5 Unchanging Facts About Trading – Introduction
Trading, either as an individual or through a trading floor is one of the most lucrative sectors today. Today, millions of people are engaged in trading every day. However, most traders fail. It has been like this since time in memorial. In the 1929 financial crisis, it was reported that thousands of Americans lost millions of dollars. The same was true in the next crisis in 1987 and 2008. In this article, I will look at the five key unchanging facts about trading that you need to know.
- 1: There is no expert
This is a fact that many people tend to disapprove. However, the truth is that there is no person who can claim to be an expert day trader. Of course, there are people who are knowledgeable about trading but there is no one who can claim to be an expert. This includes the best paid analysts at the leading banks, hedge funds, and family offices. Understanding this is a very important thing for any wannabe trader. This is because mistakes always happen in the trading world. There is no trader with a 100% performance rate that I know. Recently, we have seen top hedge funds like Greenlight Capital lose money. This is a firm that can afford to hire anybody.
- 2: Past performance not an indication of future performance
The second fact is on the nature of the financial markets. These markets move up and down all the time. Therefore, having an excellent track record is not an indication that you will always perform better. In fact, this warning is provided by all financial advisors in the world. They do this because a single mistake can end up costing a fund all the money. A good example is what happened to a friend a few weeks ago. He had an excellent run in a single month. On the last day of the month, he placed a single trade only to see his funds disappear.
- 3: Nothing beats good research
Research is a very important thing for any trader. Today, the trading platforms are very simple such that you can open and close transactions with just a single touch. This means that the process of opening and closing a trade is very simple. Therefore, – and I am guilty of this – many traders have a tendency of opening and closing a trade without doing any research. When this happens, many traders lose money. Therefore, it is very important for you to always conduct in-depth research before opening and closing trades.
- 4: Diversification is key
This is a relatively complicated fact that has elicited many concerns among people. Many people don’t know whether to diversify or not. The fact is that diversifying, is a very important thing for you. You can diversify by having holdings in different instruments. You can also diversify by using different strategies to make money. For example, you can diversify by having two separate accounts; one for trading and the other for investing. The latter should be made of companies you hold for the long-term investments.
- 5: Taking Notes Matters
Finally, an undisputed fact is on the need for taking notes and journaling your trades. This means that you should put down your reasons for buying or selling a security. When you exit, you should put down the reason for exiting. By doing this, you will be at a good position of monitoring your trades and identifying the mistakes that you do. Successful traders and investors like Warren Buffet always write down their reasons for buying or selling their investments.
5 Unchanging Facts About Trading – Useful Tips:
- Another interesting reading on Tradesociety;
- Discover more on the matter by visiting HuffingtonPost;
- Further information on MaxFx.