Sunday, April 15, 2007

So you want to trade for a living huh?

OK I' am going to do something different right now and actually post something that may be educational to all you wannabee traders.

No matter what you read, heard, or think. Trading for a living is totally doable by anybody that has a brain which hasn't been destroyed by excsessive marijuana consumption. I'm not talking about managing other peoples money, I'm talking about trading your own cash to pay your bills. Those two things are totally different because only one guarantees a paycheck.

However while anybody can do it, only some succeed. The most important thing, in my opinion, to trading for a living is that you must have a passion for it. To me trading is not only fun but it's an addiction, there is nothing in this world I'd rather be doing than trading. I love it, I love digging for opportunities. I love creating money out of nothing. I love the instant (or pretty close to) results. If you're not passionate about trading, you shouldn't do it. You should never waste your life doing anything you're not passionate about.

Now how do you turn that passion into a career? Well just like you would go to university to become a doctor, you must educate yourself to become a trader. However, with trading I believe it's best to learn all by yourself because trading is much more psychological than theoretical. You must create a system that works for you.

Do not trade for money, trade to perfect your craft. When a dentist does a root canal, he does not sit there and think to himself "I'm going to make $500 on this". No, he just does it, knowing in the back of his mind that if he does it to his best ability he will be paid. If you trade your system, the money will be there.

You must also be in control of your emotions. You must become like a robot when it comes to your trading. All our lives we were always told that the stock market is risky or that it could make you rich. We go into trades thinking about all the profits we'll make and than when a trade goes against us, we do a 180 and become fearful of losing everything. To trade, you must eliminate all emotion. You enter a trade, you lose your set amount, you get out and move on. You don't sit in the position hoping for a turn around. You enter a trade, you gain your set amount, you get out and move on. You don't stay in hoping to squeeze out more profit or get mad you left some on the table.

You must also exercise patience. Too many people jump into trades because something seems low, only then to see the position go lower. I'll tell you right now, that the first time you think a stock is priced too low, it's still going lower. Another piece of advice I'll give you, look for the potential upside on a stock that just had a big drop. What could propel it to get back old levels without further downside? If you look at stocks like this, you'll notice that many don't have much short term upside and in the best case scenario will be dead money. The only thing that is meaningless, pretty much, if it caused a stock to drop is an analyst call.

Patience must be there. Every stock, everyday provides an opportunity to make money. Don't force trades, look for the best ones. There is no rule that says you must be in the market at all times.

Me, I have two accounts for my trading. A day trading account where I hold nothing overnight, that is my "life" account. It is used to pay bills and provide a living. I trade technically with that and look for quick, small profits. I withdraw all my profits every month. My other account is the "swing" account. It's used for overnight holdings and I haven't withdrawn from it (except for taxes) in years. My swing account is much more liberal and much less technical. With it, I look for bigger profits and let positions run while I scale out of a trade. I also scale in and average down on certain positions. The swing account, I trade more off my experience than anything else.

I recommend you seperate your accounts like this and keep them seperate as you'll avoid seeing your "life" account in the red to start the day should a swing position turn against you.

Lastly there are only a few books I'll ever recommend, Trading for a Living by Elder and The Market Wizards series by Schwager.

15 comments:

Ragin' Cajun said...

Great job shortdabull!

Check your email

IIO said...

What happened to the punchline?

TraderCaddy said...

Great post shortdabull (although I miss seeing your hilarious pictures). Don't forget to be well capitalized since you will lose much $$$ until that turn to consistent profits is made from all of the lessons learned of bad trades. I have read Market Wizards so much the pages in my book are thinning. I believe all of those traders had a niche and exploited it over and over again. Gil Blake is my favorite since I traded mutual funds like he did (I was blocked from trading in Franklin,Scudder and GT Global over a ten year period). Those were easy days of making $$ but opportunities open all of the time and you need to do your homework and be flexible.

TradingGoddess said...

sdb,

I appreciated your post. Good to see you've got some intelligence in those little grey cells of yours. hehe

I only take issue with one thing however. I am not a robot.

;)

Woodshedder said...

Nice post SDB.

ShortDaBull said...

TG, I'm not the asshole you think I am...really! :-)

ShortDaBull said...

"I believe all of those traders had a niche and exploited it over and over again."

Caddy, yup, that is the main lesson from that series.

I also enjoy hearing other traders stories. There simply isn't enough books like that.

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