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1-Page Summary of Trading for A Living

Overview

Sometimes we see people on TV making money in the financial markets and think, “I should get involved!” Well, you can. It’s not that difficult because there is a lot of money to be made from trading stocks. Just look at all the success stories of George Soros or Warren Buffet (two famous investors).

However, if you don’t know what you’re doing and jump into trading without learning about it first, you could lose a lot. Therefore before starting your new life as a trader, read these key points based on the thinking of an expert in the field. They illustrate basic strategies every beginning trader should know: why unemotional and calculating traders are successful; how to read graphs; and that you need to learn about bulls and bears.

Big Idea #1: A new trader can fall into many traps and end up paying more than she’d like.

Have you ever wondered how the world’s wealthiest people got that way? You can do it, too! It won’t be easy. However, if you’re aware of some pitfalls to avoid early on, the journey will be much easier. One thing to watch out for is paying commissions when trading stocks or other assets. If you don’t pay attention, those commissions will eat away at your profits over time! Say you trade two times a day and spend $10 per trade in fees to your broker or bank. In just one week those fees add up to $80; working 50 weeks a year costs $4,000 in fees paid directly to banks and brokers. That’s 20% of what most traders make each year!

To save money on commissions, do your research and compare the services offered by various banks.

Another mistake is to not get the best price. If you want to avoid this, you’ll need to make your orders correctly. There are two types of orders: limit and market. With a limit order, you’re saying “give me a stock at $50 or less.” This will ensure that you get what you want but it’s possible that the price might be higher than expected if it goes up from $50 to $53 in the meantime.

Limit orders are like saying “I want to buy that stock for $50.” You won’t pay more than $50, but if the price isn’t available at that rate, you might not get it. Limit orders are definitely the way to go because they prevent overpaying for stocks.

The new trader may pay too much for a stock, but there are other pitfalls as well.

Big Idea #2: A good trader doesn’t gamble.

Most people think trading is like gambling. They’re similar because both involve risk, but the similarities end there. Trading requires a lot of discipline and careful capital management to be successful whereas gambling doesn’t have those requirements and therefore isn’t as successful. If you trade like you gamble, your money will disappear quickly. To avoid this problem, try taking a month off from trading to get control over your risk-taking urges so that you can become more disciplined in your trading decisions.

Traders who are good at what they do don’t let the market influence them emotionally. If a stock goes up in value, they feel happy and powerful, but if it doesn’t go their way, they remain calm. They also understand that trading is just a way to make money; there’s no need to become attached or personally invested in any given stock.

Traders are prone to making mistakes, especially when they’re inexperienced. The author’s friend was an example of this. He failed at all three of his jobs: pharmacist, broker and trader.

A great trader left a large position open when he went on a trip. When he came back, his position had decreased and all his capital was gone.

What can you do to prevent a mistake like this? You should take responsibility for your actions and the consequences. It is also important to learn how to make good decisions in trading. This is discussed in the next key point.