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The “lifestyle” of a pro trader is a big fat lie

Yachts, women (men for those ladies pursuing the dream), private jets and business class, presidential suites, fancy cars, 10k stacks, mansions, etc all encompass what is presented as the “dream trader life style”.

The dream advertised by stock picking subscription services, instagram accounts, and the like are all built on a foundation of sand.

Sadly, it’s all clever marketing and not a reality.

FACT: 99% of stock picking service providers make more money from their subscriptions and product sales than they do their own trading.

Taking tips from people “smarter” than you is a terrible idea

Hot stock tips are everywhere, and unfortunately no matter how experienced you are, it can be really hard to pass up a great buy tip, especially if the person has apparent access to some “behind the scenes” information no one else knows about.

Unfortunately, ads like the one above for penny stocks are designed to sucker you in to buy a product or service. These tips are utter junk and will leave your wallet and portfolio bleeding red in the end.

Reality: If someone even had a strategy that could consistently return even 11% per year, they’d be rich beyond their wildest dreams and would not need to sell picks.

Confirmation bias and your emotions are your worst enemy

Trading is a mental game. The mind is a beautiful thing, and given a runway of endless inspiration data, it can wreak some serious havoc.

Confirmation bias definition via Wikipedia,

Confirmation bias is the tendency to search for, interpret, prefer, and recall information in a way that confirms one’s beliefs or hypotheses while giving disproportionately less attention to information that contradicts it.

In the trading world, this means you see a setup or price action and quickly convince yourself to buy or sell. Unfortunately, 99% of the time you should be doing the direct opposite.

Technical analysis is one of the worst in provoking this natural human behavior. “Oh, I’ve seen this pattern before, it’s a buy”. There is a reason why online brokers offer dozens and in some cases hundreds of technical indicators. Indicators encourage you to see more “patterns” and trade more frequently.

In poker, a player can go on “tilt” and make poor decisions, ultimately losing their stack in a hurry. The same mental dilemma applies to trading.
80 percent of active traders lost money.

“More importantly, If you were to look at the past performance of these traders, only 1 percent of them could be called predictably profitable,". Everyone else, it seems, was on a short-term winning streak. Even those who did modestly well found their that profits were wiped out, and then some, by transaction fees like commissions and taxes.

“It’s not impossible to make money actively trading, There are slivers of people out there who are quite good. And everyone thinks they will be in that group of 1 percent.”

80% of day traders in the study lost money (something that is very hard to do in a bull market)
Only 1% of day traders in the study were "predictably profitable."
Put differently, far from this being an enriching line of work, 4 out of 5 people engaged in it pay to do it. Only 1 in 100, meanwhile, make enough to be worth writing home about.

What We Can Learn

While each trading plan is different, each trader must have a written down trading plan which outlines how they will trade. This plan should be well researched and lay out entries, exits and money management rules. In this way the trader will know over the long run if their plan is flawed or successful. It is also extremely important to risk a very small percentage of capital on each trade; risk levels of each trade should be covered in the trading plan under the money management section. This gives leeway to the trader as they will be able to withstand a string of losses and be less likely to make a pre-mature change in their trading plan when it is not needed.
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