20 Trading Secrets I Wish I Knew Before I Started Trading

20 Trading Secrets I Wish I Knew Before I Started Trading20 Trading Secrets I Wish I Knew Before I Started Trading

I was fortunate enough to start trading in the late 1990’s. Back then there were no trading secrets because trading was easy. All you had to do was pretty much buy anything that had a dot com in it and wait a day or 2 for it to sky rocket. It was absolutely nuts. I made a lot of money and did nothing to make it. But those days ended and my trading ceased while I Salsa danced and commentated on ESPN’s World Salsa Championships. When I retired from dance and the show got cancelled I got back to trading but things were very different. I actually learned quickly that I had to know what I was doing to make money. Nevertheless, I dove right in making a ton of mistakes along the way. Through those mistakes I saw a lot of things that changed me. In fact, there were so many changes I can honestly say I wish I were reading the 20 trading secrets I wish I knew before I started trading instead of writing it.

You Can’t Turn $1500.00 into Millions

You cannot make millions from $1500 when you start out trading stocks. You just can’t. Don’t think it, don’t try it and don’t waste your time trying to do it. Yes it’s possible You hit a long shot and get lucky in a super speculative stock and make a decent amount of money and yes I am sure we can find 1, 2 or 100 people who say they turned $1500 into millions in the stock market but out of the 7.125 billion people in the world there is a 99.9999986% chance You can’t.

Tip – Invest your $1500 in your education instead of trying to hope and pray it into millions in the stock market.

The Trader’s Lifestyle is All a Big Fat Lie

Girls, yachts, fancy cars, drinks, wild parties and money flying all over the place are just marketing ploys to get you to join their service or buy what they are selling. Trading profits might be good enough for some nice things in life but it’s your money as a subscriber, DVD purchaser and user of affiliate links to stock trading tools that afford them their luxurious lifestyle. Being a consistently profitable trader is challenging and not as easy as it looks.

Tip – If you want to start trading stocks don’t let people’s flashy lifestyle cloud your judgment on how to get started.

Chat Rooms Make Most of Their Money from Subscribers

Chat rooms make a lot of money and I mean a lot. 2000 students at $100 a month is $2.4 million a year. Add in DVD’s, books, classes and affiliate fees from various things and boy does it add up fast. On top of that the turn over rate in these chat rooms is ridiculous because 90% of traders fail but everyone believes they will be the 10%. Don’t get me wrong there are some solid chat rooms out there that offer great information and education but had I known then what I know now I would have learned about stock chat rooming instead of stock trading.

Tip – If you learn how to use a chat room the right way you have a chance of becoming a profitably consistent trader.

Some Chat Room Subscribers Ask the Dumbest Questions

KGrHqUOKikE5mUe8PviBOmi5i5YoQ60_35Dumb questions during chat hours are annoying and a waste of everyone’s time and money. It creates a lot of noise and is a big distraction. Nevertheless, after being in various chat rooms for years I have compiled a collection of some of the greats with a soft spot for these 3 dumb questions. “I am stuck in a stock what should I do?”, “What happens to my money if a company goes bankrupt?” and my all time favorite “Can anyone tell me how bears make money if there are no buyers?”

Tip – Think, research and inquire but don’t ask dumb questions… especially during market hours.

Some Chat Room Subscribers Are Really Lazy

In order to make consistent money in this business you have to know the basics, you have to do research and you have to learn how to get as many answers as you can for yourself. What I mean is, if you want to know what the catalyst of a stock is… go to a news source and look it up. If you want to know what broker fees cost… go to their website and look it up. If you want to know something… anything… remember that Google, Bing and Yahoo are your friends so… go look it up.

Tip – Learn to be self sufficient and do your own work with research tools like this to open up a world you never knew existed.

Monthly Expenses Are Expensive

43157-1-1380491416There are a lot of trading secrets but this trading secret is the least talked about because it’s not good for business nor marketing. However, trading is not cheap. Even if you trade from home you still have various monthly fees that add up fast. Chat room services, broker platforms, charting software, stock scanners, news feeds, commissions and ecn fees are just a few of the monthly expenses one must incur. All in all it can add up to $500 a month and sometimes more. And that’s not all. If you take a loss on a stock (which you most definitely will) you have to chalk that loss up as an added expense of doing business in the sock market.

Tip – Look to minimize your fees in the beginning as the expenses can eat away at your profits quite quickly as you learn to trade.

Taxes

I do my own taxes and so it pains me to see my tax bill every time I look at my capital gains. Losses can sometimes be a tax asset if used strategically. However, if you have many more losses than gains you are only allowed to write off $3000 worth of those losses that year. The rest get rolled over into the following year(s). That’s not all… Unfortunately, the IRS prohibits a taxpayer from claiming a loss on a sale or trade of a stock in a wash sale if you are not a mark to market trader. Taxes really hurt!

Tip – Talk to a tax accountant proficient in stocks to correctly guide you in the beginning.

One Trade Can Make You or Break You

If only the 90’s were back where every day another long trade idea would make you just a little richer again and again. But like we already established, those days are long gone. Today more and more traders are placing trades that break them and take them out of their trading career for good. In fact, Joe Campbell who had to pay back E-TRADE a whopping $106,445.56 after losing a large amount after market hours comes to mind.

Tip – Don’t hold low float stocks short overnight especially if it’s in the pharmaceutical sector.

CNBC and Other Channels with Finance Shows are Really Bad

Before I got into day trading I used to think finance shows were the way to become a smart investor. However, today I actually feel like many of the people (not all) on those shows need to be held accountable for their bad information. I can’t tell you how many times I have watched various hosts and guests make calls that they believed were 100% correct but worked out to be 100% dead wrong. In my opinion, too many people on those shows steer people the wrong way pushing their own agenda.

Tip – If you are going to watch finance shows watch them for entertainment purposes only.

Emotions

I was pretty emotional when my wife gave birth to my son and daughter. I also had a nice mix of emotions before I danced at Carnegie Hall years ago but trading stocks can put a new kind of definition on what being emotional really means. Without exaggerating, you might find yourself with emotions of being the happiest person in the world feeling like an invincible genius and then in the drop of a dime something can happen in the market which will flip your emotional state making you depressed and feeling pure stupidity.

Tip – Have a plan and stick to the plan so that your emotions are already prepared before you take a trade.

Education is Paramount

Day Trading Lessons

Having an education in the stock market doesn’t mean you need a degree in Yale but you definitely need to know what you are doing so you minimize your mistakes. It is 100% important and essential you learn stock terminology, charting, risk management and how to scan for the right stocks that fit your strategy. How do you find a profitable strategy? You need an education on various strategies in the stock market.

Tip – Take your time to educate yourself and start learning for free here first.

You Can Be 100% Right and Lose Money

largeTiming is everything when dealing with the stock market. That means you can do all the research in the world and be 100% right on your thesis and still lose money if you get in at the wrong moment. Time and time again I see people lose money shorting a stock the minute they hear bad news, learn of bad earnings or read bad press only to see the stock move to the upside. Once they cover for a loss the stock moves lower than they anticipated.

Tip – Be patient and respect your stops. Sometimes it takes days/weeks or months for people to digest bad news.

Trading is a Business Not a Get Rich Quick Scheme

Because trading is so easy to set up it’s easy to fall into the thinking that it’s easy to make money. Anyone with a computer, good internet and a stock broker can start trading immediately but 90% of the people who start trading fail because they fail to realize that it’s a business and not a get rich quick scheme. Learning to trade successfully takes time, it takes patience and it takes dedication to grow the business of You.

Tip – Setting up as a business will make you feel more professional and allow you to take advantage of all the write offs too.

Less is More

Jesse Livermore said, “It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!” I agree. I have found my biggest wins have been because I have waited for a trade that I absolutely could not pass up. The cream of the crop trade that only comes around once in a while. Unfortunately, trading less isn’t going to make it fun but it will make it less unprofitable. If you trade to trade you might as well start gambling.

Tip – Do what I did. Start a blog to help others.

Fear of Missing Out (FOMO)

Picture this! Everyone in chat, Twitter and StockTwits has made a ton of money but you haven’t made a dime. After waiting hours for your preferred setup you finally start seeing a stock you sort of like. Your entry point is not where you like it but you decide to get in fast (just in case) because you have a fear of missing out. Then the stock goes the wrong way and does the opposite of what you wanted. So, you either bail out for a loss for not waiting or double down which more than likely will cause double the losses.

Tip – Set alarms on your charts to go off when they near your desired entry point and then do something else.

There is No Secret Sauce

aboutIconSauceSo many people make it look easy to make money in the stock market because of their winning strategy. It would be great to be able to tell you that all you had to do was study study study and then implement your hard work at just the right moment and every time you did that you would make money… but I can’t because it would be a lie. Every winning strategy has losing moments. In fact, sometimes you have to adjust your strategy as market conditions change making it an ever evolving process.

Tip – Write your trade statistics in an excel spreadsheet to see which strategies are most successful.

Risk Management is the #1 Key to Trading Survival

You must pick the right stocks and you must have the right tools to trade but if you don’t have great risk management skills you will join the 90% of traders who fail.  If you know where your risk is then you know how and when to exit a stock when you are wrong. You also know how to exit a trade when you are right. I know it sucks to lose money but losing a little money today will guarantee you can start fresh tomorrow.

Tip – If you have learned 1 thing from this post I hope risk management wins. Learn risk management.

Seeing Someone Else’s Huge Gains is Dangerous

This is one of those trading secrets that gets secretly masked as inspiration. I see people constantly brag about their huge gains on blog posts, Twitter and StockTwits because they say it inspires others to strive for a better way of living. I say it’s 100% bull. In fact, I think it’s harmful in the long run. Seeing someone’s gains on a daily basis can evoke various emotions which are counter intuitive to controlling emotions during the trading process. The arousal of fear of missing out (FOMO), excitement, jealousy, amazement, frustration and revenge trading can be easily triggered by seeing someone’s daily profit and loss.

Tip – If other people’s gains arouse your emotions either for the good or bad, trust me focus on the process and block them out.

You Will Sell Your Winners and Hold Your Losers

Did you know that Terry Odean found investors are almost twice as likely to sell a winning stock as they are to sell a losing stock? Research shows that not only are relatively unsophisticated retail investors making these errors but seasoned veterans of the stock market are making them too. This phenomenon is known as the Disposition Effect and can stump your growth as a trader if you aren’t conscious of the behavior.

Tip – Don’t hold losers until they become winners. Eventually you will lose more than you ever imagined. Just ask Bill Ackman.

You Will Never Make Consistent Money Following

shepherd+leading+sheepThis is one of the Trading Secrets that nobody wants you to know about. However, let me explain the disastrous effect of following stock alerts in a more creative way. Without trying to make this seem like a joke imagine you had to follow somebody to breathe. Imagine what it would be like if you had to ask if the person you were following was breathing or not. What kind of consistency would you be able to replicate by waiting to inhale when your followee inhaled or when your followee exhaled? If you compare it to following someone into a trade it’s easy to see why 90% of traders… how shall I put this… Die.

Tip – Educate yourself and then learn to trust You.

Final Thoughts

Hopefully you enjoyed learning about the 20 Trading Secrets that I learned about the hard way. One of the keys to stock trading is to not put too much faith in any one person or group of people. Everyone has an agenda and it’s usually a financial one. You have to be open and flexible in understanding that or else you will fail as a trader. That doesn’t mean you have to be skeptical and paranoid about everyone in the trading community rather you must be smart and in control of the path you take.

Are there more trading secrets I don’t know about? Add them in the comment section.

Disclosure: My wife uses my kid’s college fund to buy shoes so I started using an affiliate link so they could go to college. 

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4 thoughts on “20 Trading Secrets I Wish I Knew Before I Started Trading

  1. Hi Jai,

    Thanks for your trading gold nuggets, your are a funny man and at the same time real and very helpful. Thanks for your effort it helps a lot.

    Hastings

  2. I read the following comment on another “Trading Secrets I Wish I Knew” blog; “If your mentality is to use the market as a vehicle to supplement income…stop yourself, you’re already primed for failure.”
    I don’t know that I agree that someone putting in the time, effort and dedication to educating themselves can’t trade options/stocks as a means of generating passive income? Your thoughts? Thanks.

    1. Hi Mick,

      What I think he means is you have to be an active participant if you are trading. Even if you are trading options you have to actively participate. If an options trade goes in the opposite direction that you planned then you would need to bail our of the position. Or let’s say it’s going the right way you might want to roll it out farther in the future. Add in several options over several equities and you have to manage that. However, if you are putting all of your extra income in a low expense ratio total stock market index fund such as VTSAX then all you have to do is add to it monthly and hold on for the ride. In fact in that scenario I wouldn’t even look at it for 10 years as there will be days where it’s up so high you will want to sell our of greed and there will be days where is so low you will want to sell out of fear. Hope that helps.

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