Are you working to improve your speculation activity?
This week I wanted to address a few problems that less experienced, or occasional, investors often make.
We are all different and have different skill sets, risk appetites and egos. So, there is no ‘one-size-fits-all’ solution because each trader enters the market for different reasons. Still, there are a few things which hurt your trading, which, if accepted and addressed, might improve the results of your speculative activities.
I'll touch on a few things that might point you in the right direction.
The first thing is understanding your objective before you put your money on the table.
If your answer is "I bought x,y or z, because I want to make money", you are only addressing half the equation. The other part of the equation is how much are you are prepared to lose if you are wrong.
No matter how much you analyse an investment opportunity - and too many traders carry out too little research before making their bets - many of your trades will lose money whether you are an old hand or a newbie. That is simply a fact!
Losing money on a speculative trade is not great, but it is hardly the end of the world, whereas not taking a loss when your analysis proves less than perfect could be! Always know how much money you're prepared to lose. And don't change it; take the loss, and then look for other opportunities: This is something I strongly recommend.
All your investment heroes, such as Soros, Buffet, Fink, etc., get it wrong occasionally. But it is rarely mentioned. And so, if they get it wrong sometimes, so will you.
That said, do not compare your trading activity with the trading activity of others.
That is so important today, as we live in a world where so many "investors" make trading decisions based on the noise coming from social media.
I am not knocking social media (you are probably reading this following a link on LinkedIn), but there is lots of stuff to ignore if you want to make money.
"It’s going to the moon", "buy it!”, “you will thank me later", and even the age-old claim "the trend is your friend" are comments we see all over social media, but you will never hear such claims from professional investors. Indeed, you hear very little from successful active traders because they are too busy analysing markets and making themselves money.
What you get is a lot of people doing their uppermost to get you to buy something they have already purchased because the more buyers they can suck in, the higher the price should go.
And I will add this. People making such claims are not exclusively small, young punks or people out to make money from the likes they receive. Sometimes we see so-called Whales making such comments.
Sure, they can afford to make slick videos and boast of past successes from their balconies in the Caribbean or the mountains of Switzerland. But to my mind, and I see this a lot in crypto currencies, a lot of these people made money by selling to the people they encouraged to buy.
They take their profits and pass the risk to the less knowledgeable.
I am not complaining about such activity; I am just trying to warn novices of what happens.
I have read numerous comments when people talk of "bad actors", people who take advantage of others to make a profit. I can't understand such statements. It is like complaining about someone calling your bluff at a poker table. How can you complain about someone who plays poker better than you do? Learn to play, or don't sit at the table.
Speculation in the financial markets is the last bastion of capitalism.
I know we all like to talk about community and democracy and try to adopt ESG policies in our companies, but when you trade, you are on your own, and everyone else is an adversary.
I write comments once or twice a week and suggest looking at opportunities that I find interesting. Having issued such ideas for almost 50 years, it's part of who I am. But the bottom line is it is you who decides to follow me or not. So, it is you who will make money or not. Therefore, it doesn't affect me financially how well you do because I only gain from my investing and speculation, not yours!
There are no bad players in trading because we all have our agendas. I am not saying that there are not a few crooks and con men, but when it comes to actual trading and speculating, we are all in it for what we can make!
How much you make is also very important. When you buy something, you should have at least an idea of the price at which you are looking to take a profit, as you need to bank your profit to have one.
I like to have an objective or a level I am looking to take a profit because it helps me to know my risk and gives me a good indication of where to place a stop-loss order to limit my potential losses.
I know many people in crypto markets have a "shit or bust" attitude to trading and have been persuaded by influencers into becoming devotees of HODL. But such people are not speculators or investors. They are more like people who buy a handful of raffle tickets and hope one of them wins the prize.
I am not knocking such activity, as there is always a winner. But no one can deny there are a lot more losers!
I write for those who want to have a future in speculative markets and want to learn their art and create successful strategies that work for them. And to do this, you have to protect your capital by limiting your losses. Because as I said before, all of us lose money when trading.
I have a low tolerance for risk, which has become softer as I have aged. Moreover, in weak economic periods, using the markets to protect your wealth is just as important as making a financial killing.
There is no room to incorporate your ego into your trading. Having an ego is helpful to those selling products or services (shiny videos from the Caribbean or Chalets in the Swiss mountains will always impress potential investors). But the hours studying and analysing the markets or pressing the button on a trading platform, which is how most professionals spend most of their day, is hardly a glamorous way of working.
Being an active trader is an excellent way of making money, and it has given me a good life. Still, I've never had my picture taken sitting on a beach drinking a pina colada if there was trading or research to be done (and I live on the coast in Portugal!).
The route to success is knowing yourself, learning, and not allowing yourself to be influenced by the emotion of others.
And remember, never get married to your position. If it doesn't look good, take your loss, run away, and find something better. Divorces can be costly.
There are a lot of products to trade in numerous different sectors, and I push some, encouraging people to diversify.
Putting all your eggs in one basket is never a good idea.
Until next time...
Connect with SGT Markets
Follow us for the latest news & insights