Бесплатный фрагмент - Investor, trader, player

Foreword

There is an episode in the film “Seven Samurai” by Japanese director Akira Kurosawa: an experienced samurai helps the peasants cope with a thief who took a child hostage. After a successful outcome, having made sure of the mastery of the sword, an old peasant respectfully asks:

— The master must be a great warrior?

The samurai smiles sadly:

— I have a lot of experience of losing battles.

All my knowledge and skills are the same experience of losing battles in the market. I have probably made all the mistakes that exist in trading. And every day I work on not repeating them again. I don’t know any such methods myself. For a simple reason — they do not exist. This is not a teaching from above, from one “who has achieved success” to many who have not achieved it.

Rather, it is a living experience of a living person, a desire to share what he himself went through. A person who still makes mistakes every day, studies all the time, does not consider himself to have achieved mastery.

These are the notes of a bad trader who wants to become better.

Who is this book for

This is a book for beginners and experienced traders.

Beginners will find in the book the basics of financial literacy: the criteria for choosing a broker; the need to learn the right skills first on a demo account and only then switch to a real account (many go broke at this stage), etc. People who may have already lost money will stop considering themselves losers or blaming the market for everything.

Experienced market participants will be interested in working trading strategies, examples of keeping a trader’s diary, author’s trading signals (usually this information is not disclosed, it is considered professional secrets).

Both will be able to look at old problems with a fresh look. For example, diversification (dividing an investment portfolio into many assets): whether it is so necessary and what risks it carries. Or the existence of four professions in one profession “trader” in fact: actually a trader, a financial analyst, a risk manager and a psychologist.

We will talk about the opportunity open to anyone to become a trader, even with a small capital. About a new promising profession that is absolutely realistic to master from scratch, if you approach it wisely.

The book is designed as a description of personal experience: from the first steps in trading to getting someone else’s capital into management. What was missing for a beginner; what helped and what hindered at the beginning of the path; what mistakes are better to avoid immediately, and not after a few years of bitter experiences; what really works in the financial markets, and what is a waste of time.

Well, shall we start?

Art or science

Imagine yourself a multiplication table that is constantly changing, right before your eyes. This morning two times two is four, after lunch it’s already five, and tomorrow it’s three at all. Absurd? Beyond any doubt.

Because real science is always relatively stable. It has strictly defined laws, and even while constantly developing, it is still based on fundamental knowledge. Like a multiplication table in mathematics or a periodic table of elements in chemistry.

There is nothing like this in trading.

And although it looks very similar to science, there are no cyclical or repeatable phenomena in stock trading, it is a chaotic system. To study which is certainly possible and necessary. It is impossible only to deduce strict laws and exact formulas.

Although, of course, it would be nice: I opened the directory, inserted the necessary numbers into a mathematical equation, deduced future prices up to a tick — and you can go to the Swiss bank. To store the earned millions. Or billions?

However, it doesn’t matter, all this is nothing more than our fantasies.

Financial markets operate in conditions of constant uncertainty. Try to listen carefully to the analysts: their speech is simply peppered with expressions “perhaps”, “most likely”, “suppose”. There are only probabilities in this business.

Don’t count on more.

And when a certain market “guru” begins to confidently argue “the price should… because now the third sub-wave of the fifth Elliott wave… the Ichimoku cloud of the right shape… oversold exceeded overbought” — know that this person is lying. The price doesn’t owe anyone anything. And you will never be able to calculate the price for tomorrow or next week on a calculator. This is impossible by definition.

As Benjamin Graham (Warren Buffett’s teacher) wrote in 1949:

The combination of precise formulas with very inaccurate assumptions makes it possible to obtain, or rather justify, almost any desired value…

People who tend to blindly trust the scientific approach and linear logic will be greatly disappointed by the market.

Let’s recall the relatively recent history of one of the largest hedge funds Long-Term Capital Management (LTCM). The off-balance sheet positions of this fund in 1998 exceeded $1 trillion, which is more than the national budgets of many countries and entire continents. Along with the “stars” of trading in those years, two Nobel Laureates in economics — Myron Scholes and Robert Merton — worked at the fund at once. Not counting hundreds of mathematicians, traders, and programmers less well-known to the general public.

The company was proud of its scientifically based risk management system and trading strategies. The luminaries of financial science seemed to have accurately calculated and foreseen everything. We will not “load” the reader with the laws of linear extrapolation, convergence of spreads and other complex mathematical wisdom on which their confidence was based.

Let’s just say that after several successful years and good annual profit figures, the market just smeared them on the asphalt. Neither formulas, nor powerful computers, nor the smartest scientists helped. Why?

Because trading is not a science in the strict sense of the word. Rather, art with elements of science. However, this does not prevent us from making money on the market. It’s even more interesting this way.

Investor, trader, player

Let’s define the terms.

Under trading, if we are talking about financial markets, it is customary to understand short-term trading, speculation, resale. Under investing, respectively, long-term trading. In general, traders can trade grain, oil and anything else. And you can invest in real estate, works of art, postage stamps, numismatics and hundreds of other ways — but in this book we will only talk about stock trading.

It is important to understand that there is no clear boundary between the concepts of “investing” and “trading”. There are simply no hard time benchmarks or other unambiguous criteria. You won’t find statements anywhere:

Here is investing, because the transaction lasted more than 1 hour, and here is trading, because the order was closed after 59 minutes.

May the highbrow theoretical financiers forgive us if we hurt their tender feelings, but that’s the way it is. Let’s say Warren Buffett, who has been actively trading on the stock market since the 50s of the last century — is he a trader or an investor?

In the classic works of Benjamin Graham “The Intelligent Investor: A Complete Guide to Value Investing” and “Stock Market Analysis” we find the following definition:

Investments are operations, the purpose of which is to carefully analyze the situation, save the invested funds and get an acceptable profit. Operations that do not meet these requirements are speculations.

We agree with this short exhaustive term. In which a clear line is drawn between professionalism and recklessness. When buying and selling stocks, bonds, currencies and anything else becomes a kind of financial casino for a person. Only the place of roulette or playing cards is occupied by stock quotes and a trading terminal. When people are just chasing adrenaline, thrills, the possibility of a random win. They are not looking for earnings, with the help of knowledge and experience, but quick and easy money.

If, after a thorough analysis of the market situation, a person saved a deposit and made a profit, say, on the EURUSD currency pair — is he an investor or a trader? You can’t tell right away. Let’s leave this task to armchair scientists and indefatigable internet disputants.

We are more interested in making money on the market.

Starting to learn

Most major banks are now actively offering investment services. But there is not much literature in which complex financial mechanisms and really working techniques are explained in simple words. Advertising imposes the installation that “to want a lot of money”, “download an application to a smartphone” or “open a brokerage account” in itself means to be an investor.

This is not true. We need knowledge, skills, and experience.

In fact, for a layman, ruin is only a matter of time. According to statistics, from 1% to 2% of traders consistently earn on the market, about the same number work at zero, and about 95% go bankrupt in the period from three to six months. This is one of the most competitive professions in the world.

The trouble of modern man is the focus on a quick result without personal effort. Press the button, poke your finger at the smartphone screen, read an article with funny pictures in three minutes… But this does not work in serious things, and trading is a serious matter. “Investing is easy… it’s easy to play on the stock exchange… open a brokerage account in a minute from your phone and get a stock as a gift” — all these beautiful advertising promises have nothing to do with the real work of a trader.

The modern person does not like “many letters”.

Give him instant working recipes with a guarantee.

If you are looking for something like this, close the book — this is not here.

Linear logic does not work in complex processes. Trading is not a science, because it does not describe constant or cyclical phenomena. The main tool in trading is charts. And this is misleading for beginners: well, of course, charts, numbers, mathematical calculations — what is not science! In fact, the charts only reflect human psychology. Fear, greed, emotions. We will talk about this later.

We will learn how to work with probabilities in conditions of uncertainty. We will learn to think first of all about losses. We will understand the paradoxical logic of trading: a bad road can be good, a good one on the contrary is bad, an obvious decision is unprofitable, an unusual decision is profitable.

I advise beginners to start with two: “Memoirs of a stock speculator” by Edwin Lefebvre and “Encyclopedia of Stock Trading” by Alexander Elder. Read serious books, think, study. Time will do the rest.

Fundamental points:

— It will take as long as it takes. We do not set strict goals and time benchmarks. You have to be completely mentally liberated. Don’t think of training as a project with tight deadlines. Learn with pleasure.

— Trading is complicated by its simplicity: there is nothing in it except arithmetic and common sense. In this book you will not find any incomprehensible things that require higher financial or economic education. But simplicity is not synonymous with lightness. As running is the simplest biomechanical movement, a one-year-old child can quickly move his legs. But running a marathon (42,195 km) is not an easy task.

— Negative experiences are often more important than positive ones. For example, to understand that emotional haphazard trading is the way to nowhere. More precisely, straight to ruin. This most valuable invisible asset will help you all your life.

— We will develop unnatural skills: courage where you want to be scared, and vice versa. Patience is where you want to do everything as quickly as possible. Do not expect psychological comfort. There is simply no such thing in trading.

— Constant self-study, market observation, comprehension of what you saw. Independence in everything, in trading, in analytics, in discipline. You need to learn to be a teacher and a boss for yourself.

The most valuable asset of trading

Most people will probably answer the question of what is the most valuable thing in trading — money. This seems obvious. The larger the size of the trading account, the greater the profit, the better. For example, 1% of $1,000,000 is $10,000-a pleasant amount in all respects. However, we will try to show that there is something much more valuable. What we almost do not pay attention to.

In fact, money in trading is not a unique, renewable, secondary asset. They are an effect, not a cause. Working material: a bricklayer builds a house out of bricks, a baker bakes bread from flour, and a trader seeks to multiply money. The attitude to the material (stone, flour, money) should be professional. And a brick wall, and a freshly baked loaf, and a bundle of money are only the result of the right actions.

It takes time to learn these actions. It is our most valuable, unique, non-renewable asset. Paradoxically, it is time that a novice trader values the least. Hours, which make up days, weeks and months, are spent on hypnotizing the price in the trading terminal. To search for and copy other people’s trading systems. To the endless monitoring of news reports, in which there is nothing new in a couple of minutes.

Real trading experience cannot be replaced by anything.

Let’s explain with an example: let’s say your trading system is based on following the trend. If you are not taught by experience to ignore volatility (“market noise”), if price fluctuations excite you to a cold sweat, if you have not developed the skill of patience — this strategy will not bring you any benefit. Time will simply kill this trading system. If experience has not taught you risk management — similarly — your deposit is doomed.

Experience is born only out of time.

There is such a mathematical action — multiplication by zero, which zeroes everything, and the value of the second multiplier does not matter at all. One multiplied by zero and a million multiplied by zero are no different in the end. So, the skill of wrong actions in the market, lack of experience, inability to trade — this is your “zero” in the world of trading. If you have a million dollars on deposit, but you don’t really know how to trade, it’s only a matter of time before you go broke. It’s like a wall built by an inept bricklayer, without cement mortar. It will inevitably collapse, no matter how many bricks it takes.

From other side, if you have ten dollars in your cent account, but you know how to trade, developing this skill better and better, then increasing your trading account and making a profit is inevitable in the long run. Learn how to make a dollar out of ten dollars first. Then ten dollars out of a hundred, then a hundred out of a thousand dollars, and so on. Everything else will come in due time.

A key skill in trading is the ability to melt negative experiences into positive ones. Get back on your feet after bumps and falls. Learn every day. Have you leaked the deposit? It doesn’t matter. Consider this your payment to the market for training. An inexpensive payment for invaluable experience, investments that will definitely pay off in the future.

Recommendations:

— Novice private traders, as a rule, do not have much capital. And there is not the slightest reason for despondency, fear, discontent. Because you have something much more valuable — time. Spend your time wisely and the money will come after him. You don’t have to worry about that.

— Trading is impossible without constant self-education. Read high-quality professional literature, instead of mindless nervous monitoring of the price in the terminal or reading anonymous articles on the topic “How to get 1000% profit per month”. One book a week is an absolutely real task — if desired. Fifty books a year (well, let it be twenty, or at least ten) is already a serious theoretical basis. One hundred books read are already expert level. Your capital, which is always with you.

— Set yourself real goals: first, survival in the market. If you don’t lose money for three months, it’s not bad. The first, the most important and difficult step, you have made. Stability in the long term is of critical importance. By analogy with chess, a child can also take someone else’s pawn. But winning the whole game is quite another matter. It’s the same in trading: to accidentally catch a powerful trend and take 10% of the deposit is about nothing. It is much more difficult to consistently show a result of 2% profit on a monthly basis.

A few words about brokers

Any advertising is characterized by aggressiveness and exaggeration.

“Drink Coca-Cola!”.

Drink and don’t think. Don’t you see in the ads that those who drink this soda are insanely happy surrounded by cheerful friends? Having calmly judged at least a couple of seconds, it is obvious that a can of lemonade will not make us happy. And this drink also does not have the property of attracting new friends. And that’s for sure. Therefore, a person needs to be emotionally “stunned”: to throw into the consciousness and subconscious attractive images that are not always connected with reality.

We will talk about advertising financial services.

A familiar advertising image: a sad depositor is not satisfied with the amount of interest offered by banks. But then — oh, a miracle! — kind and generous brokerage companies are rushing to help. You are offered to install the application on your smartphone and immediately start trading stocks, bonds, currencies, oil and other financial instruments. Do I need to explain that money should immediately fall from the sky, in bundles of dollars or euros, who likes what? It’s a small matter — you just need to open a brokerage account and poke the buttons in your smartphone. Arbitrarily.

And now let’s get back to real life.

Brokerage companies (hereinafter referred to as brokers) are intermediaries between a person and financial markets. Trading on exchanges is conducted in lots, for example, one standard lot for the EURUSD currency pair is $ 100,000. It is clear that the vast majority of private traders do not have such free money, which means that the road to the exchange is closed for them. Brokers earn money on this by offering a person so-called leverage or margin trading. A person opens a relatively small account, say, $ 1,000. The broker sets the leverage of 1: 100, there are options more or less in the account settings. And a person can trade one lot of $100,000 on the exchanges.

The question is that the broker does not cease to be just an intermediary. Which is not responsible for the results of your trading, does not guarantee profit, does not protect against losses. This is not a bank, although large banks often combine banking activities with brokerage. This is not a bank that is responsible for the safety of your money, although large banks often combine banking activities with brokerage. But a brokerage account is by definition an account for independent trading. It is simply stated in the smallest letters in the contract or public offer, in legal documents that few people read and understand.

Therefore, do not try to be someone who you are not yet.

If this morning you are not an investor or a trader — this is not bad and not good — it’s just a fact. You may also not be a neurosurgeon or a translator from Chinese. And it doesn’t matter how much money surgeons or translators receive, you just don’t have that competence yet.

“Wanting a lot of money” is not a profession.

This is a desire.

Which in itself does not bring money.

It is important to understand that without proper preparation, you will get lost with a scalpel in the operating room or in front of a stack of pages with Chinese text. You will also get confused on the stock exchange, where prices change every second and most often do not go where you would like. Trading is generally one of the most highly competitive professions in the world, according to statistics, only about 2% of participants earn steadily on the exchange.

In conclusion, we will say about those cases when the broker has an offshore registration. You will not be informed about this in advertising, you need to read the notes typed in microscopic text yourself, on the website or in the contract. If you see any Virgin Islands or Saint Vincent and the Grenadines (often the English text is not translated to impress the client with solidity, to present yourself as an international financial company), know that this broker is outside the jurisdiction of your country. You will not be able to apply to the court of your country, they will not accept a statement of claim from you, or they will refuse later.

Therefore, double-check the selected brokerage company according to these criteria, it may save you a lot of time and money.

Skill levels

Unconscious incompetence

The ancient Greeks said:

The beginning is half of everything.

Indeed, the importance of starting in any business can hardly be overestimated, and trading is no exception. Let’s try to figure out what these first steps should be.

From personal experience — I am a private trader in the Forex — I will say this: the first step should start with the truth. In the first place, you should put the correspondence of the chosen type of activity (in our case, trading) to your personality, your character. If we are going to engage in trading professionally (at least — to earn, and not to lose money; at most — to get rich), then let’s think about whether this profession is suitable for us at all.

The question is not as simple as it seems at first glance.

This apparent simplicity (I thought a little, saw a trend, pressed the “buy” or “sell” button, opened a deal, closed a deal, withdrew a profit) is deceptive. Rarely anyone writes about the “dark side of the Moon”, about the strict requirements for the profession of a trader. Most likely, you will not see this in the advertising company. For example: “Put a hundred dollars in the account, get a bonus, buy a trading robot and don’t worry about anything else”. You will not read about this in numerous self-help books on trading, with titles in the spirit of “How to make a million lying on the couch” or “It’s easy to play on the stock exchange”.

It’s easy to play — it’s hard to earn money.

There are a great many professions in the world, but not all are suitable for you. Let’s consider for example three of them: a doctor (surgeon) and an athlete (boxer) and a sniper.

Not every one of us will be able to become a surgeon. Six years of intense study. The study of complex disciplines (Latin, etc.), anatomy lessons in the morgue. And the prospect of cutting a living person (even under anesthesia) and performing some manipulations in his body will not suit everyone. There are also adults who faint from one type of blood — and the surgeon must work for hours in a blood-filled incision… If you don’t squeeze an inconspicuous blood vessel in time, the patient will die, and the doctor will answer. In trading, it is about the same — you will not stop losses in time — the matter will end with the drain of your deposit. Your money. According to statistics, this is exactly what happens to 98% of traders, during the first three to six months of trading.

Or the craft of a boxer. With all the attractiveness of championship belts and high fees — not every person, by nature, will agree to earn a living like this. To stay in the hospital for a long time after concussions and many other injuries. Spit out broken teeth into the boxing ring. To train when you don’t want to. Continue the fight when you can hardly stand on your feet. There is something similar in trading — if a person is not ready to fight and go to the end — it is better not to start.

A sniper needs natural shooting abilities (sharp eyesight, calmness, etc.). Daily training for many years. You need to know your weapons thoroughly. By itself (psychologically), a shot at a living person is not easy and many cannot do it. Psychologically, a shot at a living person is not easy and many people cannot do it. The shooter is sometimes forced to lie for days (for example, in the snow), tracking the target, and all this for the sake of one accurate shot. Professionally engaged in trading, you will sometimes have to “lie down” (waiting for entry into the market or exit from it) no less.

Having made the wrong choice of profession initially, people then regret it. Work turns into a daily torment, devouring all the time, money and nerves. God knows how many arrogant traders who dreamed of big and fast money could not earn. I have heard about trading for 20 out of 24 hours a day, when a person has no time to go to the toilet. And the results of these guys, as a rule, are not high.

They burn every day in the fire of greed, then fear. They spend long hours trying to guess where the price should go. What and to whom the price should be, we will talk more (the correct answer is to no one and nothing). Making up to 500 or more trades per day, these people eventually come to the loss of savings and burned nerves. And it’s also good if these are your savings, excess money. It is much worse when it is the last money in the family or borrowed funds. Acquaintance with collectors or bailiffs — you will not wish the enemy.

There are four levels of skill (competence):

Unconscious incompetence (amateur level)

Conscious incompetence (student level)

Conscious competence (professionalism)

Unconscious (intuitive) competence

This scheme resembles a ladder (climbing from a complete amateur to a real master) and it is applicable to almost any field of professional activity of a person. You can’t immediately get to the third or fourth floor by jumping over the first and second floors — you will inevitably fall and break. As the Russian artist Ilya Repin said:

At first, the artist draws simply and poorly.

Then it is difficult and bad.

Then it is difficult and good.

And only then it is simple and good.

It is important to understand: that being at any of the levels of professional skill we have named is not good and not bad in itself. It’s not a shame and it’s not scary. This is just a fact, the current state of affairs, a reference point. And the worst thing you can do here is try to deceive yourself. To try to appear, not to be.

For example, a five-year-old child suddenly decides to drive a car himself. With a high degree of probability, the case will end in an accident. And this does not mean that the child is underdeveloped, or the car is no good, or something is not working properly. This only means that the person has taken up the wrong business. He took on something that he can’t do yet.

Let’s briefly list the characteristic features of a person who is at the first level — “Unconscious incompetence” — in relation to trading. We repeat that there is nothing to be shy about, in itself it is not bad and not good.

So, from personal experience, I went through all this myself:

— The lack of a clear action plan for any of the possible options for the development of the market situation. A set of simple algorithms “if… then …". Example: a trader expects a bullish trend for EURUSD, and the market (as always — suddenly) goes down powerfully. You need to know what to do. And what not to do.

— The illusion of having any absolutely working laws on the market: “Now it looks like the end of the third wave, which means that the price should… there is good news on unemployment in America, which means that the dollar will go up… statistics on Europe are worse than the forecast, so the euro is sure …". A person who has traded for at least a couple of weeks himself knows the real price of these “laws”. You can’t rely on them completely.

— Fear, based on nothing, at the exit of the trade in the “plus”. With a minimal decrease in profit, the trader recalls the proverb “A small bird in the hand is better than a big bird in the sky”. And he closes a profitable deal with his own hands. Thereby cutting off profit. Which is why we come to the market.

— Intuitive hope (for a trend reversal, for reducing losses without your participation, etc.). All these endless “I think… I think… I think”. Paradoxically, many people can look at growing losses for days, weeks, months. Without taking any active actions, as if under hypnosis, or with his hands tied. Because there is hope: “it seems to me that the trend will turn around”. Sweet false hope.

— Not understanding the importance of commissions paid to the broker (spreads, swaps, etc.). In the long term, these small amounts, cents and dollars, can grow significantly. And to nullify even profitable trading.

Perhaps these five signs are enough. If you have noticed at least one, know that you are only at the very beginning of the way. The most interesting way.

Conscious incompetence

If you are still interested in trading after all this, go ahead.

Let’s talk about the second stage — conscious incompetence.

I think many people have heard about the organization “Alcoholics Anonymous”, at least the name. Recall: this is a non-profit partnership that helps people suffering from alcohol addiction. It helps with phenomenal efficiency. This method is based on the “12 steps” program.

We sometimes see it in the movies. The person gets up and says: “Hello, my name is Jack, and I’m an alcoholic”. The most important first step is to admit your powerlessness in front of the problem. Everything else later. There will not be this first correct step — there is nowhere else to go. If a person sincerely does not see the problem, says: “I sometimes drink, it happens every day, but of course I’m not an alcoholic…” — it won’t work. Many people get drunk and die without finding the strength to admit the obvious.

Let’s draw an analogy with the levels of competence of a trader.

You are a beginner, you are only taking the first steps. Gradually realizing that for some reason there is no permanent profit. In the market, you lose much more than you earn. You make mistakes in your forecasts every day. You are tormented by panic fear, then animal greed, unwillingness to lose even one dollar. As soon as you open an order, a bearish trend instantly turns into a bullish one, and a bullish one turns into a bearish one. The market seems to have taken up arms against you personally, does not allow you to earn a single cent, constantly deceiving you.

Is this a problem? Without a doubt.

What should I do? To begin with, recognize the problem — incompetence.

Everything else later.

The beginning of recovery begins with the recognition of the disease. Any ambulance doctor can tell a hundred stories when people really died, trying, for example, to cure pneumonia — paracetamol, an acute attack with a ruptured appendicitis — aspirin, chronic bronchitis with laryngeal edema — warm milk with honey, etc. These people did not want to admit their problems and paid for it.

Most traders are eliminated at this level. Surprisingly, people can take the “ostrich position” for years. Lose whole fortunes, but never admit to themselves that they have real problems with trading.

The next trap on the way of a trader who realizes that something needs to be changed is the most dangerous illusion that someone will do this work for you. Let’s explain: more competent people can really help you, suggest something, teach you something. This is absolutely normal. But they can’t become a trader instead of you.

But trusting people are beginning to subscribe to paid signals, buy (sometimes very expensive) indicators, look for investment managers (who will earn them 100% profit per month), connect trading robots, the principle of which they do not even understand… This is the way to nowhere. More precisely, to a quick or slow loss of money. Do you need it?

Trading signals will start to fail when the market changes (for example, from a quiet trend to a volatile trend). An anonymous manager will suddenly disappear after draining your deposit. Trading robots will start making losses instead of profit, and you will not even understand what is the matter. Bill Williams wrote in “Trading Chaos” that if there really was a trading robot that consistently brings profit always and everywhere, it would be rented out for at least $ 30,000,000. Per hour, of course. We will make an adjustment for inflation (since the writing of the book) and estimate the cost of this hypothetical lease at $ 50,000,000. For a non-existent robot.

Imagine the following situation: you are in a foreign country, and for a long time. And you need to live and work in these circumstances. What to do? Learn the language of this country. By myself. If you want to survive. Textbooks, dictionaries, translators will help you — but the main work is still yours.

It’s the same in trading. You have found yourself in a new environment (financial markets), where you need to first survive (not go broke), and then succeed (make a profit). Learn a new language for you — the language of the market. There is no other way.

Recommendations:

— Never despair. Having realized your incompetence, think about the fact that you have just made the right first step. The majority (up to 99% of traders) could not do this either. Further improvement is absolutely real. Stable profit generation is possible and achievable. Go forward.

— There is nothing to do in trading without serious self-education. Again — do not look for easy ways — they do not exist. Don’t chase flashy headlines from anonymous authors: “Eight myths… ten facts… five simple steps… a new indicator… a strategy that gives 310% per month…” and similar information garbage. Most often, such nonsense is written not even by traders, but by copywriters who have not earned a cent on the market. Don’t let them earn money from you. Learn to earn money yourself.

— Constantly read professional literature. Without haste, thoughtfully, making extracts, performing exercises. From my personal experience: I realized myself as a professional after about a hundred books I read and several years of constant work on myself. And who said it would be easy?

— Don’t rush things. Don’t set any hard time goals: “I have to become a trader in a year”. This will take as long as it takes. A doctor, before performing the simplest operation, studies for at least six years. Who said that the profession of a trader will be easier? Why on earth would a market with a turnover of trillions of dollars start sharing profits with dilettante? Think about it.

Conscious competence

Let’s imagine a first-grader who wants to get a job and start receiving a salary. For example, to the investment department of a large bank. The desire itself is laudable, but infinitely far from reality. He needs to finish school. Then finish the institute. And when you have some knowledge and experience in your head, tested on numerous exams — then get settled wherever you want.

Everything is the same in trading. It takes time to achieve a professional level, of course, provided that constant efforts are applied. And you will not be able to jump over these steps, do not even try, do not waste your time. Even a capable seven-year-old child will not understand anything in integral calculus, logarithms or Ohm’s law for a section of an electric circuit. And this is normal. He will understand in due time.

However, many novice traders do not understand these simple things. Downloading a trading terminal and reading a couple of books (or even anonymous articles), for some reason, are considered quite a sufficient condition for obtaining a stable profit. Only serious money likes a serious approach. They are indifferent to naive dilettantes.

You need to spend a lot of time and effort watching the market, noticing market vulnerabilities. You need to trade, try, make mistakes. Read and reread the necessary books. And only then, for those who did not give up, who found the strength to get up after falls and disappointments, a new facet of skill opens up.

It is typical for a modern person to count on the rapid achievement of goals. Advertising actively exploits this psychological vulnerability. We are offered to become slim and muscular in a couple of weeks by buying a subscription to a fitness club. Or chew a new piece of gum and immediately get rid of caries. Or be insanely happy by drinking lemonade of a certain brand.

This primitive cunning is also present in trading. Just today I saw an advertisement for training a trading strategy, the use of which is allegedly able to bring 4000% (!!!) profit per month. The person who receives such a profit is an incredibly modest guy, he was even ashamed to open his name and lay out the trading history…

Learn to set real goals, do not chase millions and billions of dollars at once, everything has its own time. Your initial task should be to survive in the market. Everything else later. If you have not lost money for several months in a row, you can congratulate yourself — after all, you have reached a level that 95% of traders cannot overcome. This is a great result for a beginner.

After reaching the break-even stage, start working on gradually increasing profits. Again, thinking about the real size of earnings, and not about money waterfalls. A profit of 1% per month is a success. Even a stable monthly profit of 2% is an excellent result. This is how much Warren Buffett earns from the 50s of the last century to this day.

Or are you smarter than him?

When calculating interest on interest — without withdrawing funds from the deposit — the progression generally works wonders. Check yourself on the calculator, taking your trading account as a starting point. How much can you earn in five years at 10% per annum? And in ten years? Surprised?

For your information, investment managers of large hedge funds and major banks are simply happy if they manage to earn 15% per annum. As one major investor said:

“Their names are forever in the financial hall of fame”.

Recommendations:

— Do not relax, even after reaching the level of conscious mastery. There is always somewhere else to grow. Even steadily making a profit, from month to month, from year to year — never consider yourself smarter than the market. This is the most dangerous mental trap. Repeated financial crises every ten years (or more often) can suddenly and crushingly correct such self-confidence. Traders who survived the crash of 1987 recalled that the market then opened far beyond the level of the established stop-loss. Just “jumping over” them all in one fell swoop. In such a stalemate, stock market players can only look at the losses.

— You should never stop working on improving your trading system. This is by definition an infinite process. Markets tend to change, and what worked perfectly yesterday may not work at all today. Observation, constant self-education, creative thinking — can not but give birth to new trading ideas. You will begin to notice more and more new market vulnerabilities. And use them to make a profit.

— Do not try to embrace the immensity — to profit from every price movement in any direction. It’s impossible. Our task is to get a decent profit on obvious trends. It is enough to be on the right side of the market even for 50% of the “life” of the trend. For example, if a short-term bullish trend lasted for a week, and you held long positions for two or three days — great. This is more than enough.

Unconscious (intuitive) competence

Once upon a time, a young Russian scientist Peter Kapitsa (future Nobel Prize winner in physics) I was at an international technical exhibition. It was in the first half of the XX century. Then the United States presented a technical novelty — a complex electromechanical device. Suddenly, right during a demonstration in front of the public, this pride of American engineering broke down. It was not possible to perform repairs on their own.

And then someone suggested: “Among us is the great Russian scientist Kapitsa. He will surely be able to fix it, he is a genius!".The price for repairs was promised at that time huge — a thousand dollars. A lot of money.

The physicist accepted the offer and asked to bring him a hammer. He carefully walked around the unit from all sides: looked, listened, thought. Then he swung and hit a certain point. The device immediately started working. The manager of an American company paid the promised amount (for comparison with today’s prices, you need to multiply by about thirty — we get $ 30,000).

For a report to the accounting department, he asked to give him a receipt for receiving money. And an estimate for repairs with a list of completed works. Secretly hoping that Kapitsa would be ashamed to take the entire amount for such a small effort. Just one hit.

However, the scientist was not confused by this request and he wrote on a piece of paper:

Receipt

I have received US $ 1,000 according to the estimate for the repair:

Hammer blow — $ 1

Determination of the place of impact — $ 999

This seemingly simple blow concealed a huge amount of experience and knowledge.

Intuitive trading is the last stage at the end of a long and correct way. And it will not be achieved in a short time. You will not be able to jump over the steps (skill levels). First you need to understand that you know almost nothing and do not know how. Then you will learn a lot, gain experience, including unsuccessful experience. And only then, perhaps, an intuitive understanding of the market situation will appear.

Intuition is an unconscious skill. Jesse Livermore wrote about intuition in trading, being already a millionaire, after decades of stock trading. Jesse Livermore wrote about intuition in trading, being already a millionaire, after decades of trading on the stock exchange. George Soros wrote about the same thing, after successfully managing his multibillion dollars investment fund for many years. If you do not have at least five break-even years in the world of professional trading behind you, do not rush to become on a par with the people mentioned above. It’s too early for you.

A novice boxer who knocked on a pear for a couple of months and imagined himself ready for a fight with Mike Tyson is not just ridiculous. Dangerous to himself. He will lose with a probability of about 100%, and it’s still good if he stays alive and well. To begin with, the right step is to train like Tyson.

Mike recalled in his autobiography “Undisputed Truth” that after training, he did not have the strength to walk, and… he was crawling to his room. He lived at that time in the house of his coach Constantino “Cus” D’Amato. He had to crawl from the first floor, where the gym was located, to the third floor. And only then, after long and hard training, Mike defeated opponents in the ring in a matter of seconds. Most often — a direct blow to the chin. The simplest intuitive movement.

And yet, every trader (beginners even more often) has encountered one or another manifestation of intuition. Many people are familiar with the feeling when, without any clear reasons, it seems that the trend is about to unfold. Or vice versa — it will continue. The irrational principle is generally very strong in a person.

So, in order not to lose profit, you need to fix it right now. Then it will be too late! But after the order is closed, the price moves in the right direction by 3,000 ticks. Or the same trick with losses: it seems that the trend is about to turn around, and the losses will definitely turn into profit. We need to be patient a little more, and more, and more… This may result in “margin call” (lack of funds on the trading account) or “stop out” (forced closing of positions).

Fight with such “intuitive insights” as with the worst enemy. Otherwise, these fantasies will ruin you. And it will no longer seem to you that there is nothing on the deposit. The trading account will indeed be empty.

Recommendations:

— Over the years of practical work in the market, I can say that it is before a powerful price movement that the temptation to close a position will be especially strong. And before a catastrophic increase in losses, it will seem to you that you should not accept losses. As if you need to wait another five minutes (an hour, a day, a week) and the trend will surely unfold. Use these unprofitable illusions to your advantage. When “hands itch” to close an order with a small profit — by an effort of will, breaking yourself, turn off the trading terminal. And just take a walk for a couple of hours. With a high probability, the profit will significantly increase. Try this. You’ll like it.

— Of course, not every one of us is Peter Kapitsa or Mike Tyson. Think about it, for example, how many doctors are there in your city? Many. And how many doctors are there from God who are able to put an almost hopeless patient on his feet? Few. How many school teachers are there in your city? Many. And how many outstanding teachers who are able to interest students so that they do not want to leave the lesson? Few. And this is normal. True talent has always been a rare phenomenon.

— It’s the same in trading: you’re not Livermore, Buffett or Soros. Do not try to appear to be someone who you are not. To reach the level of a professional (steadily earning, and not losing in the market) is quite an achievable task. For anyone who has the determination. Determination to learn every day. The determination to fall and rise, to make mistakes and correct them. And the most important thing is the determination to change.

Step by step

Demo or real account?

Trading starts with a demo account.

Although there is a dismissive attitude towards trading on demo accounts among many traders. This is considered a frivolous occupation, a waste of time, pampering. Let’s allow ourselves to disagree with this.

You can’t do without this first step, at least in order to understand the trading terminal, learn how to open and close orders. A huge advantage of a demo account is the complete absence of risk. Whatever happens there, up to the loss of all demo money, it will not affect your real wallet in any way. If you have a virtual million dollars in your account, after a couple of months you have leaked it, then you won’t even shed a tear. Again, this is a huge advantage that should be used.

On the other hand, the deceptive ease and lack of risk, taken for granted on the demo, can play a cruel joke with the trader. The illusion of simplicity often pushes a person to hasty actions. We really want to skip the demo, this most important preparatory stage, and immediately start earning.

Trading terminals and mobile applications are now intuitive, and a schoolboy will understand them without any problems. And after a couple of days of training on the demo, a person already thinks of himself as a professional who is ready to rush into real stock trading, but…

Don’t forget: “The beginning is half of everything”.

The demo is this beginning, the first step into the world of professional trading. Like training before a competition or studying at school before going to university. No professional athlete in his right mind would call training nonsense — because competitions only sum up long training sessions. And it is difficult for someone who trained carelessly to count on a prize place (making a profit on the market).

The skills and experience necessary for stable profit — making should be sought precisely at these market trainings. And take them seriously, although it resembles a demo computer game: installed, played, tried, switched to real. Not hurry.

The importance of this stage cannot be overestimated, because working on demo builds your trading skills. If you get used to sloppily, without careful preliminary analysis, opening and closing transactions — drag this ruinous habit to a real account. You will get used to moving stop-loss, obeying momentary whims — you will move them on a full-fledged trading account. You will begin to close profitable trades at the slightest price pullbacks — in the same way you will stop the flow of profit on a real deposit. You will look at the growing losses without killing them at the very beginning, you will get used to it, and with a high degree of probability — in the future it will ruin you.

Do you need it?

Therefore, trading on demo should be treated as seriously as on real. Conduct a full-fledged fundamental and technical analysis of the selected financial instrument. Keep a trading diary. Do not be lazy to perform calculations and current records (lot size, number of open orders, stop-loss and take-profit settings, etc.). Fighting for every virtual cent on your demo account is an essential skill that will help you out more than once.

In trading, as in most other processes, haste is not appropriate. The case needs to be given time to ripen and bear fruit. As Warren Buffett says:

Even if you are very talented and make great efforts, some results just take time: you won’t get a baby in a month, even if you get nine women pregnant.

And if your results on the demo leave much to be desired, it’s just too early for you to switch to real account, no matter how much you would like it. It will take as long as it takes. If you come to stable profitability on the demo in three years, then that’s exactly what you need. In five years, that means in five years. This is better than rushing into the real market in a week, absolutely not ready.

And just give the broker your money.

The correct sequence of professional growth:

Demo account (100% profit with a drawdown of no more than 30%)

Cent account (similar benchmarks)

Real account of $1000 or more (without restrictions on the result)

If you “stumbled” at a certain stage, go back. For example, you did not cope with the cent account, practice again on the demo. And don’t set any deadlines: “in a month I have to” or “by the end of the year I plan to earn so much and buy this and that.” The market is not going anywhere from you. The market will be in its place tomorrow, and the day after tomorrow, in a year and in ten years. Whether you will be in the market with money by then is a question.

To sum up: trading on demo should be treated as seriously as if your real money was at stake. Moreover, there is absolutely no difference in appearance. The same trading terminal, price movement charts, financial instruments, stock quotes changing every second. And the same numbers in the columns “Balance” and “Profit”, depending only on you. The whole difference is in our heads. Therefore, calmly, without haste, with pleasure — learn to make money.

From this thought, we can deduce the following: when trading on real account, work like a demo. Detached and without unnecessary unprofitable emotions. Think of money as numbers that you need to increase a little by constantly doing the right things. Even for a professional trader who has been managing a lot of money for many years, it is useful to imagine that you are trading on a demo.

Michael Bellafiore’s book “One Good Trade” describes a technique adopted by a professional prop trading company: a trader showing unsatisfactory results is temporarily transferred from real account to demo. When the results improve, the person gets real money back into management. Smart move. Try this.

Recommendations:

— Even if you have been trading on a real account for a long time — do not forget about the demo. It is an indispensable tool for testing new trading systems. For example, you are working with a market chart M-15 or H-1, the average duration of transactions is several hours or minutes. Try a demo of a long-term strategy: when open positions are held for weeks, months, years. Maybe you’ll like it.

— If you need to test a new indicator — similarly. Do not rush to put a new and yet untested tool directly into a real account. Try it out on a demo where you don’t risk anything.

— A simple rule: when trading on a demo, imagine that you have a real account in front of you. When trading on a real account, imagine that you are on a demo. This creates both a sense of responsibility and mental emancipation.

— Considering all of the above, understanding all the advantages of a demo account, remember that it still won’t bring you real money. An athlete cannot train endlessly, someday he will have to show his skills in action. Competitions for a trader are trading on the real market.

Online prices

Scientific fact:

Measurements of psychophysiological parameters in gamers (computer players) have shown that the load on the human brain during a computer game, in terms of intensity, is comparable to the load on the brain during solving a complex mathematical problem.

And another one:

In the course of studies of the behavior of 1,000 adults conducted by the University of London, it was found that regular e-mail correspondence and text messaging in social networks (online) reduce the level of intelligence and indicators of mental activity of a person more than regular smoking of cannabis.

Probably, the mental dependence on the constant monitoring of market quotations causes the same problems. If not worse. A trader who has been sitting at the trading terminal all day looks like a squeezed lemon. Nervous tension exhausts a person more than physical exertion.

But trading has not always been the way we know it now. Technical opportunities arise and develop, but the essence remains unchanged — it is the purchase or sale of financial assets in order to make a profit. By analogy with mail: not so long ago, writing a letter on paper was the norm, then sending and waiting for a response for weeks or months. Today there is no need to wait, or to have a pen with paper, an electronic message will be read in a second thousands of kilometers away. But the essence remains the same — the exchange of information between people — only the speed of the process has changed.

How did traders trade before, say, fifty or a hundred years ago? A very small part of the people who bought a place on the stock exchange for a lot of money worked in the so — called “pits” — exchange halls. The majority of ordinary people (and in America, already at the end of the XIX century, the game on the stock exchange turned almost into a national tradition) turned to brokerage companies, whose offices had telegraphs and boards for recording quotes.

Until relatively recently, in the 80s of the last century, only a very rich person or a brokerage company could afford a quotation machine with real exchange prices. The rest of the people made do with information from newspapers.

Did it prevent you from making money on the stock exchange? It turns out — it did not interfere at all. Jack Schwager’s book “Market Wizards” mentions the story of an investor who lived somewhere in the mountains of Idaho, who learned quotes and gave orders to a broker… once every few months. He didn’t even have a phone or a radio. And this unhurried man almost never lost.

We can hardly believe it in our times of universal availability of almost any information. Including stock quotes online. Many are sincerely convinced that the job of a trader actually consists in constant monitoring and prompt response to any market sneeze. Some people even put themselves on four or even six monitors, spending most of the day behind them.

Most often, these people earn red eyes from fatigue, busy days, burned nerves. And ultimately, over a long distance, it is a decrease, not an increase in the trading account. In his books, Dr. Alexander Elder writes that “live prices” are definitely harmful for beginners in the market.

Because the main thing in trading is making decisions. Trading terminals, analytics, indicators — all this later. These are just tools. But it is your head and psychological stability that are the most important elements of successful trading.

And what kind of stability can we talk about if after a day spent at the terminal (and often at night, for example, the Forex market works around the clock), the trader hardly thinks? When, instead of a clear understanding of the current situation, there is “porridge” in my head? When do you react to every bullish or bearish candle as the beginning of a trend or a pullback, and start acting feverishly?

Many people are familiar with the situation when, in hindsight, you evaluate your own actions in the market with sincere surprise. You look at yesterday’s deals and think:

Well, here is an obvious bullish (bearish) trend!

How could I see the beginning of the reversal here?

Where did I go at all, because I could have safely taken 100 points of profit if I hadn’t interfered with myself…