Learning to Trade is Like Learning to Drive
Learning to Trade is Like Learning to Drive
Hello traders! For this post, I was a bit torn on how to present the idea I had in my head. At first I wanted to use a lot of golf comparisons instead of car driving analogies, but after talking to a couple of my recent students, I realized that nearly everyone can relate to driving a car while not so many can relate to learning how to play golf. Get it? Learning how to "drive?" Puns and golf humor are truly hysterical.
In nearly every class we have at Online Trading Academy, there are students who have never engaged in the markets before. While getting an education with us is the best thing that a beginning or unsuccessful trader can do, occasionally a new student will think that there is a magic wand that we can wave which will make someone a successful trader. "Abracadabra, you now know the Holy Grail; next week you will make $1000 a day trading!" I wish it was that easy! After a five, six, or seven day class with Online Trading Academy, the new student has been given a HUGE amount of information about the marketplace. It may take a few days for all of that information to sink in and be sorted out in an easily accessible way.
Think about it like this. Remember when you first learned to drive a car? Did Mom or Dad give you the keys to the Ferrari and say, "Get out there on the highway and do 150 MPH!"? I doubt it. I learned to drive in a 1972 Plymouth Satellite with a black vinyl bench seat and automatic shifter on the steering column. Sorry guys, it wasn't a hemi. My dad took me to the local high school parking lot and after about 10 minutes of adjusting the seat and mirrors, I finally was able to shift out of Park. No touching the gas though! Just let the car move itself and get used to the steering going 3 MPH. Push the brake, get used to the feel. After a few minutes of that I was finally instructed to gently push the gas pedal, but not too hard! After what seemed like an eternity, we finally made it out onto a side road where I was terrified of this giant pile of metal and the amazing speeds we were hitting. Looking back, I know it was probably 15 miles an hour.
What about today? After several years of driving, most people have no problem doing 80 MPH while adjusting the radio, drinking coffee, chastising the kids and updating their Facebook status at the same time! No, I don't condone this level of multi-tasking!
Trading has a very similar learning curve. In the beginning of your trading career, you SHOULD be afraid of the potential damage that you can do to your own money! The professional traders out there don't care about you; they just want to take your hard-earned dollars. My recommendation is to trade very small position size, if not even on the demo (practice) account. While trading on demo has its benefits (can't lose real money, can get used to what all the buttons do, etc.), nothing moves you up the learning curve faster than trading your own live money in the market.
After trading very a small position size (for example 1 mini lot) for a few days or weeks, now it's time to move up to 2 minis. Trade that for a few days or weeks, then 3 minis, etc., etc. The reasons for building up slowly are many but I will highlight a couple here:
Get confidence in your ability to read charts. In my opinion, charts are pretty easy to read - all you can do is buy, sell or wait. If the price isn't at a good level of supply or demand, you must wait. Easy, right? Once you've seen several hundred or thousand charts, much of it will start to seem familiar. Much like driving a car! Most of us can drive in California or Texas or Florida or wherever. Why? Because it all works pretty much the exact same way. So do charts.
Build a buffer around your emotions. The market doesn't care about your position size. A 50 pip move on a mini lot in the EURUSD is only $50. But a 50 pip move on 5 standard lots is $2500. Does the market care about your position size of 5 standards? NO. The only difference is how the larger position size affects YOU. Building up your position size slowly allows you to not be emotionally affected by the massive changes in the profit and loss column from trading larger sizes.
Eventually, even the new trader or driver can do things that would have seemed unimaginable just a few short weeks ago. In driving, you can take advanced driving classes to learn how to navigate foul weather, high speeds, etc. At Online Trading Academy, you can enroll in the Extended Learning Track program, re-take your classes, read these newsletters, play the Hard Right Edge game, etc. All of these things will help your confidence and move you up the learning curve to where multi-tasking - trading multiple trades, asset classes, etc. - become second nature to you.
Until next time,
Rick Wright
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