Trading Lessons I Learned the Hard Way, Part 20

08/28/2012 8:00 am EST

Focus: STRATEGIES

Ron Wagner

Principal Partner, RevolutionaryTrading.com

Ron Wagner of Revolutionary Trading discusses the lessons he learned from his early days of trading, and how his trading has evolved to become profitable.

Find the previous article here. Start at the beginning here.

Trading has changed in some ways over the years. Oh, I still trade the same patterns, because trading is about repetitive cycles and doing what works consistently.

It’s not about finding the latest, greatest so-called new strategy. How would enough people know that strategy to help our trades become successful? Fear and greed will always be the dominating factors that move the market.

What has changed is computer speed, Internet connections, better trading platforms, and a few other things. I remember when I started, I was trading using a dial-up modem on a slow computer with systems crashing routinely and orders getting stuck. I started with 2:1 margin, trading with fractions, and high commission rates. Ah, the good old days!

Now we can get at least 4:1 margin trading our own accounts, pay much lower commission rates, and very rarely have a mechanical problem trading. We have extremely fast Internet service available at a low cost, and extremely tight spreads for much of our trading. I think sometimes we forget the magnificent improvements in what is possible today as compared to just ten years ago.

We talk about flash crashes, HFT (high-frequency trading) by machines, more black boxes, and software that promise rags to riches more than we have ever talked about before. We still like to think others know our IP address and that they take our stops out as though they were singling us out. The reality is that news travels faster now than ever before and this can be very lucrative for those of us that have developed the skills to trade properly, with the patience and discipline needed in this type of work.

Yes, I said “Work." The four-letter word that most of us shunned, as we thought that trading should be easy and separate from our “Jobs,” that other four-letter word we hated.

I found that the correct approach to trading was to use the same skills that help us become good at our jobs, which was necessary to trade well. In other words: get organized, find a routine that works, and then just put things in somewhat of an “autopilot,” doing the same thing day in and day out.

I have met so many people over the years that just want to "trade." No practice, no education, no help. And they think, for whatever reason, that trading should be different than all other endeavors on the planet. That was how I felt also when I first started trading. First, I paid my tuition to the market in both money and emotional capital, and then I paid to learn how to trade properly.

Over the years, trading has changed for the better. What other endeavor allows us to trade for one or two hours per day if we choose, to make more money than most jobs pay, and to have the opportunity to develop the financial freedom that is elusive for most? Every day I think how magnificent this is, but I am not cavalier about it. I appreciate what I have accomplished and the opportunity I have to trade.

I have been known to talk about a “dime a day.” One thin dime! Once confident, and trading just 1,000 shares on a trade, that would be $100. Starting out, just achieving that would be $25,000 per year. Become consistent, make just 20 or 30 cents per day, increase the share size after achieving a good win-loss ratio, and you can do the mathematical gymnastics to see where this can go.

The opportunity is incredible once trading is approached right. I did not approach trading correctly at first, and I am so thankful that I found my way quickly enough before losing all of our money.

Lessons learned:

  1. Things have changed over the years!

  2. Faster Internet speed

  3. News traveling much faster than ever

  4. More liquidity, even if by HFT and other forms of trading

  5. Lower commission rates

  6. Better trading platforms

  7. More education online and for less cost

  8. More buying power with 4:1 margin accounts

  9. Tighter spreads

So what is the conclusion? Those that can adapt to the different type of market that we trade in today, and can develop the skill set, patience, and discipline to trade properly, can have a lifetime of opportunity.

Next, I’m going to talk about how to adapt in today’s market environment.

Ron Wagner can be found at Revolutionary Trading.

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