When first-time traders enter their new world of business, they typically go in full of optimism and confidence in their abilities. Being fortunate enough to get a few favorable trades under their belts often validates their feeling of optimism and makes them think that they have truly found the path to prosperity. When one’s first trading experiences are overwhelming positive, though, it gets easy to lose sight of the fact that trading is a very demanding profession. It takes hard work, careful planning, and a clear understanding of the risks involved.
The risk with beginner’s luck is that it often leads straight into easily-avoidable rookie mistakes. Traders who are still learning the ropes are liable to mistakenly blame the entire system when their only real problem is a lack of first-hand experience. You can deal with beginner’s luck properly by paying attention to this trading advice.
Don’t let first-time successes inflate your opinion of your talents. Executing some profitable trades the first time out of the gate doesn’t mean that you’re a born trader. You are just at the beginning of a long, slow learning process. Successful trading demands a lot more out of you than just an instinct for buying low and selling high. Feel free to celebrate if you turn a profit in your early trades. Don’t mistake them for a reliable indicator of your long-term performance, though. You should look at your whole first year as a trader as a learning experience. Always remember that in this initial period you’re going to see significant losses as well as encouraging profits. In order to make sure you’re learning from what you’re doing, allocate a little time at the end of each trading day to review what you’ve done right and what you can do better.
Emotion has no place in successful trading, and this is one of the hardest lessons for newbies to learn. On the surface, it seems so rational and reasonable that it’s easy to simply nod your head and say “never get emotional. Sure. Right. Let’s start trading already!”
Once you’re experienced and you really understand the temptations of emotional trading, you’ll look back on that first feeling of eagerness as one of the emotions you need to take out of the trading equation. You’ll think of the very terminology you used to describe early trades — talking about how “you have good feelings about this” and so forth — and realize just how emotionally vested you were.
It’s hard to trade rationally when your conception of the money you’re trading with is intimately tied into your notions of safety and freedom. If that money is so vital to you, it’s all too likely that you’ll start panicking when you see it disappear in a poor trade. This can lead into a downward spiral as you make increasingly desperate and irrational decisions in an attempt to recoup their losses.
The skill you’ll learn over time is how to step back from the table when it’s clear that you’re losing. Trends are never going to reverse themselves just because you really, really want them to. You need to let go of the error after you’ve made it and start looking for your next trade.
The best way to limit the amount of influence your emotions have over your trading when you’re starting out is to limit yourself to small amounts of money you can easily afford to lose. Build your skills first and learn to recognize the difference between a rationally justified trade and an emotional one. Another useful addition to your trading schedule is to take an in-depth look at your overall profits and losses on a monthly basis. Worry about your individual trades when you conduct your daily review; take the opportunity to look at the bigger picture when you do your monthly retrospective.
Beginner’s luck isn’t necessarily a bad thing. Enjoy your early successes when you start trading in a serious manner. Just don’t mistake them for inherent talent. You want to spend your first year learning the ropes, and you need to be dedicated to the job if you’re going to make a career out of trading.