Trading misconceptions

I’m sure there is way more conjecture and misconceptions about (day) trading. These are the ones I’ve thought about… 

Candles

You can start (day) trading with a small amount of initial capital

This is likely the one that makes me suck the most air through my teeth. Yeah… you can…  Someone who has a significant amount of day trading experience under their belt (and doesn’t have to eat and pay any bills) could, theoretically turn $1000 into $5,000 in *does some back of a napkin calculations* two or three months. *and then vacillates* Lets say four to six months. I can sorta envision this as possible (albeit quite challenging…) You’d have to be trading multiple currency pairs (or whatever) very aggressively, all day every day. Ergh… 

Can a n00b trader do this with three months trading experience? Hm. Color me skeptical. Let say the odds are likely stacked against you.

The problems as I see them is that with such a small war-chest from which to wage stock-market conflict, your stops either have to be super tight, which means you’re likely to get stopped-out quite easily, which means you need to make very solid trades that need to head (almost immediately) in the direction you envisioned. Or the amount that you’re allocating to each trade is so low that you have to let the trade run longer in order to make any meaningful money. 

With $1000 if you can get to $1500 by month end, I think that would really good. $500 is not going to cover rent, groceries though… oh yeah and TAX.

In any event, having more capital when you start out is preferable to having less. Which means I suppose you have to have made money in order to get into day trading. Which, begs the question, if you have money and are making money, why do you want to trade? If you have no money, you either have to borrow money with which to fill your trading account, or you have to save up. Neither of these circumstances speaks to your financial proficiency. Sorry. First get your house in order. Either through austerity or earning more. Then maybe look at investing. Or entrepreneurship… And then maybe trading.

 

You only have to work two to three hours a day… and then you’re done

Um… I suppose this is definitely possible. Although, I think this is only really claimed (and posited) by people who make Youtube videos about trading. (And maybe swing traders) I suppose this is broadly personality and likely also trading tactic dependent. Personally I prefer five trades that make $200 a trade than one trade that makes $1000. In order to make those those five trades a day I need to be present. The tactics I employ to make money trading only ever really suggest four… or five solid opportunities to trade during the course of a day. Which means I’m always near my computer. There’s a lot of waiting involved. Admittedly you can trade multiple markets… but in my opinion this dilutes your attention span… 

I guess you’re either a full time trader… our a part time trader. Both come with their own significant environments.

As a full time trader there are some serious downsides to working from home. It is a lonely existence and one where you are wholly dependent on your own skill and acumen to survive. There are no co-workers to back you up. No one to bitch to when things aren’t going well. No one to blame. You’re going to have to take responsibility for all your own actions. Also the anxiety of having your fiber go down mid trade is unparalleled, ha ha. (Have an LTE backup)

If you’re trading as your side hustle… *long exhale*… well… you’re splitting your attention between two jobs and likely both are going to react adversely to this…. which sorta leads into my next point…

 

You can learn this stuff quickly and just be immediately good at it

My fall back example is always grappling. It took me forever (okay, like ten years) to become truly proficient at Brazillian Ju-jitsu. Training every single day, two hours a day. And I’m still learning stuff, still getting tapped out.

When it comes to trading we (for whatever reason) think we can be proficient after three months and we can already envision ourselves earning $100,000 in our first year.

There are undoubtedly outliers than can do this sort of thing. But I imagine its a rare skill-set/personality disorder.

Its better to learn how to trade when you don’t need the money. Needing the money because you’re broke or you think this will solve some perceived deficiency in your life, adds a lot of extra stress into the equation. And stress is the mind killer… or was that fear? In any event…

Learning to trade while trying to do another job… is also, really hard. Likely your current employer will take a dim view of you Alt-tab’ing between your trading account and your CRM system in your little cubicle when your should be filling out TPS reports (or whatever corporates actually do). Which means you have to either switch out to longer time frames and/or trade after hours.

After hours trading, can be… weird. Markets react differently under conditions of volume. It can be like splashing around in three inches of water. You think you’re doing well and so you move off to the big pool where your feet don’t touch the bottom…

Or longer time frame trading… which means you’re not… well imo, cycling through your trades fast enough to train your brain in that trading ‘muscle memory’ that is required to start identifying good entries and exits. (and perhaps more importantly identifying what sort of trader you are) I may be a bit bias here, because I scalped my way into profit, so I generally look at the longer time frames with suspicion (as a learning environment)

If mastery is 10,000 trades. (I’m not sure I believe this, but lets go with it) +/-10 trades a day on a 5 or 10 minute chart… will get your black belt in 5 years or so. 1 trade every other day on a daily chart… well… its going to take significant longer. 

Like with grappling, spending time on the mat wrestling a variety of opponents is the only real way to get better. Sure you can read books on grappling, watch Youtube videos, practice sprawling and arm-barring a dummy… but nothing compares to actual mat time with someone who wants to triangle choke you into unconsciousness.

 

I can trade ANYTHING… its all kinda the same thing.

Woah… woah…. woah. It really isn’t. Stick with like… three things. Maybe even two. One thing might even be the best actually. I am always amused when I see all these traders with… some of them have a ridiculous number of screens in front of them. I have NO idea what they are looking it.

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Take this guy. Youtube guy. Lol. (and actually there are loads of people with way worse than this) That’s a lot of charts. I suppose maybe… if you’re trading stocks… and you’ve got your four that you’ve identified as potentially interesting for the day… and you want to… I dunno… I’m reaching here. Really, you need a laptop. And maybe another screen. All this other stuff is just vanity, consumerism and really, totally superfluous.

I suppose I should point out that I don’t trade individual stocks. I find them overly reactive to asymmetrical threats (and I would rather stab myself than browse financials all day). I like boring stuff. Like stable pairs and first world indexes. Maybe you do need more screens trading stocks? My instincts still says no. *shrug* anyways…

Lots of people want to flip-flop between currency, crypto, commodities… (I wanted to alliterate more here)… cannabis! I feel like you should stick to a couple of things and get really good at those specific markets.

 

Trading is glamorous

Eh…

Its actually a lot like grinding for trophies or loot when you play a video games and you’ve already won. Also if you had any existential crisis about your previous job being meaningless (in the grand scheme of things) trading will definitely not fix any of your psychoses. (apparently that is the plural of psychosis. Looks weird to me)

But you know… if you’re successful you can pay for therapy and fill your abode with shiny knick-knacks that can help deaden pain somewhat. Also people will like you. If you’re not successful you will feel like a complete failure who just sucks at EVERYTHING. Also you will be broke.

 

 

Monopoly car

 

This a series of posts I’m doing for my kids. In case I die (ie. Go Darke) and am not around to to teach them (personal) finance when the time comes. Its mostly stuff I wish someone had taught me when I was sixteen. You can find more posts like this… 

HERE

 

Comments

  1. Ha ha ha…. All very funny. Personally I’m looking at automated trading on dex cryptomarkets at the moment. Most of the code is in Python which happily I understand. The complexity is stunning and I haven’t evcen studied the actual strategy modules yet.

    1. Must be nice to know a programming language. I can only do very basic stuff, I have tried… but really I have no aptitude for coding.

      Sounds very interesting. I love the idea of crypto. And I often look to see what Bitcoin is doing. Its still too volatile for me tho… maybe one day… when I’m big.

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