There’s a lot that’s great about elliott wave trading – but at the same time, there’s a lot of reasons the entire world isn’t sat at their computer making thousands every day.
If you’re looking at starting out trading it’s important you know fact from fiction. We’ll take you through some areas where you’re likely to see a bit of both…
The champagne lifestyle myth
Now, there probably are traders out there who’ve got yachts, supercars and their own table in the best restaurants in Monaco – but let us tell you something – you could virtually count those people on one hand – and there are millions of people trading each day.
If you’ve seen shots of people lounging on the decks of yachts while their portfolio is mysteriously somewhere else earning them fuel money for their private jet, you’ve probably seen some great marketing material.
The reality is, trading offers another lucrative income – selling the dream – and it’s probably making more people rich than trading itself. Almost all of these ‘lifestyle’ orientated blogs, Instagram accounts and Facebook pages are made to sell you an idea – one that’s unlikely to come to fruition – but offers a healthy affiliate income for the person who’s paying models to pose as traders sitting in a Ferrari garage.
Trading is going to be hard work, especially when you’re starting out and building your knowledge base. You’re going to be drinking a lot more coffee than champagne while you’re researching your next move.
Going full time is a big step
If you fancy spending your working day at your computer in a coffee shop or the desk in your house, then you need to realise how significantly you need to be investing and returning to do so.
Most traders will tell you that you should allocate no more than 10% of your portfolio to personal trading – with the rest sitting in low cost index funds. Some will tell you that figure should actually be 5% or less.
Take a second to think about what that means in reality.
That will see a huge amount of your trading portfolio tied up for the long run. So can you expect to see returns significant enough to keep your life on track by day trading 5%-10% of the capital you’ve got available? If you can that’s great – but don’t be fooled into thinking you can rely on trading 100% of your capital and hoping for the best day to day.
Do the hard maths before you hand your notice in at work. You might be able to explain losing your entire portfolio’s value to yourself, but your landlord or mortgage company isn’t going to be as interested…
Train your scepticism
It’s really hard to resist a great tip. Whether it’s a horse, a stock, a cryptocurrency or anything else that feels like it could make you money. Outsiders come in – don’t they? Stocks and currencies explode overnight – surely?
Well, they do – and you hear about them because they’re the exception to the rule – but for every 100/1 horse there are thousands of favourites that come in. If you’re going to make it trading then you’re going to have to hone your brain’s ‘tip filter’ in a world where everyone wants to give you advice.
If you read somewhere that this next cryptocurrency is going to see 4000% increases during the next 12 months – or that any particular penny stock is going to hit a $1 by next week – it’s time to do your homework. Now, be aware of what we’re saying here – we’re not talking about clicking the link you’ve just seen and taking in what you read as fact – quite the opposite actually.
Your research needs to be done totally independently of anyone who’s likely to financially benefit from you following their tip. Does the article culminate in a suggestion that you need to take their course to find out more? Or an affiliate link that’ll see you trading with a certain broker?
It doesn’t matter how much supposed ‘insider info’ it’s backed up by – avoid it – and come back when you’ve independently verified the claims you’re reading.
Your next trade is the most important one you’ve ever made
If every trade you make has the possibility of sinking your ship you really need to bring your a-game on a day-to-day basis if you’re going to make it big. Now, in reality you’ve actually got two options here, one far riskier than the other:
- Stick to a code and live (and die) by it. Be happy with your small gains and know that you’re unlikely to ever lose big – or win big.
- Let yourself come off the rails now and again. Risk it big and expect to lose big – as well as occasionally win big.
The overall lesson is this: If you want the big wins you’ve got to be comfortable with the risk and the prospect that every trade could be life changing – for better or for worse.
Self-awareness is your biggest friend
Think you’ve got some degree of objectivity over your life? Can you spot it when your ego is clicking the mouse and not your brain? Do you understand how to spot a confirmation bias?
If the answer to these is a stone-cold yes then well done, you’re more self-aware than 99.99% of the rest of the species. Here’s the thing though, our brain does something strange – when we’re looking for particular data we’re more likely to see it.
Have you ever bought a new car only to suddenly realise you see a bunch of them driving to work each day? That’s a confirmation bias – the cars have always been there, you just hadn’t noticed them before because you had no reason to.
So, you miss a trade, you miss it again, you miss another one very similar – will you let yourself miss it a forth time? Probably not, and that’s the danger. When you base decisions on your own actions or inactions you’re ignoring the data that really matters – the fundamental information that’s backing up the trade. The market doesn’t care what your experience is up until now.
Your brain has a preference for information that confirms something you think you already know. The best advice possible for a new trader? Understand that you know little – if anything – about what the market is going to do tomorrow. The moment you think your killer sixth sense is working is likely to be the day before you see a lot of red on your screen…