Online Trading - A Common Problem for Traders

I found your most recent video interesting and intriguing. However, I differ in opinion regarding the analysis of your subscriber’s problem since I too have experienced this very same problem in past trading.

My first experience in trading was many years ago when I had little experience and even less money. I traded everything. Options, Futures and Stocks. I loved the game but invariably I had consistently bad results. Like the gentleman you describe, I had every confidence when implementing my trades but inevitably found myself an extremely nervous trader as the trades played out.

Looking back on my trading experience I had two serious problems. In the first place I was woefully under capitalized. This made me an extremely nervous trader. My problem was not that I would stay in a trade too long, but that I would pull out too quickly because I was afraid the trade was going bad.

Jesse Livermore wrote in his book “Reminiscences of a Stock Operator” “It never was my thinking that made the big money for me. It was always my sitting.”

This was an insight that gave me pause for thought. In order to be successful in trading you have to have patience and confidence that your trade is going to work out.

There were several problems: The first was that I was a poor gambler. I thought I could handle risk but I realized that in fact I wasn’t great at handling losses. The second problem was related to the first problem. I couldn’t really afford to lose the money I was trading with. The third problem was not that my analysis was wrong, but that I lacked confidence in my trading ability.

Incidentally, it is worth noting that my first foray into the markets was back in the late 80’s early 90s. After consistently poor results I gave trading up and became convinced it was impossible to make money in the markets.

Years later, in fact, just last Summer I got interested in trading the markets again. I’ve always kept an eye on things and in fact, learned quite a lot in my initial forays into the markets.

In the intervening years, the internet and the technology had revolutionized the investment and trading arena. In the first place, information was much easier to obtain over the internet. Research now is far less laborious and time consuming. The second thing that has changed is that commissions have plunged dramatically. Therefore, it is much easier and practical to get into and out of trades without incurring huge transaction costs. The third revolution is development of internet based trading accounts. As you mentioned in your piece this enables novice traders to paper trade much more effectively. And one of the most powerful and effective trading platforms is through Options Express. I recommend them highly. In the first place they will allow you to set up a virtual account for free and “paper” trade” as though you were trading real money for as long as you want. It doesn’t cost anything and most importantly allows the novice (and even experienced trader) to gain valuable experience and instill CONFIDENCE in one’s trading ability.

Jesse Livermore also said in his book, “that it never bothered me to lose money” and this is another important quality that a successful trader must posses. In order to be a successful trader you have KNOW that you are going to get a certain percentage of your trades wrong, yet, in spite of this fact, that your trading activity will be profitable because you have a systematic approach that works, and the intuition that you have developed as a trader is sound.

Nowadays, when I make a trade, I will make trade with the following philosophy, “lets see if this approach works…” and if the trade is going against me I will say to myself, “hmmm? Is it time to get out? Maybe I should give it a few more points before I abandon the trade.”

I am no longer afraid of losing money, because I have gained the confidence and know that even though I might have a bad string of trades eventually my instincts and experience will bring my capital back.

Need less to say, your past blogs about having a consistent approach and not committing a large percentage of your capital to any one trade are essential cornerstones to successful trading.

So, my recommendation to your subscriber is two fold. Firstly, put your trading capital into a money market account until you can trade with total confidence. Secondly, go to Options Express and open up a virtual account and trade for a year or two BEFORE risking another penny of your hard earned capital. Only when you KNOW you can trade with confidence should you risk your hard earned capital, because once its gone it is very hard if not impossible to acquire again. Especially if you are in your retirement years.

Best Regards,

Richard Gordon

Richard,

I thank you for your excellent and wise feedback. It’s great to have an alternative opinion, which can only enhance the discussion.

The Jesse Livermore book is an excellent one and, even though written so very long ago, it still has many valid lessons to teach about trading the markets. I read it quite a while back, and I should read it again.

I think we both agree that a time to stop and assess what is going on, coupled with paper trading, is definitely the way to go in this situation.

Regards,

Asoka