3 Trading Lessons I Learned The Hard Way 

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In today’s episode, you’ll discover the 3 crucial trading lessons I’ve learned the hard way (so you don’t have to suffer the same pain I did).

So tune in right away…

Resources

How to be a Profitable Trader Within the Next 180 Days (Even if You’re New to Trading)

Trading Psychology: 6 Practical Tips to Master Your Mind and Money

How to Create a Trading Journal and Find Your Edge in the Markets

Transcript

Hey, hey, what’s up my friend? 

In today’s episode, I want to share with you 3 trading lessons I learned the hard way (and hopefully you don’t have to go through the same path that I did). 

Lesson #1: Don’t have unrealistic projections of your returns

Back in my university days, I was somewhat of an investor. I was buying shares in the local Singapore stock market and I was trading on margin at that point in time as well. I think my capital base was about $20,000. 

Then the broker allowed me to, trade up to 2 or 3 times my account size. So I bought shares, worth about $40,000, or $50,000 with my $20,000 capital base. And I got lucky because before the European debt crisis hit, the overall stock market was in a bull market.

So I had $20,000 worth of capital and I ramped it up to about $30,000 within a couple of months. At that point in time, I was feeling really good. There I was as a university student, making $10,000 in less than two months. 

Even my broker commented, “Oh man, Rayner you’ve got the Midas’ touch.”

Then guess what? The Europe debt crisis hit, I lost all my open profits and I pretty much got back to where I started from, which is about $20,000 or slightly less. 

So the lesson I learned, is you can’t just take the results you recently had and project it into the future. 

I made about $10,000 in two months and I thought:

“Man, $10,000 in two months, that means it’s about $50,000 in 10 months, about $60,000 in a year!”

“Wow, that’s pretty good money. That’s about $5,000 a month, just investing the markets.”

The problem with this is that the markets change. It goes from an uptrend to a range to a downtrend. The market is always changing. 

Clearly what happened to me is that I lost whatever open profits I had and gave it all back to the markets. So this means you can be having a great year with 50% profits, but guess what? 

Next year things might change, and it might not be the same as what you’ve experienced this year. It could be better or worse. 

So don’t have unrealistic projections. Don’t project your returns linearly like this because it doesn’t work that way. 

Next…

Lesson #2: Don’t underestimate the work involved to be a successful trader

When I first got started, I thought I just need to know and understand how the market works, what are buy orders, limit orders, stop orders, market orders.

After which I just need to memorize a few simple chart patterns, maybe head and shoulders pattern, a hammer, a shooting star, identify support, resistance. 

Pretty much wait for the price to come to support, wait for a hammer to form, click buy 1:2 risk-reward ratio, TP, that’s it. Call it a day. 

I thought that’s pretty much what trading is all about. But it’s only when I dive deeper, then I realized, it’s not as easy as it seems. There’s a lot more work to be done. And I clearly underestimated the workload. 

So let me share with you what’s really involved if you want to be successful at trading and become a profitable trader…

Step 1: Develop a trading plan

Your day trading plan has to include which markets you’re trading, the specific market conditions, your entries, exits, trade management, risk management, etc. 

Step 2: Execute your trades according to the trading plan

Once you’ve developed your trading plan, you need to execute your trades according to your plan.

And this is where most traders falter. They have a problem executing the trades.

For example, even for just 10 consistent trades according to their trading plan, they have a problem doing it.

Because they feel bored and they don’t have the patience to wait for their trading setup.

They have the “itchy finger syndrome”. They want to revenge trade and want some action in the markets. 

If you can’t even execute your trades consistently, guess what? You’re not going to be a consistent trader. 

Step 3: Review your trades

So once you’ve done the execution, you need to review your trades.

Review what went wrong, what went right, what are the setups that are making you money. And also recording your trades as well. Every time you put on a trade, you need to record them.

So you can see that there’s a lot of work involved, from developing, executing, recording, reviewing. It’s not just memorizing some simple patterns then make money from the market. It doesn’t work that way.

This is the second lesson that I had to learn. I underestimated the work involved to be a trader. 

And finally…

Lesson #3: Don’t be close-minded

To be very honest, I was very stubborn at the start.

In my early years of trading, I got started in price action trading. I think it’s one of the earlier methodologies that I’ve learned, and I’ve assumed that price action trading is the way to trade and this is the Holy Grail, the only correct way to trade the markets. 

But the problem with that is that it made me ignore everything else I saw. I was very close-minded. I just think that price action is key. I focus entirely on price action. And the problem with that is – it’s not true.

There are other ways to trade the markets like trend following, mean reversion trading, systems trading, calendar spreads, etc. 

So the “aha” moment I had was when I realized the multibillion-dollar hedge funds out there, are actually adopting a strategy called trend-following. And I’m scratching my head, “Trend following? Is that trend trading?”

So I explored that, and I realized there’s a whole new world outside of price action trading. And that’s when I got involved with trend following. 

Then one thing led to another. And from trend following, I explored systems trading, mean reversion trading. It opened up my eyes and I realized when it comes to trading, there are many ways to skin a cat.

You can’t just think that your method is the best. You can just take everything else as though it’s junk.

If you do that, then your trading education is pretty much limited to whatever you know at hand. But if you treat your cup as half-full, you’ll always feel there’s something out there that you don’t know. 

You’re always exploring, researching, validating new ideas, then that’s how you get better as a trader. 

So I always remind myself, that even though I’ve been trading for 10 years now, there’s always a lot of stuff that I’m not aware of, to learn, to validate, to test and to research. 

That’s how you grow and become a better trader. 

So those are the 3 lessons I’ve learned. Hopefully, you’ve picked something up and you could improve yourself as a trader. 

With that said, I’ve come to the end of today’s episode and I’ll talk to you soon.