Every beginner trader encounters some pitfalls and obstacles when they first get started trading, and I am no exception. Over the past twenty years of my trading career, I have made every trading mistake in the book. It took me a long time to figure out what worked best for me and my trading. Despite getting kicked around, I ultimately found a trading style that worked for me and created a methodology that combines both process with mindset. That winning combination drove me to launch my trading coaching business Mara Wealth and help inspire thousands of traders around the world with the tools, mindsets, and beliefs they need to succeed in the market.
Here are 7 ways you can overcome the odds and rise above the pitfalls as a beginner trader!
1) Be Wary of “Professionals” Handling Your Money
I started trading when I was 18 years old, and I didn’t know what the hell I was getting myself into. I thought investing meant that you put money in, and more money pops out on the other side. Boy, was I wrong!
I was about to start college and had saved up some money working at Mount Sinai Hospital in Astoria. I saved about five grand and went down to the local Astoria Federal Savings Bank. They had an investment desk back then and I had walked past it dozens of times. That day I decided to walk up to them and start my investing career! Proudly, I said ‘I want to invest in stocks.’ The advisor retorted, “No, you don’t want to do that. Way too much of a risk! What you want is this…” He proceeded to pull out a binder and it turned out to be a bunch of mutual funds. I took the binder and started perusing through the pages.
After about 5 to 10 minutes, the man came over, looked over my shoulder, and stated incredulously, “What are you doing? Nobody reads those.” So I flipped through them a little faster and finally said, “OK I’ll take these three.” I had chosen two mutual stock funds and a bond fund. I thought that I was smart because I had professional people that knew what they’re doing and managing the accounts for me, loads of diversification, and time on my side. …You know …All the ‘conventional wisdom’ …Sigh…
I checked on my account after six months, and within that time my money increased by 10%. I felt cocky, confident, and didn’t look at it again until after my college graduation four years later. I thought I’m going to double my money since I put it in during the middle of the .com boom, but back then, I didn’t know what the Nasdaq was, or what the hell that meant. If I had educated myself, being up only 10% should have been a red flag! But I was naïve and only focused on the result I wanted (doubling my money) and not on the process to get there. So when I graduated from college and checked my account, there wasn’t $10,000. There wasn’t even the $5,000 I started with. I instead lost a grand, and my account was down to $4,000!!
2) Build a System that Gives You Positive Expectancy
After that initial loss, I was pissed. All that time wasted! I would’ve been better off financially keeping it in my savings account to accrue the 1% interest! So after graduation, I took a break from the market and thought it was rigged. Like gamblers at a casino, they lose and then cry out, “This game is rigged!” But would they have reacted that way if they won? The important lesson is that the outcome does not dictate whether something is rigged. You need a system that’s going to give you positive expectancy, meaning if you play this game 100 times, you expect to come out ahead. That’s why the casinos are in business because they play the game 100s of times, and they expect to win. That’s why the odds are in their favor. And that’s why, as a gambler walking through the casino door, winning is not in your favor.
3) Trading is NOT Like Gambling
Trading is not the same as gambling. It’s a game that you can win and can have a positive expectancy. But most people don’t treat it that way. They treat it like they are the gambler trying to win a scratch off. “Oh, I just need one big win.” But it doesn’t work that way. You want the game that you are going to play over and over again and win. It’s like flipping a coin. Say that you could get paid two dollars every time the coin landed on heads, and every time the coin lands on tails, you lose one dollar. Would you play that game? Sure. That’s a game you’d keep playing all day long. But what if the coin flips five tails in a row or ten tails in a row. Most would stop, throw a fit, cry out that the game is rigged, and not play anymore. They’ll start playing dice instead. The truth is, they had a winning thing, but didn’t understand it enough.
4) Plant the Right Seeds
Despite the mutual fund fiasco, I was still intrigued by the market and the potential it could provide. I met someone else at the day job that traded well, and I wanted to learn more, but he didn’t want to teach me. So I tried to learn on my own and found Jim Cramer. I watched some of his TV shows and read some of his books. I was trying to educate myself that way, but just like with beliefs, you have to be careful what seeds you’re going to plant.
Here’s an example: Let’s say you went to the gardening store and could buy the high-quality seeds to plant on your lawn, the top-of-the-line organic seeds. You could have the best lawn on the block if you buy these seeds. Or, you could buy the cheap bag of seeds, but you don’t know what’s in there.
Honestly, Jim does offer a lot of value. He made trading interesting and fun for me in the beginning. But here were some things he taught that didn’t work out too well for me. For example, ‘if you like the story of a stock and it goes down, it’s a good time to buy more of it.’ However, what if the stock keeps going down? That style didn’t work out too well for me… and I learned it the hard way…
5) There are Steps to Get Where You Want To Go
A more seasoned trader knows that if you buy something and it goes down, the market is already telling you that you’re wrong. The idea is for it to go up in price or in the direction you want it to go. So it’s not that you’re right and the market is wrong. You need to ask yourself the question: How wrong are you willing to be?
Sure, a more advanced trader could double down at some points when the market is going against them, but that takes a lot of finesse! I also have learned that if you were going to be a writer or a martial artist or marathon runner, whatever it is, there are steps you need to take to get you where you want to go. You can’t just put on the sneakers and say, “I’m running the marathon right now!” Or for a UFC fight, you say, “Oh this looks fun. I’m going to sign myself up to be in a pro fight. I mean, how hard can it be? You throw some punches, tackle somebody.” Yeah, you’d get your ass kicked.
As ridiculous as that example is, you hear ways of finessing certain moves. So if I buy at 100 and think it will go to 120 and it goes down to 95, then I’m gonna cut my loss. So, then if it goes down to 97, I could buy more. But it’s a matter of knowing when to double down. Doubling down at 97 is not a good idea because you could have gone out at 95. But what if the price point goes down to 96 or 95.50. It doesn’t cost too much to double down at that point since getting out at 95. But that’s something I would consider more of a finesse move. A beginner should not try this because, just like the UFC, you may fall flat on your face and not know how to get back up again.
6) Find a Process That Works for You!
So after I tried out Cramer’s method for a few years and not being able to make it work, my trading got shelved again. I was now in my late-twenties and met John, a guy who’d be my office mate for the next few years at Memorial Sloan Kettering. I was now in middle management and making decent money. John suggested that I start putting some money into the market. I told him about the saga from earlier. He continued to encourage me and introduced me to some books written by Martin Zweig and William O’Neil. I decided I had nothing to lose, so I started with Zweig’s book “Winning on Wall Street” and then read William O’Neil’s book “How to Make Money in Stocks.” Both books were great, but O’Neil’s book really resonated with me. His style was more natural for me to follow as a part-time trader since I was still working full-time at Sloan Kettering. It was still challenging but offered more clarity and had an infrastructure to follow. He created Investor’s Business Daily and offered a newspaper, classes, and meet-up groups. So, I went deeper into that wormhole, and after about a year or two of studying O’Neil on my own, I found an Investment Business Daily meet-up in NYC.
The first time I went there, I was blown away by it. They offered the same kind of quality presentation I was getting at grad school. The presenters were super knowledgeable about trading and systems. Within a year, I showed them how I was applying what they were teaching and I what I was doing on my own. To my amazement, they wanted to adopt some of what I was doing! I found ways to do what they were doing but in a more efficient way. They were doing it full-time already, and I was trying to do it part-time. Since I was a part-time trader, I found more efficient ways–because I had to. And that sparked the idea to make this into a business! I wanted to help people because if I was experiencing these issues, that meant other people were experiencing them too. Therefore, if I had an answer, I wanted to share it and help as many people as possible. And that’s what ultimately led me to create my first trading business, and later sparked my business idea for Mara Wealth.
7) Get Started!
No matter how you get started, the most important thing I’ve learned is to start! If you are interested in the market, this is the best time to learn and get your feet wet. I am here to help guide you, so you don’t get kicked around as much as I did. I created the Trader’s Thoughtbox, which are the top ten things I wish I knew before I started trading. Click here to get your free download of The Trader’s Thoughtbox today!
And if you want to trade along side me and get all of your questions answered, join us in the Trader’s Mindchat Room. We discuss everything trading and provide you with a supportive community to help you during the highs and lows! You don’t have to do this alone! We are here for you every step of the way!
Also, be sure to subscribe to my newsletters for more trading tips and videos to help you along your trading journey!
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To continue crushing it with your trading, check out the following MARA blog posts:
Michael Lamothe founded MARA in 2018, and his mission is to help traders succeed in the market by focusing on mindset. Michael has helped thousands of traders through his methodology. He is an international speaker, presenting at AAII, Stocktoberfest, Benzinga’s Global Fintech Awards, and more! He’s also been featured on NASDAQ Live.