5 Things That Educate Traders

“The game taught me the game. And it didn’t spare the rod while teaching.” -Jesse Livermore

Trading Losses: There are two types of losses, one loss is caused by the market simply not being conducive to the profitability of your system. The other loss is due to your lack of discipline, causing your system to fail due to a lack of discipline. Experiencing a loss while following your trading plan  is to be expected. If you are trading a proven and tested method, then you have learned that taking a loss is simply part of trading. However, if your breach of discipline caused your loss, whether not taking a stop loss, over riding your plan, taking an entry too late or early, or trading too big, then it is time to learn why you failed. Ego? Fear? Greed? Overconfidence? Laziness? It is crucial that you understand your shortcomings, so you do not repeat the same mistake again. A loss is cost of doing business as a trader even with a winning trading system. However trading losses should only happen inside the parameters of your system.

Historical price data: Studying the past historical price action and charts can be very beneficial for creating a winning trading system. Past data will show you how prices have reacted at support/resistance levels in the past, along with how moving averages captured trends, and how price acted in correlation to other technical indicators that you may choose. It is important that you understand how your market has historically traded. Whether it is currencies, commodities, stocks, or bonds, it is crucial that you learn how to identify a trend, a swing trade, and a range bound market. You can separate the signals from the noise through back testing through multiple types of market environments.

Social Networks: There are many great traders on Facebook, Twitter, and Stocktwits. There are several that freely give away their knowledge because they enjoy sharing what they have learned. There are others that may be less helpful and looking more for ego gratification or selling expensive products that are not worth the money. To separate the wheat from the chaff, focus on who gives advice that helps you make money over time or helps you lose less money as you are learning. Only follow traders that discuss all three elements of trading. You need to learn about risk management, trader psychology, and entries and exits. Be very wary of anyone that makes trading look like easy money; it is work like any other industry.

A Mentor: Getting a mentor is a great shortcut to learning. Having someone available to ask questions of, and get direct feedback from, is incredibly valuable. The hard part is finding the right type of mentor for your own style and learning style. If you are paying for a service then you need to be getting the value for your money. You need to see progress in the areas of trading mindset, position sizing, and trade quality when following their advice. If a trading educator agrees to help you with no compensation, it is crucial to not take up too much of their time. Have questions ready and ask good questions by doing the necessary homework. It is also possible to study rich traders in depth through the internet, interviews they have done, books they have written, and purchasing any services they offer.

Trading Books: Books that are written by successful traders and authors who have studied and interviewed rich traders are a gold mine of information that can speed up the learning process for new traders. When looking for the best trading books, I use Amazon and focus on books that are written by Market Wizards or those that interviewed and quantified what they did to be so successful. I also like to see many 4 and 5 star reviews for the trading book. With Kindle editions for $2.99 and Kindle Unlimited you can get an amazingly cheap trading education with the quality of books available at a low cost.