Today’s lesson is about that dreaded thing that's preventing you from delving into the world of day trading.
It’s the 1 that consumes your thoughts, but you rarely accept it as at least part of that which stops you from jumping in.
But first, let me take a stab at what it’s not:
- Lack of money
- Lack of knowledge
- Lack of experience
- Lack of interest
Each of these is part of the overall mosaic holding you back… But none come close to the primary culprit.
Fear.
Fear is a subset of the much larger topic I label Emotional Capital™. We’ll spend some time on this topic later, but for now let’s go a bit deeper in on the thing that can stop you before you begin.
If you’ve gotten this far in the course, you likely don’t have the worst case of fear ever (or you wouldn’t have even started), but that doesn’t mean you are free of it.
Fear is a long time partner to humans. In the beginning it was a simple, basic emotion which helped we humans avoid many of the dangers to life presented daily… natural disasters, environmental predators, and human predators to name a few.
Our ancestors would experience the negative impact of some danger in the environment, see that it had negative consequences, and learn to avoid it in the future. The classic example is a man-eating predator (MEP) of the time. Man quickly learned the likely outcome of getting caught in the vicinity of an MEP and came to avoid such interactions. His fear acted as a tool that helped prolong life and preserve the species.
At some point if another human even suggested we avoid a place or thing, that was enough to make us afraid.
Unfortunately, over time fear became something else. As the number and severity of environmental dangers began to decline, we humans found replacement and additional fears such that the number of things we feared actually grew.
Whereas we formerly feared MEPs, we began to fear the opinions of others. Instead of fearing natural disasters, we became fearful of the sustainability of our livelihoods.
Worse, unscrupulous manipulators used fear to control and induce whole populations of us to behave in a desired manner. From Hitler stoking fear of Jews to create one of the world’s great tragedies down to the relatively minor Snake Oil Salesman creating sales by stoking fear of not buying his cureall just in case you come down with 1 of a long list of maladies, people have long used fear to persuade… convince… and even incite.
Over time and with that history as a backdrop, fear generalized into a more pervasive state of being such that our attention and focus narrowed to be more likely to see danger than opportunity… everywhere.
Enter an opportunity like day trading.
- At it’s core, day trading is the best business available to man. Consider just a few of the benefits:
- You know exactly what your risk is moment to moment
- You have control over how much risk you take
- You don’t need a large capital (money) infusion
- You can scale up simply by adding shares/contracts
- You don’t need a yes from anyone… employer nor customer
- What if I lose money?
- What if I make money?
And that’s just for starters.
Yet, mention day trading as an option to most people and you get responses like- Everyone knows market timing is impossible
- You can lose millions of dollars day trading
- Day trading is just gambling
- I can’t…
- If day trading was so profitable, why wouldn’t big money managers focus on it?
And so on, and so on…
I can and will address each of the anti day trading points (and others) later in this course. But right now, I’d like to get back to the matter at hand and make some suggestions that will hopefully help reduce your fear enough to allow you to move forward. As you learn and understand more about trading generally and day trading specifically, I suspect your level of fear will begin to subside a bit.
One of the best ways to slay the fear beast is to meet it head on… At the end of the day the name of the beast we fear most is risk. To be sure, if you wade in to the day trading waters, you will be putting money at risk. However, there’s a way to do that such that the money at risk becomes an afterthought which allows you to focus more on what you’re learning and doing than on the money.
To help explain this better, I want to tell you a true story about someone I know very well. To protect the not so innocent I’m using a pseudonym, but the facts are certainly true.
My friend Roscoe used to frequent Las Vegas… a lot. You might think that a risky proposition, but it wasn’t… at least not the way Roscoe did it. You see Roscoe would define how much he was willing to risk in the casino each day… generally a percentage of his last visit's winnings... so the number grew over time. Then he would go to the casino with that amount… and only that amount on him. He would also make sure to leave his bank and credit cards in the safe in his room before heading to the casino.
Once at the casino, Roscoe would select the game with the best odds for him… poker. Then he would select tables with the smallest ante (initial bet). He would then set about playing through the evening…
Occasionally, he would lose his starting amount. On those nights, he would call it an evening and retire to his room.
On some nights he would break even.
On most nights he would come out ahead by a few hundred dollars. On those nights he would retire to his room with his winnings knowing that the next night he would return to the tables with the same starting balance as every other night.
On a few nights though… Roscoe would do well. He would double, triple and, on one occasion, quintuple his starting balance. On those nights Roscoe would retire knowing he would turn the next night and start the exact same way.
Playing this way led to Roscoe compiling a substantial sum.
And it got him Big Player status at his preferred casinos.
Does any of this sound familiar?
It should, because it’s very much how day trading works… and why you don’t have anything to fear.
If you are entering the day trading arena, you should do just like Roscoe and decide how much you’re willing to risk each day (and overall). You should always make sure to minimize the amount as much as possible.
After that, and assuming you have a good (profitable) strategy, you really shouldn’t be afraid of anything.
Some trades will be winners… some will be losers… But overall you should come out ahead.
Add a bit of compounding your gains and… well, you get the idea.
KIS,
Ev
P.S. Tomorrow we’ll take a look at trading ACTUALLY works.
