The advent of online share trading has seen a dramatic increase in stock market newsletters and courses. Many traders inadvertently find themselves stuck in the beginner’s cycle. They may have attended a course or seminar, or purchased a black box system only to find the results are drastically different from those that were touted, so they move onto the next one.
Others may have purchased some trading software and read a few books to begin a more self directed approach, only to find themselves suffering from ‘analysis paralysis’ as they discover the plethora of indicators within the software and devote much time to discovering the holy grail. They flip from one stock trading system to another, perhaps discarding methods prematurely. Chances are the trader is focused on short term trading strategies and mostly using discretionary methods.
The trader’s life becomes a revolving door of disappointment and frustration as they move from method to method without consistent results – the beginner’s cycle. The question becomes: how do you break the cycle?
First, stop trading if you are throwing good money after bad and you are not confident in your methods – step back and look honestly at how you are engaging the market, what is working and what is not. If you have a trading plan, revise it; if not, then begin writing one – treat your trading as a business. Focus on your goals, strengths and weaknesses.
If you have not addressed your trader’s mindset in any way, now is the time to start. If you have, but are still struggling, perhaps you need to do more. A good starting place could be reading “Trading in the Zone” by Mark Douglas. Although not about the stock market, the concepts in Mark’s book are discussed in more depth in Eckhart Tolle’s brilliant “The Power of Now”. Professional assistance such as psychologists may also be beneficial. Whichever methods you choose, the goal is to gain a better understanding of yourself and in particular whether you have any repeating operating patterns, usually subconscious, that may be hindering your trading performance.
Most aspiring traders seem to focus on short term strategies that are discretionary in nature so it makes sense that if this is the case and you are stuck in the beginner’s cycle then it may be more beneficial to focus on a mechanical long term trading strategy instead which has many benefits. If you do not yet have the skills to design and thoroughly test your own then, following someone else’s could be an option. Be sure to conduct sound due diligence on the system and provider if you head down this path. Make sure that the system is tested thoroughly, not optimised and you are comfortable with it and the drawdowns inherent in the system.
Look for a system that is thoroughly tested with backtested and real time results made available, created and personally traded by a licensed and experience trading professional, and has various portfolio categories to choose from that suit differing risk tolerances.
Trading stocks with a longer term mechanical system allows the beginner to trade in a more relaxed manner, but importantly provides the one ingredient that is most likely missing in their trading life that will allow them to break the beginner’s cycle, and that is time. Choose an end-of-day system that only takes a short time each day to administer, thus freeing up a significant amount of time to work on other areas of trading whilst still allowing one to trade and experience capital growth.
It takes time to work on your trading plan, to develop a strong trader’s psychology, to learn more about money management, to create and test other trading ideas thoroughly, to learn software coding and to learn about other markets. These things can be done without the added pressure placed on oneself in the expectation of immediate results. New systems or strategies can be added to the trading plan as capital allows, by which time the trader will have a much more solid foundation from which to grow.