Intro To Trading


Intro To Trading

By: Tri (Matthew Owens)

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Abstract: In this article, I will detail my own thoughts about the trading community I live in. These thoughts do not represent the thoughts of anyone else but my own, and I will try to be as delicate and tactful as possible when describing my opinions.

 

Intro: In the crazy fast paced world of trading, many people come to the table with big eyes and hubris ambitions. (I’m using trading in a broader sense to represent investing, day trading, and swing trading.) However, too most people’s surprise, trading is not what they thought it would be. Their aspirations and dreams quickly fly out the window and what they are left with is a couple of rib shots and a bad taste in their mouth. Most people never get past this phase in trading, which is why most people fail at trading. This generally leads a person down two paths, either they quit, or they get back up and keep at it.

Thus I hate when people make the argument that 90 to 95% of traders lose. This stat is arbitrary and I believe it is used as a market deterrent, which actually in of itself causes people to lose. Psychology plays more of a role then you think. The statistical number 90 to 95% is a bullshit number and it exists because people do not know how to evaluate robust numbers. The true statistical number should be based on the number of occurrences a person loses verses when they either give up or not. In theory, when we all start our trading journey, we are all losers. 100% of us, therefore, this number that is spouted out like propaganda to every person that ever tried trading, is not correct. As trading is a skill. The mistake that most people make is they try to be someone they are not in trading. You can get a thousand mentors or “Gurus” (a name I personally detest with every fiber of my being) and you will always fail if you try to trade like them. You have to approach your endeavor, in terms of becoming you.

I always tell my students, right off the bat, you will never be like me. You will actually learn to not become me. You will become something else. You will become you. Until you get to that point in your trading career, in my humble opinion, you will never be able to thrive.

 

The Market Is A Mirror

Although I have a Bachelor’s in Psychology (working on my masters), I hardly ever talk about psychology in terms of trading, because most “Gurus” out there, this is all they focus on. The truth is most “Gurus” focus on this because they really have nothing to offer and thus they rope people in with the psychology aspect. They cannot trade and yet they still focus on this. Psychology is important to trading but in my opinion it is something that cannot be taught. It is something that you can read about but it is really something you have to go through in order to “become you.” In your trading endeavor you will surly encounter these five emotions: Greed, Hope, Fear, Euphoria, and Vengeance. All of these are useful in the real world, but most of them in the trading world (unless honed) can be an absolute disaster. Understand that the market as a whole has no bias, it is not out to get you, and most of all what you see is really what you get. I call the market “A Mirror” because anything about you that you can hide to your friends, your family, your girlfriend, your wife, your dog, your kids, ect. Will come out when you are trading and there will be no place for you to hide. In the “Market Mirror”, you will be faced with your worst qualities about yourself. For example if you get very angry when things don’t go your way because you are a sore loser, it will be amplified, in the market. In the real world you could probably hide this issue from people but in the market you are left, with you. There is nowhere to hide, nowhere to run, and you either deal with yourself, or you blame the market for everything “it” has done wrong to you. In my opinion people do not leave the market because they are losing, they leave because they cannot deal with themselves.

In order to overcome this human flaw, you must keep a journal of what you trade, why you traded it and what you felt. This is thee most underrated procedure done my new traders. You cannot grow as a human being, if you do not know what you are doing wrong or why you make certain decisions. In the market you must evaluate yourself objectively and keep track of yourself. Then work on that aspect until you become comfortable with that side of you. You may never be comfortable fully but you get the drift. Personally, I think people don’t do this because people have a hard time, even in normal life, being introspective. Thus in trading these bad habits carry over to their trading career and this can lead people down a very dark path.

Thirst And Seek Knowledge

Anyone who tells you that you should just learn one aspect of the market is lying to you. Or one of my personal favorites I hear, is just have one niche. That is the biggest lie perpetuated in the known trading retail sphere. It is important to start off with one thing, understand it, trade it, and become good at it, but it’s not ok to stop there. Markets are living breathing organisms that constantly change over time. What works now, may not work in the future. Then once it doesn’t work for a while, it will come back. The cycle repeats itself. You need to develop a strategy for yourself that incorporates, fundamentals, technical, and quantitative edges, to transverse the markets as a whole. Develop a methodology for yourself, that no matter what is thrown at you, a biotech stock, a futures market index, a penny stock, ect… that you can trade it. If you have a solid foundation in your technical work, your fundamental work and how to discover edges in markets quantitatively, then the only aspect about a new market you have to learn are the drivers of that market.

“Market drivers can be defined by Google as: Market drivers are the underlying forces that compel consumers to purchase products and pay for services. These are trends that make markets develop and grow.”

In the end don’t (buy/by) into the ideology that all you need to do is this one thing because if you trade only equities, there will be times in which you will have nothing to trade. Broaden your base, with your established insights about a particular market that you are currently doing well at. I understand that some people may disagree, but in my opinion, a single focus with no diversification will lead to ruin. Never just trade the ticker and be satisfied that is all you have to do.

 

Perpetuated Lies/Myths From People Who Have No Grasp

When you are seeking help or advice in trading and you are new, understand, that for the most part people who are experienced will generally answer your questions, unless they are a huge dick. If you ask a question to someone and they say to you, “buy this or buy that”, immediately turn your tail and run. In our trading community, which is small but vast remember most of us either trade our own money or family money. None of us are licensed, none of us will hold your hand, and none of us are experts. We are generally skilled, but most importantly we are small fries in comparison to some of the greatest traders in the world. The reason I’m writing this section is because I have heard a bunch of lies circulating for too long, and quite frankly it pisses me off. These people in there very nature use “tongue and cheek rhetoric” when they write blog posts about a particular subject. They use distancing language, in their posts to make it seem like they are no smarter then you and it’s hard to understand anyone but them. This is not conducive to the working culture we are trying to build online.

Understand that each of lies have been messaged either to me or said in blogs or all of thee above. Remember everyone is entitled to their opinion but for me I thought I would lay these most common ones to rest.

 

Lie #1: “I’ve NEVER met a consistently profitable options trader”.

The truth is there a lot of consistent option traders out there and they are very skilled. They may not be into teaching the public but they still exist.

-Meet Karen The SuperTrader. https://www.tastytrade.com/tt/shows/must-see-tt/episodes/special-guest-karen-the-super-trader-02-10-2014

-Jamie Mia From Cornwall Capital= Check him out on in Jack Schwager’s book. “Hedge Fund Market Wizards.” His section is titled Seeking Asymmetry.

 

Lie #2: “No one has a verified track record.”

This is a complete lie. Understand that many people outside of our Profit.ly community have verified track records, but most of them do no teach. However if they are teaching and they have no track record or just something that validates them, be very leary.

Examples:

-Marty Schwartz (The Pitbull). All verified because he actually ran money. He is an independent trader.

-Peter Brandt: http://www.peterlbrandt.com/about-us/

-Jamie Mai

-Scott Ramsey

-Edward Thorp

The list is endless. Just because someone doesn’t want to teach doesn’t mean they don’t have verifiable track records. As most of the best independent traders do. Keep an open mind.

 

Lie #3: “Penny Stocks are the only way to make money with a small account.”

I mean I don’t even know what to say here. “Get your head out of your ass?” Understand that in the world of the vast market, there is more to life than just penny stocks. There are other great instruments out there, which have much better risk/reward setups everyday then penny stocks. Not to say that penny stocks are not a good way to grow a small account, just keep an open minded.

Other lies I find most interesting are traders that teach, but have no edges in the market. When you look at a trader you must ask yourself two questions, do they have an edge? And is it repeatable?

Edges in my mind are quantifiable in nature and usually have pure percentage terms. Ones that have pure percentage numbers attached to them often have some kind of system or methodology. Thus someone could learn from this person and understand the basics of the person’s strategy and mold it into himself or herself. Unfortunately some aspects of trading that people implore are uniquely dependent on them; they just think they have a methodology. Overall they do, but it is not something they can really teach. To illustrate all the things to tell the difference between someone who is just out to get your cash, or the real deal lets break it down into an example.

Look For This:

Macro Edge: Penny stocks are any asset trading between 0 to 5 dollars a share. 92% of those stocks that become inflated by the definition of exceeding 100% moves (meaning going from 1-2 dollars), will eventually lose, 50-100 percent of their gains. You can play them both from either the long side or the short side. However, shorting them has much better odds because the probability is so high, that it is not a question of if, but when.

What To Do: Look for pump and dumps to short or buy them if early promotion. Also buy earnings winners, with some kind of technical twist to them; Trading is confined to either pump or dump to short or buying earnings winners (Catalyst), with a context of simple technical analysis around it.

How To Do It: Can be dependent on whatever technical analysis techniques the person wants to use.

Negative Side: Hard to borrow from your broker if you want to short.

Overall it works but that is the general breakdown. Here you can see that there is some kind of edge to the overall strategy and not random noise. There are a lot of people out there that are breakout traders or morning gap blah, blah, or whatever fangled non-sense they come up with, but the truth is, it cannot be measured. So either they are lying and are complete frauds or it is something that they do, which is uniquely them. Usually it’s the first statement. I see this all the time. People trying to say you can make money off just level two or this great new indicator that works 83% of the time. Overall use your head, if it sounds to good to be true, it generally is. Moreover, Google that shit, if you don’t understand what they are saying.

People I Trust In Terms Of Track Record and No B/S

By Twitter Handle. =)

 

@HubertSenters

@outsizedreturn

@PeterLBrandt

@RyanDetrick

@FuturesTrader71

@nasdaqman

@MrTopStep

@jgrindal

@HFTAlert

@modern_rock

@lx21

@super_trades

@timothysykes

@goodetrades

@DrMatt30

@kroyrunner89

@IncredibleTrade

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8 Comments

Jeff Horne
Reply March 10, 2016

Having seen you on Tims vids I have been very impressed not just with your analytics but your personality and outlook on things. I hope the best for you in the rest of your life. Great article. Keep the knowledge flowing.

    fengqin listump
    Reply April 5, 2016

    I have same feeling as Jeff Horne.

Sam
Reply April 5, 2016

In the end don’t (buy/by) into the ideology that

What do you mean by (buy/by). I am genuinely curious.

Dante
Reply July 5, 2016

I never comment on blogs but i had to leave a thank you note for this one, honestly this article couldn't have came out at a better time, cheers!

Chyna
Reply July 27, 2016

I cannot tell a lie, that really hepled.

Dave Uyemura
Reply September 14, 2016

"Tail" not "tale" but thanks for sharing your insight. Your background in Psychology will help you. Have you studied Dr. Van Tharp. He has authored books on the Psychology of trading. Very good foundation. Thanks.

Dave Uyemura
Reply September 14, 2016

Btw the biggest myth I've heard is that trading stocks equates to gambling. Like did you go to school? Sad to say but some people have no inclination to take care of their own futures.

Jennifer Komondy
Reply September 14, 2016

Matti- awesome explanation and insight presented in easy to understand terms

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