Traders Wanted. Losers Welcome.
Greg Guenthner

They say the definition of insanity is doing the same thing over and over again and expecting different results.

But if this adage is accurate, shouldn’t most investors buy a one-way ticket to their local looney bin?

Perhaps this is an insensitive comment. Let me clarify: I don’t really believe allinvestors are nuts. Even if they were, I’m pretty sure most of the country’s mental asylums shuttered decades ago. Since no more padded rooms are available, retail investors will just have to retreat back to their basement offices to read 10-Qs, download analyst reports, or whatever else they might be doing to pass the time while their stocks sink deeper into the abyss.

Whoops! There I go again. I should probably quit ripping on these poor souls, especially since I used to consider myself a member of this not-so-exclusive club.

I began my stock market journey much like everyone else, attempting to find some sort of profitable edge through fundamental research. After all, Isn’t this what we’re taught by the wise fund managers and economics professors who came before us?

Before we invest in a company, we need to know what it does, who its customers are, how much money it makes, various valuation metrics, and its plans for future growth. We need to dig into news articles, analyst ratings, earnings statements, and call transcripts. The more you know, the more money you’ll make!

Except this isn’t entirely true.

If you’re lucky, you’ll soon realize what I discovered all those years ago…

No matter how much you research a stock, no amount of fundamental information will pinpoint the best time to buy or sell.

This is where technical analysis comes into play. It shifts your attention away from the obscure to the relevant, forcing you to focus on the forces behind the market movements that consistently perplex most investors.

More importantly, technical analysis brings the one critical component into focus that can profoundly impact your returns: timing.

Once I started to understand the true forces powering the markets, I began my evolution from investor to trader. It was a long process learning the ins and outs of classical charting, technical analysis, and behavioral finance – not to mention the countless hours of real-world market experience. When it comes to trading, putting your money on the line in the markets is the best teacher.

As my knowledge and experience grew, I would talk trading with anyone who would listen. By now, I’m sure you’ve read many of my notes where I claim that thinking like a trader can change your life.

Unfortunately, I’ve learned that not everyone is ready to dive down the rabbit hole and abandon their long-held beliefs. They’d much rather stick with what they know, despite seeing the same results over and over again.

Maybe these folks are onto something. Why fix something, even if it’s broken? Just keep losing. Stay on the same path. Keep those returns predictably mediocre! 

Here are a few more reasons you should avoid beginning your own trader’s journey:

You’re going to regret all the time you used to spend on fundamental research.

I spent way too much time at the beginning of my career trying to figure out the fundamental research that would give me some sort of a repeatable edge in the markets. Looking back, I don’t even think this endeavor is possible – even for investors much smarter than me.

If I had put those hours to better use learning market mechanics – why stocks go up and down – I’d have found success much earlier.

If you never adapt or learn these important trading skills, you won’t have to deal with this kind of regret. Instead, your returns will roughly match the ebb and flow of the markets (if you’re lucky).

Becoming a trader will alienate your friends and family. 

Once you develop some consistency, you’re not going to be as interested or engaged in the financial noise machine. You’ll start to see through the hype and approach earnings and economic announcements with a skeptical eye.

You also won’t have as many opinions to share on news events that supposedly move the markets.

This change in behavior will irk your investing buddies. They’ll think you’ve lost your mind or fallen under the spell of some strange stock market voodoo when you have nothing to add to a discussion about producer prices or Peloton earnings.

Traders have no one to blame but themselves. 

You don’t need much to trade. It’s just you, your computer, and an internet connection. You might want to invest in a big monitor and a standing desk (if you’re feeling fancy). But even a tablet and your favorite chair will work just fine. The stock market won’t judge. Your winning and losing trades will pay out the same no matter what.

But this also means you’ll spend a lot of time by yourself. That’s great if you hate meetings and dread office small talk. On the flip side, this arrangement is not-so-great when it comes to accountability and idea generation.

You might find that you have trouble consistently finding the best setups or sticking with your trading plans. You might also find that you occasionally need some encouragement when the market isn’t cooperating or you feel like you’re underperforming.

 

 

Greg Guenthner, CMT, is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications.

 

 

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