, and repeatable routine to my trading.”
The Squeeze Method which Alex has been using is an excellent example of the potential dangers of diving into trading without sufficient knowledge or the help of an experienced mentor.
The method relies on the popular Bollinger Band indicators, and used correctly can be a powerful predictor of price movements. It is, however, a highly technical system with several potential pitfalls ready to trip up the unwary.
Bollinger bands are essentially chart lines drawn two Standard Deviations above and below the Simple Moving Average (SMA) of a stock price.
The distance between the bands is a measure of price volatility, the wider the gap, the higher the volatility. The potential for a squeeze trade arises when there is a period of very low volatility, which history shows to be a likely precursor to a rapid movement in price. The unfortunate catch is that it is much more difficult to predict the direction of the movement.
Because it’s so difficult to predict the direction of the movement, traders must rely on the help of other indicators, such as the relative strength index (RSI), and those which give information about the volume of the stock being traded.
Accurately assessing the interplay of all these signals and their likely impact on the stock price requires considerable experience and even the most successful traders often get it wrong.
For example, one of the most disconcerting aspects of the Squeeze Trade is its habit of producing a “Head Fake” move in which price initially goes rapidly in the predicted direction before suddenly turning even more strongly against the trader.
These kinds of false breakouts are not uncommon in the markets and can be protected against with proper stop loss placement. This is why having the guidance of an experienced trading mentor can be invaluable in helping traders cope with the inevitable adverse emotional effects of such a dramatic shift in their fortunes.
“I’ve had many winning trades, and my losses have been cut short, which has allowed me to preserve capital. My winning trades have been consistent, and I’m up over 20% in my account since joining this year.”
Now, if you bear in mind that the Squeeze Method is just one of a wide range of trading systems available, you may feel a bit overwhelmed by the amount of work needed to become a successful trader.
However, by throwing himself wholeheartedly into the learning process, under the watchful eyes of Jeff, Nate and the rest of the Total Alpha team, has already started to pay off for Alex.
As he puts it, “There’s no way you can learn all you have to on your own,” and since joining less than a year ago, he has already seen his trading account grow by more than 20% on the back of numerous winning trades and the effective use of stop-losses.
For Alex, this has been a highly-encouraging start, and although there have probably been new traders who could report even more profitable first years, for Alex, the numbers are for the moment beside the point.
Far more important at this stage is to learn and experience as much as possible knowing that your financial rewards will surely follow.
“I’m enjoying the process of becoming a consistent trader, and learning how to trade better every day is something I can use my entire life,” says Alex, “The profits are a beneficial side effect of becoming a good, consistent, disciplined trader.”
Paradoxically, it’s this mindset towards monetary gain that will ensure that Alex keeps moving towards his goal of becoming a professional trader who can enjoy the benefits of having more income and time freedom.
Do you have a Raging Bull success story to share?