Being honest with yourself is the biggest challenge for success in just about everything. Since we are talking about your wealth and future here, investing and trading within your abilities puts you on the right path. As we said yesterday about risk, people overestimate how much they can afford to lose. People also overestimate their market experience and skill set. We all have been guilty of investing in companies we were convinced we understood but didn’t, or trading celebrity stocks like Apple without proper trade plans. Luck will run out. Skills, even basic skills, is what pays.
Skills to Develop
We’re all here to learn how to actually making money, not just theoretically how to make money. Theoretical money doesn’t pay for vacations. So, the “how many years of experience” question when you sign up with a broker isn’t useful. For the same reason, if an investment advisor has many years of experience but loses you money every year, they don’t deserve to manage your money.
Here are the skills that matter.
Basic understanding of the market you’re in. We’ll explain in this series what’s relevant and what isn’t, so you don’t waste time on research and techniques that doesn’t matter. If you’re investing or trading specific stocks, also understand the industries (aka sector) for each stock.
Be proficient in your method of analysis that gives you: buy price, stop loss price (price where this investment or trade is no longer good), profit target price (when to sell for a profit).
Put safety first, which means have a strategy and plan. Based on your analysis, when and how much will you buy? When and how much will you sell? In a worst case scenario, will you lose it all or take forever to make it back?
Patience to let your ideas work out. In other words, trusting your ideas and analysis. This is why we emphasize keeping things simple. The more complex your ideas and analysis, the more you’ll have to keep track of and the more may go wrong. If you don’t trust your ideas and analysis, then should you be risking money?
Honest review of your performance. No one is grading you except the size of your bank account. Again, keep things simple so it’s easy to catch mistakes or know where to improve.
To make things easier, you could always team up with an analyst by subscribing to their reports, as long as you qualify them for consistently finding profitable opportunities. Who cares if you or an analyst finds the opportunities as long as you can profit from it. Strategies and trade plans can be improved with coaching, joining a community such as chatrooms or forums, and practicing on virtual paper trade simulators.
Rate Your Experience Level
It doesn’t matter if you’re investing or trading, and it doesn’t matter if you’re dealing in stocks, options, bonds, commodities, futures, forex, or real estate. You can do great in one and be terrible at another. Don’t keep forcing yourself on a certain market, analysis technique, or strategy. It’s also not necessary to invest in dozens and dozens of stocks. Many of the most successful investors and traders focus on even just one or two things, such as just the S&P 500, but knows it well.
This list gives you an honest way of assessing your skills and experience.
Beginner - If your investment portfolio or trading account’s performance is consistently the same or worse than the overall market, you’re a beginner (even if you’ve been in the market for a long time). Why? Because this is what anyone can do just by buying S&P 500 or Dow Jones indices and do nothing else. Any work you or your financial advisor did added no value to your wealth.
Intermediate - With your analysis technique strategy, you consistently perform as well as the market or slightly better. That means you’re either safer so you lose less when the market goes against you, you are good at identifying opportunities and taking advantage of them, or both. Your efforts do add value because you have a handle on the basics.
Advanced - Consistently make sufficient profits in any market direction: up, down, or flat (aka sideways). You understand your strengths and weaknesses. You know what style and strategy works for you. You don’t waste time and energy trying to learn a ton of other techniques but focus on developing what works for you to increase your earnings. You know how to limit your risk and find enough profitable opportunities to make a living.
ETN (Exchange Traded Notes),
ETF (Exchange Traded Fund),
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