3 questions to ask yourself before you get started in the markets
What are your expectations?
Honestly, no bull — what is it you are looking to get out of trading. It’s fun to dream, but you need to be realistic. If you are looking to turn $10k into $1m in a year, you are dreaming. If you are looking to turn $10k into $20k in a year — you’re in for a challenge. If you are looking to turn $10k into $15k in a year — now you’re somewhat realistic.
Go look this up, put the time in, and research the return rates of the world’s best fund managers. These are people with decades of experience, access to vast infrastructure, and massive bankroll — you’d probably be shocked to hear a lot of them are happy with a monthly return of low single digits.
Now, don’t get me wrong — the tremendous success stories are out there. Stories of talented traders return crazy numbers. There are a decent raft of proprietary traders who make a good living off a reasonably small account — but if you go into the game thinking this will be you off the bat, you are going to give yourself stress and disappointment.
Excess stress is precisely the thing you want to avoid while trading. Oh yeah, before I forget — when I talk about things strictly in financial terms that’s deliberate. Your objective here is to make a return on capital, plain and simple. It’s not about self-validation or excitement. Boring is good. Returns are better.
Do you have the time?
Trading takes a massive amount of time and energy to become proficient at. Don’t enter the marketplace unless you are committed, or until you are confident that the allocation of that time will not negatively impact your life.
Time watching order-flow, assessing chart patterns, or doing whatever else you decide is for you is time away from other things. Don’t underestimate the opportunity cost when it comes to time spent learning to trade. Life is short, spend your time wisely.
There are plenty of other ways to make money in the world. Trading is hard for most, easy for some, and impossible for a decent amount of people. Be sure that the realistic expectation of your results is, for you, worth the time.
Do you understand markets?
Chances are if you’re reading this and not experienced in day trading — the answer is no. I didn’t either, I’m sure most people don’t at first. I made a big mistake when I started getting into trading — I focused on the specifics of trading, charts, and all the other shiny things that capture your attention.
Spent time understanding the basic constructs of markets that cause a market to auction, supply and demand, and the basics of how markets move.
This understanding will stand you in good stead then for finding out what trading strategy suits your needs and how to implement it with a better chance of success.
Markets are just places where people come together to either buy or sell a commodity, given their particular psychological predisposition to risk. The sliding scale of fear and greed, as corny as it sounds — that’s really all a market is. When you understand this, it makes things much more transparent.
As a trader, your job is to make risk-based decisions based on incomplete information swimming in a sea of noise, spend time understanding the ties before you learn to swim.
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