So You Want To Be A Trader?

The past couple weeks has seen a new influx of retail traders into the stock market, largely stemming from the Gamestop and AMC manias. I think this is fantastic overall, for reasons that I will share below. But at the same time, I'm going to share a few tips for some of those who are new to the game.

First of all, you'll never see me disparage someone for trying something new in an attempt to make money, because after all, that's the point of trading, right? To make money. Ask yourself this question, because it is a very important one. We published an article on this around this time last year. Check it out so I can save space on this post and not have to repeat myself.

Second of all, shame on all the "suits" (this is a new term that I happen to likely greatly) for trying to act as gatekeepers to the financial marketplace. Of course, there are professionals in this business that are exceptional at what they do, but there are also those who are not very good. Such is life. Why would someone try to discourage another from participating in the market? If you were such a good trader, wouldn't you want someone there to buy the shares you're trying to sell? Don't be so arrogant.

Truthfully, the market is ruthless. At the end of the day, I'm watching after my own skin and the skin of those who support our work and research. As for everyone else? Sorry, you're on your own. That's just the way this game goes. Don't like it? Don't play, or go hire an advisor to do it for you.

The only reason we play this game is to make money. Financial markets, in their modern form at least, have been around for about 400 years or so, going back to the first stock exchange in Amsterdam. Other markets, like interest rates, commodities, and futures go back thousands of years, even as far back as the Babylonian civilization.

If this game was easy, everyone would play. If you're new, be prepared to discard everything you thought you knew about how markets work. I don't care if you have a degree in finance or economics. I do too. Academia is inherently reactionary, a lagging indicator, to use a trading term. Before something is accepted as "consensus" in the academic sphere, markets and the innovative spirit are already onto the next big thing. Keep up if you can. Remember, the market is ruthless. It does not care who you are or where you're from. You can be a trust fund/hedge fund big wig in New York or Chicago, or a pajama trader in flyover country. It does not matter.

Anyhow, back to some tips for the new traders. First thing's first: Protect your capital. Do you want to be right or make money? It's a big difference. I'll give a recent example of myself as of late. It just so happens that I thought Bitcoin and other cryptos were set to decline over the next couple months. I sold most of my crypto-related holdings. Then I saw Bitcoin start to rally against my expectations. Did that stop me from getting back long? Clearly, I was wrong. No, it didn't, because I don't care about being "right." I care about making money. Fortunately, I've been in this world for about 9 years now-- I'm on the last lap of my own trading odyssey. I know how to recognize quickly when I'm wrong, and I know how to plan for it. Crypto is in a bull market, as it keeps making higher-highs and higher-lows. I had a plan in the case that my short-term bearish thesis was incorrect, and I didn't let my desire to be right prevent me from making money.

It's not like I just woke up one day and knew how to be a trader. I ran at least 3 trading accounts to zero in the first 3-5 years that I was learning to trade. In most cases, I lost money I couldn't afford to lose. In one case, I doubled an account in a year, and ran it to zero in less than 3 months. How do you think that made me feel? Do you think the market cared? Nope.

Another tip for traders: Learn technical analysis. If you want results fast, don't even bother with fundamental analysis, or as we like to tease: MuH FuNDaMenTaLs. If you were strictly a fundamental analyst, you would've missed out on trades like TSLA and AMZN. I wouldn't go as far to say it's completely useless, because some important players in the market still have to use it, but as an individual trader, it's marginal at best in terms of applicability.

Final tip for traders: Accept that our world is not linear. It is cyclical. The Law of Nature is Cycles. This was something that totally changed the game for me, and I have to thank my good friend and trading mentor Ray Merriman for this. The whole concept of linear thinking is something that has plagued western thought really since the late 19th century. There are undoubtedly culprits to this, but that is beyond the scope of this post.

The last point I want to make in an encouraging one. As individual traders, we have some advantages compared to the big funds. To use a military analogy, we can operate as silent assassins or snipers, while the large funds are MOABs or heavy infantry. What this means is that we have the ability to enter and exit a trade virtually unnoticed. The truth is, unless you're moving hundreds of millions or billions of dollars, you don't have the buying power to affect the price of a stock. The exception, of course, is if you're trading thinly traded penny stocks, but smart people usually don't go out of their way to point out exceptions. If a Fidelity Growth fund buys a stock, they're going to move the price. As such, they don't have the ability to revert back and recognize a loss as quickly as an individual trader can, lest they bring down the price of a stock by selling everything all at once.

So make what you will of this article, and realize the market, like life, doesn't owe you anything. If you have an attitude of entitlement, do yourself a favor and just stay away, or go park money in a guaranteed account paying close to zero interest and get destroyed by inflation. I can't say I care at this point. Don't say you haven't been warned.

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