“You May Make $5K, but not a $100K”
A fellow professional trader recently made a comment to a group of novice traders that I found very interesting, and valid.
While discussing what traders typically go through their first two or three years trading, he said something to the effect of: “The method you use may produce $5K quickly… but if it is unsustainable, you may make $5K and lose it over and over again…and you will never make a $100K.”
The point was that if you are always out to make money very quickly, it could happen, but only on a small scale.
Trading requires both a long-term view and a shorter-term focus–where steps are taken each day (and with each trade) to reach that long-term goal.
An analogy is going to the gym. Lots of people start going to the gym and do it for a time, but they don’t stick with it. They dabble in it, so they accumulate knowledge about what it takes to get fit and healthy, but don’t actually get fit and healthy themselves.
This is similar to trading. To get good at trading you need to do the same everything day, day in and day out. Even if you don’t see gains right away (like at the gym), you have to stay focused on your long-term goal.
In trading your long-term goal is to build wealth. Building wealth occurs through doing something every day that produces results over the long run. Getting too caught up with a short-term can be a hindrance to this mindset.
Go back the gym analogy. If you get very focused on the short-term and want to see your body change overnight, you are going to end up working out too hard, or hurting yourself. This is actually counter-productive, because you are probably going to be too sore and worn out to work out again. Your work will have been for nothing.
You aren’t going to see big gains over the course of a day, or even a month.
Instead, approach going to the gym as a process that eventually pays off. If you go often and stay within your limits you’ll start to see results after a few months. But always keep in mind that you want to come back tomorrow (or the day after, or whatever your plan is), so that means you can’t over-exert yourself today.
Same with trading. If you swing for the fences today, you may hit a homerun and pad your bank account. But if you keep doing that, eventually you are going to be on the wrong side, and your account balance becomes depleted again. New traders face this see-saw battle constantly, running their account up and then decimating it shortly after. They may make a few thousand dollars and lose it, but will never make any real money.
The trick is to view each day and each trade as a part of the larger (long-term) whole. You are implementing a long-term plan for wealth and that means you can’t swing for the fences every day–if you do, you are just setting yourself up for failure down the road.
Trade within your limits (1% or less risked on each trade) and view trading as a process. Implement your well defined trading plan everyday, which you have devised to get you to your long-term goals. If you haven’t devised a trading plan, your profits will continue to see-saw, and you won’t reach your trading goals.
The Final Word
Do you want to make $1000 today but then lose it tomorrow? Or do you want to build your account slowly over the long-run, so that eventually you’re making a great income each day? If your choice is the latter, create a plan for how you will trade each day, and then implement it so that eventually you reach that goal. Make sure that for each day, and for each trade, you only risk a very small percentage of your account. That is how wealth is built. Think of the gym–if you workout or train five days a week, you are doing to see results in a few months. But if try to fit 5 workout days into one, you are going to burn out and it will be counter-productive; you won’t see the results you want. Slow and steady wins the race.