Every endeavor in life takes practice. I have practiced both medicine and law and I have come to believe that there is no such thing as a ‘natural’ in anything. Anyone who masters their craft, whether it is a profession, a fine art or an athletic skill, has put in a significant amount of time getting there. Malcom Gladwell, in ‘Outliers’ says it takes about 10,000 hours to get good at something. Trading is no exception. Some of my former colleagues think that all one has to do to trade is read a few books, paper trade a bit and voila, thousands can be made in a day.
But if you trade with any regularity, you know this isn’t true. It takes a while. And the reason it takes a while is because trading is incredibly emotional. The score is kept in dollars and it is hard to hide and fudge the results. It stares at you on computer screens and mocks your intelligence at every chance.
I don’t agree with those that say that hedge fund managers and institutional traders manipulate the market to the disadvantage of the retail trader. The big advantage, besides their size, is that they are trading with someone else’s money and they can weather emotional storms much better.
I think that if we get better at trading, it is because we know that sometimes stocks go down, way down (like AAPL!) but they come back eventually, especially if the fundamentals are so strong. But when AAPL is trading at 506, it feels hopeless and you can never imagine that within a week it could be closing in on 600 again. If you can keep from panicking and throwing in the towel at levels like that you can be positioned for the comeback. I’m not gonna tell you that I closed out all my short calls when AAPL was 506, because I didn’t. I actually sold a couple of 525/530 weekly credit bear call spreads down there, but I did close them out when it passed 520.
The only way to get to this point though, is to suffer a few losses, only to see the equity bounce back. That’s why I don’t think paper trading works, because it doesn’t count. Losses don’t hurt and gains don’t feel good.
The only way to get there is to do it, and do it, and do it.