18 pieces of advice for traders
The trading market is a place full of temptations and pitfalls. I have been trading for over a decade, and if I'm not careful, I can still be led astray by market trends.
Most people, when they lose money, first consider external factors, such as the market not being supportive, the chosen assets being poor, or market manipulators causing trouble, etc. However, when they make money, they tend to attribute it to their own merits.
But in fact, trading should be more about introspection, understanding one's own capabilities and limitations. The risks in the market are not so much from the market itself as they are from ourselves.
I have been contemplating for a long time, and today, combining my own experiences and lessons from the past decade or so, I would like to offer some advice on trading, hoping to provoke your thinking and inspiration.
The article is relatively long, so I recommend bookmarking it for reading. If you find it rewarding, please give the article a like, thank you.
1. Trading can involve small losses and small profits, but absolutely no large losses.
It is quite normal to experience gains and losses in trading, and setting a stop loss is akin to buying insurance for a vehicle. Buying insurance does not mean you will definitely have an accident, but it can help minimize losses in the event of one.
2. Missing out once means losing one opportunity, but getting caught in a position means losing many opportunities.
A friend said that when he is not caught in a position, there are no opportunities, but once he is, every opportunity seems to be there.
After missing out on a good opportunity for a long position, he watched the market rise, feeling disappointed, depressed, and angry. He thought such a once-in-a-lifetime opportunity would never come again, and he acted impulsively with negative emotions, which resulted in him getting caught in a position.Soon after being caught in a trade, a similar opportunity presented itself, but with a floating loss on the position, I dared not act, only able to sigh at the missed chance.
The market is never short of opportunities, and the market trends always seem to repeat themselves, and what's magical is that they often replay when you've lost your patience.
In the process of trading, it's inevitable that we will make mistakes, and occasionally missing out is normal and forgivable. However, using the excuse of missing out to release negative emotions, leading to disorderly trading and getting caught, is unforgivable.
3. The policy of taking without giving does not work.
There are many trading methods and information online that can facilitate our trading. But no method can be directly applied. The reason we have a brain is to think, not just to eat.
Let's not discuss for now whether these trading methods and theories are truly effective. Even if they are effective, they need to be reconciled with our personality, adapt to our trading rhythm, and after extensive verification, they can be put into practice.
It's like meeting a girl today and, without understanding her, getting married the next day; the probability of divorce is still high. It's necessary to understand clearly first.
4. Trading is like cultivating immortality; the path must be taken step by step and cannot be achieved overnight, otherwise, it's easy to go astray.
I often hear the question, "Can I learn to trade in a month? Can I make money within three months?"
These questions cannot be given a standard answer because everyone's learning ability is different, the degree of diligence varies, and naturally, the effectiveness of trading learning will also differ.Trading is not something that can be mastered overnight. Everyone wants to see results quickly, but just like in martial arts movies, many people take shortcuts to quickly master martial arts, and the end result is often disastrous.
The same principle applies to trading; haste makes waste.
5. For new traders, the trading capital should not exceed three months' income.
Many traders are unsure how much capital to invest when they start trading. Some also fail to understand the risks and recklessly invest a large amount of money. When they suffer significant losses, they are unwilling to accept the loss and continue to increase their investment, eventually digging themselves into a deep debt hole.
Therefore, when starting to trade, it is crucial to control the amount of capital invested. It is recommended that new traders should not invest more than three months' income.
This level of capital will not create excessive psychological pressure. Even if the trading is unsuccessful and results in losses, one can recover by saving and cutting back on expenses for a few months, without causing irreversible consequences.
6. Do not always overestimate your abilities.
Arrogance is a human nature, and we often overestimate our abilities in trading.
For example, the use of position size, the tolerance for losses, the control over trading frequency, and the management of multiple products, etc.
A little arrogance in other matters may lead to minor mistakes that are not serious, but in trading, overestimating one's abilities can lead to immediate punishment by the market, resulting in losses.The self-importance in transactions has a very strong destructive power. We would rather be modest and cautious, with smaller positions and less profit, than lose money due to arrogance.
7. Pay attention to the cost of your own transactions.
Especially when we are dealing with foreign exchange and futures, we must always pay attention to our own transaction fees and spreads, because I have seen too many foreign exchange transactions with added fees of dozens or even hundreds of dollars, and I have also seen futures transactions with fees increased by five or eight times.
Some people can't make a profit in transactions, not because of your level, but sometimes it's just because the transaction cost is too high, and no matter what you do, you are working for the platform.
There are also times when an order with low fees can be taken profitably, but high fees require a larger profit margin. Sometimes it's just a little bit of luck, and the order can't be taken profitably. The market goes against it, turning from profit to loss, which is very annoying.
8. You can afford a car, but that doesn't mean you can drive on the road.
Cars are now very cheap, and you can buy an electric car for just 20,000 to 30,000 yuan, but being able to afford a car doesn't mean you can drive on the road, because you need a license for the car, and you also need a driver's license.
The threshold for starting transactions is very low, opening an account is very simple, and the capital requirements are not high. You can start trading at any time, but being able to trade doesn't mean you can do well and make money.
Getting a driver's license has a very strict process, and the error tolerance is also very low. Many people have taken the test many times and still haven't passed.
However, there are no such hard regulations for transactions. There are no rules to constrain you, and no one forces you to practice. Many people are "driving without a license" and end up with heavy losses.To maintain stability in trading, one must restrain oneself and practice diligently.
9. There is no sugarcane that is sweet at both ends; in trading, do not pursue perfection. Warren Buffett has also said that investing is like eating fish; it is enough to enjoy the succulent fish body, without the delusion of consuming both the head and tail of the fish. Greed can lead to one's downfall, as the saying goes, "The greedy snake tries to swallow an elephant."
The financial market is vast, and no matter what, you cannot consume it all. The market will not shrink because of your greed or mistakes, so it is sufficient to earn what you are supposed to earn and what you can realistically earn. Avoid greed at all costs.
10. The most brilliant trading method is to minimize the use of trading software. In my own experience, when I first established my trading system, my execution was very poor, and I constantly checked the software, which led to a severe anchoring effect.
For example, if I saw a profit of $1,000 this time, and the next time I checked it dropped to $900, my heart would ache. If I checked again and it fell to $800, anxiety would set in.
In reality, market trends fluctuate, and over-reliance on software can lead to the neglect of objective facts. Emotions can override reason, and it is highly likely that one may lose confidence in their original trading plan, often closing positions prematurely and missing out on profits. A senior trader once advised me not to check the software. After entering a position, set your stop-loss and take-profit levels, and let it run. Enforce a physical break from the software, and over time, you will get used to it, and your emotions will become more stable.
11. When the barrel costs more than the oil, that is the opportunity to make money.On the early morning of April 21, 2020, the U.S. crude oil futures for May delivery plummeted to -$37.63, a trend that was bewildering and truly made the barrel more valuable than the oil itself. This extremely abnormal trend was, for traders, the best opportunity for profit, and subsequently, crude oil continued to surge.
The economic cycle consists of four phases: expansion, peak, decline, and recovery, and commodity prices can also become imbalanced. For instance, the rebound after last year's sharp drop in soda ash, and this year's rebound in lithium carbonate and pig prices, follow a similar logic.
The market presents several such opportunities each year, and one can seek and wait for these opportunities, then seize them.
12. Compared to others, what is my trading advantage? Nothing but proficiency.
This phrase originates from "The Oil Seller," and I believe everyone understands its meaning, so I won't elaborate further here.
After years of trading, I've found that trading techniques really do come down to the work of mastering through repetition. After practicing a pattern 100 or 200 times, you become intimately familiar with the subtle variations in its breakdown.
What happens when a large candlestick breaks through? What happens when a small candlestick breaks through? How do you handle the trend after a breakdown followed by a pullback? How do you deal with a trend that doesn't look back?
The more you understand and the more detailed your knowledge, the more confident you will be in trading, the better you can leverage your strengths and avoid weaknesses, and thus achieve better profit outcomes. Once profits are made, confidence will increase, creating a virtuous cycle.
13. The essence of trading is the law of the jungle.
The world of trading is extremely brutal; your profits come from someone else's losses. Either your money is taken by others, or you take others' money.So the market for trading is a bloody jungle law, and people often complain to me that the tactics of the market makers are too ruthless, there are too many fake breakouts, and the rules are not perfect. These cannot be denied; they are facts.
But where in this world is there any absolute fairness to speak of? Compared to other things, the trading market is relatively fair. All we can do is accept reality, go against human nature, be greedy when others are fearful, be fearful when others are greedy, be diligent when others are lazy, and stay steady when others are emotional. Naturally, you can make money.
14. Whether farming can make money depends on the weather and also on oneself.
I come from a rural family. Before elementary school, I was in the countryside. My parents contracted more than 30 acres of land, and we had 3-4 cows at home. Thanks to my parents' hard work, we lived a worry-free life at that time.
Farming depends on the weather. If the weather is favorable, it saves effort and money, and if the grain prices are high, the harvest will be good.
But crops do not grow out of thin air. Only through hard work can there be a possibility of a good harvest.
One thing we traders often do is hold onto the seeds of crops and do nothing, just waiting for the sky to rain rice. As the saying goes, "Heaven helps those who help themselves, and abandons those who abandon themselves." First, you must help yourself before heaven can help you. Remember this.
15. Don't always watch short videos; read more in-depth content.
Trading is a job that requires a lot of "cultivating the mind." Nowadays, everyone loves to watch short videos because the fast-paced fresh content can give us instant satisfaction. But my attention is also quickly shifted, and after a while, it becomes difficult to focus on in-depth content.
Trading requires extreme patience, stable emotions, and focused attention. Watching short videos can have a significant impact on our self-discipline.Read books more often, especially those that require some mental effort. Try to stay away from your phone for a while and immerse yourself in reading. While reading, summarize the content, and even retell it to your family and friends. Over time, you will regain the ability to learn deeply.
16. Periodically correct your view on money.
In "Reminiscences of a Stock Operator," there is a view that after making money, it's best to take out a portion of the profit and put it in your pocket. Use this money to consume, so you can truly feel the existence of money and how much it can be exchanged for.
Because in trading, money has become a bunch of numbers. Sometimes after trading for a long time, the view on money can become distorted, especially for those who make quick profits in the short term, they may gain or lose tens of thousands in one night, and their entire person will swell up. The view on money is shattered, and they can no longer look down on small money of hundreds or thousands.
So after making money, you can take out some and feel the "power of money" from time to time, in order to be closer to reality.
17. Don't quit your job to trade.
Many people have an obsession with full-time trading. Some people feel that their life is too plain and want to find a breakthrough, or they feel that trading money is too easy and addictive, and they want to quit their job to trade full-time.
People always have an inexplicable fantasy and yearning for industries they don't understand. If you don't have a stable profit model and haven't been beaten by trading, don't give up everything to enter full-time trading easily.
In fact, having a full-time job and trading part-time is the ideal state. Because a fixed income will bring you a sense of security, and part-time trading can make up for your interest gap, and it may also bring additional income, the two are not conflicting.
18. Trading is like looking for a wife, passion is temporary, and suitability is eternal.We all experience moments of infatuation in love, where we are passionately devoted to each other. Over time, as the initial fervor fades, we come to realize that a compatible personality is what truly leads to a stable and harmonious life. It is in the mundane, yet warm and comforting days filled with the simple necessities of life that we find the essence of true happiness.
However, many people easily become captivated by the thrill of trading, such as the excitement of short-term windfalls, and can no longer accept a steady, slow accumulation of wealth; having experienced making 100,000 in just three days, they can't bear the slightest loss.
We must never fall in love with trading, becoming entangled and causing mutual distress. Instead, we should establish a trading method that aligns with our own personality, continually refining it, and striving to maximize profits within our comfort zone. Only then can we ensure that our trading life is prosperous and enduring.
In summary, the money in the trading market is endless. By maintaining a habit of learning and keeping a clear mind, we won't fare too poorly in the market. Let us all encourage each other in this endeavor.