Experience.
The one thing you can’t buy. The one thing you can’t transfer from one trader to another. The one thing that’s impossible to monopolize. And finally, the one thing that I would love to bottle up and monetize.
The acquisition of experience is a time consuming process with few short-cuts. Like the never ending story it’s a saga that goes on and on and on. Sadly, many traders inflict significant damage to their trading accounts before they even have a chance to learn all the necessary lessons. It’s interesting to see the vastly different conclusions drawn by newer traders depending on the market’s behavior in their first few months of trading. Trading in an ever-rising market may lead to overconfidence and the belief that trading is silly easy. Trading in a choppy, volatile market may lead to doubt, discouragement, depression, and the belief that trading is impossible. The truth and the right mentality lies somewhere in between.
While the acquisition of experience is a drawn out process, traders have a variety of tools at their disposal to speed things up.
1. Back Testing – There are numerous platforms available offering the ability to enter theoretical positions and see how they behaved under past market conditions. If you want to stress test one of your bull market strategies to see how it would perform in neutral or bearish environments, back testing may be the answer.
2. Paper Trading -Traders can also take advantage of placing numerous paper trades to accelerate the learning process. Let’s say you want to learn how to trade covered calls. Instead of trading one a month, how about trading three or four (or more) in a paper trade account. You’ll be able to experience that many more trades in the same period of time.
3. Exploit Books & Blogs – Learn from the experience of others. Since no one has a monopoly on trading knowledge you can find intriguing ideas and pearls of wisdom from a variety of sources. Find out how others have successfully navigated different market conditions.
For related posts, readers can check out:
Stock Market School Beginnings
The Risk Management Game
Sometimes I’m Infected By the Stupidity Virus
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