Personal Development for Smart People Forums - View Single Post

FXTraderWill · 11-09-2006, 06:27 AM

Toasterwater,

what you are doing now is almost bound to fail. I think you're seriously underestimating the amount of commitment required to "make it" in the stock market. It's fun to buy a stock, watch it go up, and pat yourself on the back for being an intuitive genius because you just KNEW it would go up, like you're doing with GE, but trust me when I say it won't work.

You say you've read a lot on the stock market, yet from reading about your approach, I can't help but wonder exactly what you've been reading. You don't seem to have a firm grasp of the most important principles of risk mangement yet. Do you have a stop loss in on your GE trade? If not, at what level will you get out? How much will it go against you?

If you ask the world's greatest traders if they'll win on their next trade they will tell you they honestly don't know. The "game" is just to find a method that you can consistently apply that generates a positive expectancy - you can lose more trades than you win, as most pros do, so long as your winners outnumber your losers by a lot.

Some people will say 'oh but you're just talking about trading principles, this guy wants to learn to invest.' Pooey. Investing is just trading on a long timeframe.

So what can you do to succeed?

First, determine your objectives and align yourself with reality. You will not get a "decent game plan" in 45 days. Learning to beat the stock market is a skill that, once you have, you can leverage and make millions with - annually. It won't come in 45 days. If you want to make a living from the stock market, you'll have to totally change your approach and read some books on trading, then determine your daily ritual and follow it, keeping a rigorous trading diary until you can get the results you want on a consistent basis.

If you want to learn to invest on a longer term, I must say you'll have a hard time beating the regular market and you are best off joining an index fund or using your money to buy a stock that mimicks an index - like SPY. (If you don't know what an Index is, please take all your money out NOW and do more studying). 80% of mutual fund managers - professionals who make a living getting paid to beat the market - fail to outperform the S&P 500. Remember that. It's doable for a small investor - the reasons they fail are mainly that they have too much money to invest and they have to overdiversify, but it's extremely difficult. If you aren't prepared to spend hours reading through company balance sheets, reading SEC filings, looking through insider transaction reports, and determining without cognitive bias the likely future of the company AND how the market is valuing it (remember, the goal is not to buy a good company but to find a company that is mispriced relative to its "intrinsic value" - buying a bad company that the market is punishing too harshly for being bad is more likely to yield you profits than buying a good company that everyone and their mother already owns), you should pursue a passive strategy.

If you just want to have fun, that's fine, but don't lie to yourself and think you're doing anything more than blindly gambling: you're not. It's OKAY, so long as that's what you want.

11-09-2006, 06:27 AM	#33 (permalink)
FXTraderWill Junior Member Join Date: Nov 2006 Posts: 22	Toasterwater, what you are doing now is almost bound to fail. I think you're seriously underestimating the amount of commitment required to "make it" in the stock market. It's fun to buy a stock, watch it go up, and pat yourself on the back for being an intuitive genius because you just KNEW it would go up, like you're doing with GE, but trust me when I say it won't work. You say you've read a lot on the stock market, yet from reading about your approach, I can't help but wonder exactly what you've been reading. You don't seem to have a firm grasp of the most important principles of risk mangement yet. Do you have a stop loss in on your GE trade? If not, at what level will you get out? How much will it go against you? If you ask the world's greatest traders if they'll win on their next trade they will tell you they honestly don't know. The "game" is just to find a method that you can consistently apply that generates a positive expectancy - you can lose more trades than you win, as most pros do, so long as your winners outnumber your losers by a lot. Some people will say 'oh but you're just talking about trading principles, this guy wants to learn to invest.' Pooey. Investing is just trading on a long timeframe. So what can you do to succeed? First, determine your objectives and align yourself with reality. You will not get a "decent game plan" in 45 days. Learning to beat the stock market is a skill that, once you have, you can leverage and make millions with - annually. It won't come in 45 days. If you want to make a living from the stock market, you'll have to totally change your approach and read some books on trading, then determine your daily ritual and follow it, keeping a rigorous trading diary until you can get the results you want on a consistent basis. If you want to learn to invest on a longer term, I must say you'll have a hard time beating the regular market and you are best off joining an index fund or using your money to buy a stock that mimicks an index - like SPY. (If you don't know what an Index is, please take all your money out NOW and do more studying). 80% of mutual fund managers - professionals who make a living getting paid to beat the market - fail to outperform the S&P 500. Remember that. It's doable for a small investor - the reasons they fail are mainly that they have too much money to invest and they have to overdiversify, but it's extremely difficult. If you aren't prepared to spend hours reading through company balance sheets, reading SEC filings, looking through insider transaction reports, and determining without cognitive bias the likely future of the company AND how the market is valuing it (remember, the goal is not to buy a good company but to find a company that is mispriced relative to its "intrinsic value" - buying a bad company that the market is punishing too harshly for being bad is more likely to yield you profits than buying a good company that everyone and their mother already owns), you should pursue a passive strategy. If you just want to have fun, that's fine, but don't lie to yourself and think you're doing anything more than blindly gambling: you're not. It's OKAY, so long as that's what you want.