This article is for people who are thinking about learning the art and science of trading. Here are 8 reasons why everyone should learn how to trade.
Everyone should learn how to trade. This is what I believe.
I recently read an Investopedia article highlighting a study that indicates that most millennials are very risk-averse.
And there are two main reasons why:
- Lingering fear from the Great Recession
- Privileging experience (traveling, etc.) over capital growth
Fair enough.
But I still think that it’s a big mistake not to learn how to trade and invest.
What most people don’t realize is that learning those things can profoundly change your worldview and the way you think, thus impacting different areas of your life, let alone your finances.
So, in this article, I want to share 8 reasons why I believe everyone should dedicate a few months (at the very least) out of their lives to learning the art and science of trading.
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#1. Trading Helps You Take Advantage of Unique, High Probability Opportunities In The Market.
This present Coronavirus situation and its economic repercussions are creating different high probability trading opportunities here and there.
Those don’t happen very often, but when they do, they can help you build wealth in a record period of time, that is, if you know what you’re doing.
You won’t find that anywhere else – I don’t know any other models on earth that can potentially create wealth that fast.
In fact, here’s a little anecdote: I have a friend whom I haven’t seen in a while reach out to me in February this year.
He lives in Alberta (the biggest oil-producing province in Canada) and he told me that he’s seeing signs all around that oil would keep tanking.
He wanted to bet on this decline.
I don’t give trading advice, but I told him that he if really trusts his observations and conclusions to buy a few PUT options on Crude or an ETF like USO (with an amount of money he would be fully willing to lose).
Let me put this nicely without swearing: he did buy a bunch of PUTs and made a boatload of money!
Not a trader, just a humble carpenter…
Anyone can do this, and everyone should learn how to do it.
#2. – Trading Teaches You How to Control Your Emotions
One of the most difficult challenges in life for most of us (myself included) is learning how to control your emotions.
How not to get mad when someone else gets mad at you?
How not to take it personally when someone criticizes you?
How not to feel bad when things don’t turn out the way you expected?
How to appreciate what you have in life, where you are, and never compare yourself to others?
Those are real challenges. I’d even go as far as to say that it’s the meaning of your life to learn to do those things.
Fortunately, trading helps a lot in that respect.
The reality of the craft is that one needs to be calm, calculated, and collected in order to stay objective and make the best trading decisions at the moment.
This is the good trader’s ultimate edge, whether the market goes up, down, or sideways.
And, like anything, this is s skill that comes with repetition.
#3. – When You Learn to Trade, You Also Learn to Become an Independent Thinker
The market is all about crowds—the sum of their orders (driven by fear and greed) causes price to rise and fall.
Crowds are powerful but primitive, so it really makes no sense to fight them. Instead, good traders seek to understand them and anticipate their next move.
But it’s hard to remain objective because crowds often suck us in.
If you’ve ever attended a big concert, a Black Friday Sales event, or even a political rally you’ve probably seen it and felt it first hand.
That’s why good traders often learn the importance of thinking for themselves.
They stay away from the noise and this helps them think more clearly and outside of the box.
When you become such a careful and rational thinker, this affects all other aspects of your life. You see things that others don’t see, you make connections that others don’t, and you go on to do what others can’t.
#4. – Trading Forces You to Think More Clearly
Objectivity is one of those traits that we all like to think we have.
But in truth, we all make cognitive errors all the time.
We perceive something, and in an instant, we project our past experiences and limited mental models onto whatever that is–a situation, an event, a person…
And oftentimes, we get it wrong.
In trading, you can’t really fool yourself for too long because the market gives you instant feedback.
From the market’s perspective, price is the ultimate truth. And your PnL shows whether or not you are aligned with that truth.
This instant feedback helps you be a little less in your head and more with your trading plan and what’s actually happening in the market – not what you think is happening.
If positive, that feedback helps you grow more confident.
If negative, you get to gather precious data on your system, informing you of its strengths and limitations.
When you acquire this ability to thinking more objectively and act accordingly, it permeates all aspects of your life.
#5. – Trading Highlights Your Unique Set of Strengths and Weaknesses
Trading will help you understand yourself ―who you are at the core, your inclinations, and tendencies.
Do you have fear of being wrong?
Do you have FOMO? (Fear Of Missing Out)
Do you have a highly analytical mind?
Are you a quick and emotionless decision maker?
Trading will bring all of these tendencies to the surface, giving you a direct insight into your own psychology.
And that self-knowledge will certainly be helpful as you keep evolving as a trader because once you’re over the frivolous get-rich-quick mentality, you will seek to build and trade a method that leverages your strengths, instead of one that plays on your weaknesses.
And this acquired self-knowledge will also help you make better decisions in your life outside of the market.
#6. – Trading Helps Develop a Tougher Skin
Like it or not, risk is a big part of trading.
Losses are going to happen, and traders have to deal with them on a regular basis.
Anytime you place a trade, the trade may result in a loss.
In fact, it is very likely that your trades won’t work more often than you’d like to think.
The traders who come out on top, despite the inevitability of losses, are the ones who are really good at managing risk.
But they’re also the ones who have accepted failure as a possible outcome. They’ve developed a tougher skin and aren’t scared of being wrong.
When you develop those qualities, you gain more control in your life.
#7. – When You Learn to Trade, You Learn to Master Concepts Like Risk and Probability
You don’t have to like risk, but you will have to assess and manage it if you want to thrive as a trader.
Since uncertainty is the name of the game, understanding concepts like probability help you deal with risk in a sensible way, so that you can more effectively protect yourself when wrong and maximize your returns when right.
Probability and risk assessment are very powerful concepts and being in this field teaches you those, not from a scholarly point of view but from an experiential and practical one. (skin in the game)
When you learn and practice those concepts, you begin to see and experience the world differently.
Everything becomes a matter of odds, risk vs. reward, good trade, bad trade, and so on.
#8. – Trading Can Deliver Great Returns
At many different times during your lifetime, there will be amazing opportunities that pop up in the market – like what we’re seeing right now in oil, stocks, precious metals, and even blockchain and cryptocurrencies.
If you know what you’re doing, these are amazing times to place bets with rather high probabilities of success.
And no, you don’t have to quit your regular job; you don’t have to make trading your full-time gig.
Like my carpenter friend above, you don’t have to be a professional trader and trade all the time.
Which means that you don’t even need a trading system.
You read that right!
Trading systems put the odds in your favor over many trades, and they’re very important for traders who plan to trade often and play the numbers game.
But you don’t have to do that.
You can learn to trade just as a hobby and make it a one-in-a-while thing.
Just make sure you:
- Develop some basic technical analysis skills
- Develop a healthy understanding of how the economy works
- Learn to think like a trader
- Develop an action plan and the discipline to follow it
- Learn to manage risk and think in probabilities
And learn how to do those things well.
Conclusion
I hope I’ve successfully convinced you that trading is something you need to learn ASAP.
Again, you don’t even have to call yourself a trader.
One trade here and there when the opportunity presents itself, that’s all you need to learn how to do.
You’ll make some, you’ll lose some… and occasionally, you’ll hit the jackpot.
But perhaps, more interestingly, you’ll pay less to the taxman compared to if you were to trade often like a professional.
Now, I don’t teach people how to trade.
There are many traders out there that are very apt at teaching you that.
However, I do teach the mindset of trading — how to think like a trader, how to control your emotions, as well as the psychology of risk.
You can learn this with me for free on this blog.
I also share psychology tips, motivation, and guidance via my Twitter feed.
Lastly, if you want to delve deeper into this important yet vastly overlooked aspect of the business that is the mindset component, check out paid my courses.
Thanks for reading and I wish you all the best on this journey!
The Psychology of Risk For Traders
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