Over the past twenty-six years I have met,educated and / or helped thousands of people develop a high level of investing and trading skill. Interestingly, over this time I have found those specifically looking for share trading education have a very wide and often varied perception of what share trading is and how to achieve success in this field.
Let me say that the majority of people who contact us have little or no experience in trading or the share market, yet when they call, they tell us:
• I want to learn how to trade shares
• I want to learn how to trade CFDs
• I want to learn how to trade Forex
• I want to learn how to trade Options, E-mini’s, Warrants
The most common markets or products people want to learn to trade are CFDs, Forex and Options. For those of you who may not know, each of these products/markets is highly leveraged and therefore high risk, particularly for those new to trading. It is these ‘newbies’ who don’t believe they have enough money to trade shares and therefore dangerously believe that highly leveraged products are the only way to gain a meaningful return from the markets.
For newbies, this is quite a valid reason whereas those of you with experience would consider this a pretty strange reason to trade with leverage, sort of like wanting to bungy jump into shark infested waters hoping not to become shark bait. Questions I often ask these would-be traders is why they want to trade or why they want to learn to trade?
The default answer is that they want to make money, which if we are being honest is not the real reason. After all, money in itself is not of any benefit to us. Having $1million in the bank is nice but money alone doesn’t provide any enjoyment until you exchange that cash for something of value that you desire such as a house, holiday or car.
Other questions I ask include: “what is your perception of share trading/ trading CFDs/ trading Forex/trading Options?” And “what is your perception of a trader?” Once again, I get a various answers to such questions, many of which come from a sheer lack of understanding about what trading really is. You would think that the same task or job would actually be viewed by everyone the same way. For example, when I say, ‘accountant and accounting’, everyone knows what I mean and for the most part we will all have the same or similar view as to what accounting is or what an accountant does.
SO, WHO IS A SHARE TRADER?
My perception of a share trader is quite different than most. After all, you don’t know what you don’t know and an expert’s opinion on something is generally different from the amateur. When chatting with people who identify as a trader, I generally ask them to tell me how they trade. Invariably the answer I get is ‘Comsec’ or ‘Etrade’, which does not answer my question. When I ask a real trader how they trade, I get a totally different answer that delves into the strategies, tactics and analysis methods used to produce a consistent, profitable result.
SO, WHO IS A REAL TRADER?
In theory anyone who buys and sells something to make a profit can be considered a trader. Therefore, anyone who buys a share with the intention of selling it at a profit could be called a share trader. However, this view is too simplistic and not one that actually covers the intention of someone wanting to be a trader. My answer to the question ‘what is a share trader’ is a person who treats the buying and selling of shares (or other instruments such as CFDs, Forex, Options etc.) as a profession or vocation regardless of whether they do it full time or not. I say this because the majority tell me that they want to generate income from trading, and to me generating an income from undertaking an endeavour that exchanges money for time is a profession, for instance, your job where you spend time doing something and you get an income in return. Unlike a normal profession where you get paid, the challenge with trading is that sometimes the return on the time spent is negative.
So, in my mind a share trader or any trader is someone who takes a methodical, documented and tested approach to minimise their risk and maximise profit. These people are the 10% of those who call them themselves traders. The other 90% in my book fit into one of two categories, i.e. active investors and gamblers. So, whether you want to learn to trade shares or learn how to trade some other market, what do you need to know before you start? To answer that question let’s first look at some sage advice from Albert Einstein. Einstein said, “Education is the progressive realisation of our ignorance” and he was right. As a nice bonus, when you learn how to trade you actually learn a lot about yourself. By this I mean that share trading (or any other type of trading for that matter) is an emotional experience.
Putting money on the line naturally evokes an emotional experience. Further, this emotion motivates individuals to do all sorts of things they may not normally do. In some cases it’s almost like a switch is triggered inside the brain that turns off our normally logical and rational tendencies. They say that trading is both, an art and a science, with the art form being a trader’s psychology and ability to control emotions and science the strategy or techniques. Would it surprise you to know the majority who trade only consider the scientific half of the equation, that too in a very ad hoc way.
So here is an important lesson. If you wish to learn to trade shares or if you wish to learn to trade a leveraged market like Forex or CFD’s, you must not only learn the
‘science’ by getting an education, but also work just as hard on the ‘art’ or your psychology. If you fail to intimately understand both, you will severely limit your abilities as a successful trader, which explains why 90 per cent of traders either lose or break even.
Dale Gillham is Chief Analyst of Wealth Within and bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award winning book Accelerate Your Wealth – It’s Your Money Your Choice.