All In The Minds Eye, Food For Thought For New Traders.
Today I want to share with all of you an observation I have made while trading on the Etoro platform as a Popular Investor. Also I hope to offer some advice for new traders to the platform who are perhaps looking to copy a trader.
My intent is to present this in a relatively light hearted and humourous way I hope, so please dont take offence.
I admit openly that what I am about to advise is totally in my own best interest.
And therefore could be seen as a conflict of interest in itself, so make of it what you will.
However I also happen to believe it to be true, so here goes.
As I look through my trading dashboard at the number of copiers that have come and gone to my account I notice something troubling and that is the amount of people who have only copied for a single Day or perhaps just 2 or 3.
Why does this concern me.
Well for one, the point I previously mentioned more copiers is better for me.
But putting that aside for a moment let's consider, what is actually happening here and what is going through the mind of a copier who does this.
99 times out of a 100 all you have successfully achieved is you have paid Etoro (the broker) the spread on all the copied trades then a few hours later closed the trade at a loss.
This I'm sure we can all agree is not a sound strategy.
If you were to flit back and forth like this all the time, in a state of constant indecisiveness you are essentially raping your own capital and giving Etoro free money.
Now don't misunderstand me I like Etoro and they provide me with a source of income.
But I don't like the idea of people throwing away money, in fact it makes me shiver sometimes, well unless they are throwing it at me of course!
So let's examine the things that may contribute to this self destructive behavior and try to shine a light on them.
Perhaps this is your first copy and you simply got cold feet.
Perhaps the colour red terrifies you and the slightest downward move has you running for the hills, like a screaming hollywood starlet in a slasher flick!
2. Unrealistic expectations .
Obviously this copy was going to deliver instant sky high profits and make you an overnight millionaire now that it hasn't you feel disgruntled even betrayed.
"This is the investment for me I'm certain of it"
"Oh wait I'm having second thoughts"
"Oh I wish I hadn't done that"
"Maybe the copy will be ok"
“Maybe it won't”
“I Should stay in”
"no I must get out"
Not really your fault this one more likely your parents fault and genetics.
There are several situations in life this excuse doesn't work, and handling money (especially your own money) is just one of them.
Now I hope we can all agree as fallible human beings that number 5 can happen to anyone. Meanwhile number 4 is just an unfortunate fact of life.
However numbers 1,2 and 3 are totally Within our control and are in my opinion totally TOXIC in a trading environment.
Fear: turns good decisions into bad one’s but never turns bad decisions into good.
It stops us all from thinking in a critical and objective manner at a time when it is absolutely crucial that we do. It also compels us to follow the herd rather than the data (the market) and our own opinion and assertions.
Unrealistic Expectations: leads to frustration, anger, impatience and impulsiveness all will rob you of profit making opportunities. One must endeavour to set realistic and achievable goals, or face constant disappointment.
Indecisiveness: Caused by doubt and/or a lack of conviction, something we can all experience in our lives. So what causes doubt, well in my experience ignorance is the primary cause.
Knowledge is the cure for ignorance. So if I’m going to trade a stock for example I will set about acquiring knowledge. I will familiarize myself with the company's finances primarily the balance sheet, Cashflow statement and Income statement.
Then I will look at the stock itself what is the EPS? And so what is the P/E Ratio, does it pay a dividend and what is the yield, whats its 52 week low and high and what is the current technical setup for the stock.
So I would like to put forward some simple ground rules before entering a copy or any trade for that matter.
1.Research what you are investing in or if copying familiarize yourself with their portfolio and ask questions first.
A decision based on knowledge, sound data and clarity of understanding will go along way to negating the first 3 points (Fear, Unrealistic expectations and indecisiveness)
2. Patience. There really is no alternative for this one. Anything worth doing in life will likely require hard work and patience in fact most of the time both together. So give your investment the time it needs to mature.
3. Don’t allow FOMO (fear of missing out) to make decisions for you, this is a terrible reason to do anything. Figure out what you know and what you don't know, understand it and then own all of your decisions no excuses, no regrets.
4. Manage risk. Don't put all your eggs in one basket. Anyone can get cold feet if they throw 100% behind one investment especially if it starts to head south.
(keep an eye out for a future article on risk management techniques.)
5 Never ever ever! chase your losses it leads to ruin in the Casino and it will here too.
These are just a few thoughts which came to me as I sit here typing about this subject but I would love to hear any pearls of wisdom you guys may have please feel free to share and leave a comment.
So please all of you, take care.
And make your bloody mind up! ;)