I wanted to make money – lots of it as quickly as possible! That was my personal starting point but time and the bitter fruits of experience changed those impulsive and unrealistic ideas as it inevitably does with all people who eventually “make it”.
While the money side is still important, and remains the ultimate measure of success, it no longer drives my primary goal. These days, this is all about understanding the process and focusing on skillful execution.
Trading and investing looks easy enough and in principle it is. Buy at a low price and sell at a higher price. What could be simpler? If that is all there really is to it, why can’t someone just show you the way and then let you go to it?
Be careful! There are many people out there who will offer you just what you are asking for, usually for a significant sum of money. You may be seduced into believing that the more money you pay, the better will be the quality of the information that you receive and if you pay enough money you may even be promised access to closely guarded secrets.
The real secret is there are no secrets; just plenty of unrealistic expectations and a great deal of ignorance that is regularly used to exploit newcomers. I suggest that before you start looking at courses, books, mentors or anything else, you need to understand that there are two quite different types of knowledge and ways of learning and both of them are vitally important to success.
Implicit knowledge is informational knowledge. Common forms of explicit knowledge include books, manuals, documents, procedures, and videos. A significant amount of our schooling and general education is based around implicit knowledge. We may be even be oblivious to another kind known as
An example of intrinsic knowledge is learning to ride a bicycle. While the method can be expressed implicitly ie: sit on the bicycle seat, pedal and balance – the process itself can really only be learned through trial and error, practice and experience.
Another good example is cooking. Two chefs can be given exactly the same recipe (implicit knowledge) and the same ingredients, but the outcomes may be very different depending on levels of skill. Experience and practice develop intrinsic skills.
Trading and investing are competitive activities. It would be absurd for a person with no cooking experience to read a cook book or two and then enter an international cooking competition against seasoned professionals. This is exactly what many trading and investment students try to do; often risking a significant amount of their personal wealth in the process. It is little wonder that the results are often disastrous!
Most people eventually learn to ride a bike through trial and error, but this approach can be a very costly way to learn about trading and investing.
Financial markets are dynamic. They are forever changing. Techniques and strategies which worked a few months ago, or even a few weeks ago in certain markets, may fail partially or completely a short time later. You are forever aiming at a moving target and unless this is taken into account your efforts are likely to be met with disappointment and frustration.
A second reason is the way our minds naturally work. The vast majority of us will behave in quite predictable ways when confronted with the types of situations that you need to regularly deal with in the markets. This phenomenon is commonly referred to as crowd behavior but this simple label is a gross over simplification of the complex neurological and psychological processes that are actually involved.
Developing a ‘Traders Mind’ requires more than just information about the process. It requires regular and lengthy training; not unlike the psychological training that an SAS soldier or US Navy Seal trainee would be exposed to. This training is essential if you plan to be a consistent winner in the financial markets.
Experience alone in the school of hard knocks may get you there, but it is likely to be a long, bumpy and painful ride. There are better and faster ways to go about developing these essential psychological skills which we will explore in future blogs.
You will also need to develop a viable plan or strategy but forget about looking for some magic or secret formula. A real strategy is not like that. It is possible however to arrange various elements in almost unlimited ways to build a profitable strategy that fits well with your own natural abilities and desired lifestyle. Again we will explore the art of practical strategy development and maintenance in future blogs.
Take the time and put in the effort required to understand the trading/investment game thoroughly. Discover and develop a plan or strategy for your own niche version of this game and then learn how to play it skillfully which will require among other things a well developed “Traders Mind”.
The money will inevitably follow.