What I Wish I Knew When I Started Trading
Brett Steenbarger started a new series of posts a couple weeks ago which revolve around Lessons Learned Along the Way – kind of a “what I wish I knew…” collection. He’s got a couple of his own posts in the mix and has collected a few from other bloggers as well. Along those lines I have been thinking about the mistakes or misconceptions I had when I started trading. It’s a tough question both because it was so long ago (20+ years) and because things have changed considerably for individual traders since then in terms of what and when they can trade, the access to information, and the tools available. For the benefit of current readers it wouldn’t make a lot of sense to talk about something which really isn’t relevant anymore.
To that end, I think the most important early lesson of my trading career was Don’t Make Trades Based on Other People’s Ideas.
As is the case with many new traders, I was heavily influenced by what others suggested. I actually took a college class which was taught by a local stock broker. Inevitably, I ended up playing some of the stocks he talked about in class. I also had a couple of ideas of my own (I seem to recall a bond trade I did around that time), but a lot of what I looked at and played came from other people. It wasn’t until a couple years in that I realized those trades did not do anything for me. Some of them may have made money, but I think at best overall they were net neutral.
I’m not saying my own trades were all profitable, mind you. They certainly weren’t. It wasn’t until I completely stopped playing other people’s ideas and starting applying my own technical analysis that I actually began to see a modest level of net success. Don’t take this to mean I think everyone should uses technical analysis. Rather it was about me finding a methodology which fit my personality and way of looking at things.
Also, the “don’t take ideas from others” is not meant to imply that partner trading is to be avoided. I have actually had times when ideas that myself and someone else shared and discussed were quite profitable. That came later, however, when I was already well set with my approach to market analysis, so I wasn’t influenced by the other guy’s ideas but rather could look at them critically. If you can find someone with a complementary way of viewing the market then working together can be extremely rewarding.
To this day I am careful reading or listening to other people’s market analysis because it can mess up my own. I do so mainly to use it as a guage of what people are thinking rather than to help develop ideas or strategies from it.
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