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The Secret Sauce: What it Takes to be a Winning Trader

We all have aspirations of buying into the next Apple or Amazon for a few dollars or even pennies a share.  The problem is the waiting, we all want that return tomorrow.  Take a look at the charts for Amazon and Apple below; a $10,000 investment 15-20 years ago would make you a millionaire now.

I want you to understand something right now, no one knows what a stock will do tomorrow.  Apple is an industry leader with revolutionary products.  One of Apple’s most successful products was the iPod.  It’s mostly obsolete now but they were all the rage in the early 2000’s.  Do you remember the Zune?  That was Microsoft’s competing product, it was a total flop.  Had the Zune become the dominant product, Apple might never have achieved all the success that the iPhone and iPad have brought it.

AAPL was able to build off its success and start the smartphone as we know it today.  Without that initial success of the iPod, we might only remember that AAPL built the first personal computer  then competed with HP and Dell in the personal computer market.  Instead, we have a revolutionary company that leads the tech sector in innovation.

One more thing to note on these charts, look at the dips that occur as the stock price rises.  Some of the dips are 10-15%.  Not everyone has the nerve to ride this roller coaster for this long.

Investing vs Trading

The INVESTMENTS in Amazon and Apple could have brought you fortune if you were able to accurately predict the future 15-20 years ago and had the discipline to hold the stock even during down times.  Trading is very different than investing.  While both are essential parts of the market, but they have very different requirements.  Investing requires patience and diversification.  Trading requires you to be able to gauge reactions in the short term.  The topic of trading v. investing is more complex and I have addressed it further here.

Ok enough is enough, I promised you the secret to profitable trading.  I can bore you all day with definitions and charts.  What does it take?

The Winning Trader

Nothing worth having in life comes easy or fast.  So if you are expecting to stand on your left foot and jump three times and trading success will arrive please stop reading and find another scheme.  The secret to being a winning trader is experience.  Not a special formula or chart overlay.  No amount of artificial intelligence or reading will make you a winning trader.  If you want to learn to trade and get good at it, you must start trading!  That’s it!  Simple right?

Simple, yes, but long, tedious and excruciating.  You will lose money at some point, guaranteed; maybe not your first trade and maybe not in your first week.  The key is to manage your money and manage your risk.  Managing those two items takes, you guessed it, experience!  Before starting this journey I read Toni Turner’s A Beginner’s Guide to Day Trading (follow the link to get a copy for yourself).  She spent the first 4 chapters talking about the mental game of trading.  It wasn’t until chapter 5 that she discussed actual trades and actual stocks.

Trading is a very emotional game and if you have read enough of my earlier posts, I have plenty of tales to tell about losing money when I let emotion get in the way.  You must condition yourself to detach from the trades.  Forget that the money you are trading with is real and your own.  You must concentrate on making good trades and then you will become a profitable and winning trader.  The discipline is only achieved with experience.

Your Next Step

Start trading!  Open a FREE account with Robinhood and start trading for free!  The money is real but they don’t charge any commissions.  I have a full review of the platform here.  Follow this link and when you sign up and make your first deposit you will receive a free share of stock!  What better to start off you trading endeavor than with a guaranteed profitable move?

Thanks for reading and happy trading!  Follow this blog for lots more insights and lessons.  Follow me on Twitter for live trades.

Investors and Traders: Why We Need Both

Investors and Traders are both vitally important parts of the financial market.  Investors give stability to the market and don’t care much for the day-to-day swings.  Traders only care about the day-to-day swings and have ways to make money either way whether the prices are going up or down.  So which is better?  What should you do?

The Truth

Only you can decide what you should do.  The market needs both investors and traders.  One would be in trouble if the other didn’t exist.

Investors

Investors leave their money in the market and in the stocks they have invested in.  If there were only investors, you would have a hard time selling your shares when the time came.  Traders give the market liquidity and provide investors with a sense of comfort knowing they can sell their shares at any time and there is always a trader standing by ready to buy them.

Traders need the investors to provide stability to the marketplace.  Image if every share of every publicly traded company was in play every day.  The swings would be outrageous and horror stories would far outpace the triumphs, scaring off would-be traders.  The stock market provides a way for companies to raise cash.  If no one was willing to buy shares of a new IPO, the economy would stop growing, at least at the rates we have become accustomed to.

Traders

Trades give the market liquidity and it gives investors confidence that they can sell their shares when the time comes.  Without liquidity in the markets, investors would not put their money in because they would not be sure when, or even if, they could sell their shares and get the money back out.  Traders buy and sell billions of stocks every day.   Most shares are sold to and from other traders, but some to investors who will hold longer than the traders.  Knowing that traders want to buy and sell these shares every day gives confidence to investors that when they decide to sell be it a week, a year or a decade, they know there will be a trader waiting to buy the shares the investor no longer wants.

Which are you?  Which do you want to be?  Do you even have to choose?

Decision Time

Good news, you don’t have to decide.  I am both a trader and an investor and there is nothing stopping you from doing the same.  I have multiple accounts and use each one differently, one for investing, one for trading and one for both.  htere are long-term investing strategies and short-term trading goals.  Here is how I use my accounts.

The Accounts

My IRA (Individual Retirement Account) is my investing account.  Currently, I have about 75% in an S&P 500 index fund.  The other 25% is in a cannabis ETF.  ETF, Exchange Traded Funds, are a great investment tool and will help you capitalize on the growth in the market without taking on risk that individual stocks contain.  Now, with less risk comes less reward, but that’s OK.  This account I am growing quietly for my retirement and I want it to stay healthy even if the rest of my trading efforts crash and burn.  Learn more about ETF’s here.  Every week I contribute $105 to this account to maximize my tax benefits.

I use my Robinhood account for trading only.  Nothing I hold here is for long-term gains. It is for short day trades and swing trades only.  I am trading with small stocks only as I attempt to take a small investment of around $9 and see what I can turn it into.  The second purpose of this account is to train me to make the right moves and apply those skills to my last account. I share every trade I make as I make them, follow me on Twitter for live trades!

My Etrade brokerage account is used for both trading and investing.  I am holding two stock, LOW and SGMD for long-term growth potential.  You could buy LOW for $14 per share back in 1999 and it continues to grow today.  This week it is near $96 per share.  SGMD is a long-term hold for me because of the huge potential upside.  SGMD supports the legal cannabis industry and I expect it will explode in the next several months to years.  The rest of the cash and margin (borrowed money) I use for swing and day trades.

Click here to see where my accounts currently stand, this page is updated weekly.  Don’t forget to follow me on Twitter for live trades!