Investing and trading always interested me. Back in 08, I turned 18 and the financial markets crashed. I felt like it was a good time to invest some money. I sold some gold I was gifted when I was a kid; yes you gift gold to children in Switzerland and no, it’s not strange there.
With the money I got from this sale, I bought stocks of Novartis, Clariant, and UBS. The former two turned out to be highly profitable. The years went by and my interest in investing went down. As a student, I didn’t have money on hand and had different priorities. But 3 lessons I learned from my early investing success stuck to me:
- Buy low, sell high
- Invest long term
- Invest based on value not on share price
Three years ago I was at a point in my life, where I knew something had to change.
I was working as a chemist for 3 years after finishing my studies and felt like I was trapped. I knew there has to be more. Like many others, I started to look for ways to make money online. Day trading was something that came up again and again.
Yes, I know, the pure opposite of the early success lessons I mentioned above.
Excited and ready to make some serious money, I opened a trading account. I put some money on it and made my first trades. Guess what? I lost everything. I think that’s no surprise to you, but it was not what they said in the YouTube ads.
But giving up never crossed my mind. What sparked my interest though was the fact that, when I dug a bit deeper, everybody said 9 out of 10 people lose money trading. I didn’t think, that I was smarter than everybody else. But I also knew, that many people don’t know how to learn new skills.
That’s when I decided to become the one out of 10, who at least doesn’t lose money.
Experts like Anders Ericson in his book “Peak” or Malcolm Gladwell in “Outliers” believe that it takes somewhere around 10 000 hours to achieve mastery. And those 10 000 hours have to be spent with deliberate practice. When I was young, I played soccer. I loved to play one on one and hated exercises, where you have to pass the ball directly or with one touch only. Why? Because I knew, how to dribble, but it was hard for me to watch my teammates and my opponents at the same time. All this, while passing the ball at the exact moment and without time to prepare. This is the difference between playing and deliberate practice. Playing feels nice and comfortable, while deliberate practice is hard and always at the edge of your abilities – forcing you to get out of your comfort zone and to stretch.
Why should I even start, if it takes me 10 000 hours to become good? Well, I don’t say the rule is untrue, but I’m a big believer in the 80:20 rule as well. The 80:20 rule is a power-law you can observe everywhere. It says, that to achieve 80 percent of the results, you only need to invest 20 percent of the effort. So to achieve 80 percent of the level of a true master, you only need to invest 20 percent of the time. Since I had no aspiration in becoming a trading master but only a profitable trader, I was sure I could get there in under one year.
Over the years I developed my recipe for acquiring new skills. And I have since tested it successfully on myself and many others.
Let’s take a look
Find your WHY
Learning a new skill is like falling in love. In the beginning, everything feels like bees and butterflies. But with time there needs to be a deeper connection. You can learn almost everything at any age. But you need a strong reason. Without a reason, you will give up as soon as it gets hard. My reason was to prove myself, that I can master a skill only a few people are able to.
The Mental game
We all come from different backgrounds. Every time someone told you, that you can or cannot do something left an imprint on you. Depending on where you’re at, you have to build yourself up over time. The way to do this, is looking for small wins and celebrate them. As silly as it may sound: every time you can remember something you set out to learn- celebrate. Every time you did something you set out to do – celebrate. Once you achieve those small wins, you can shoot for bigger ones, until your goals are so big everybody will tell you that you’re crazy.
In trading the mental part is huge. You have to learn to live with losses. If your wins outweigh your losses, you can even make money when you lose more often than you win. I know this sounds great but in practice, losing puts pressure on, even if you believe in your strategy. So, to be able to sustain the pressure of trading and stick to a strategy, you need to have a deep belief in your ability to win. By celebrating small wins you build up this self-confidence.
Whatever you want to learn, you first need to have an understanding of the language of the subject. For this reason, I suggest to look for the 3 most popular YouTube channels and watch their top 10 clips.
- Then find the 3 most popular podcasts and listen to their 10 most popular episodes.
- Find the 3 most popular books, and read at least one of them
- Find the online course with the best rating on Udemy and go through the course.
Keep a journal where you summarize and organize the most important learnings
It took me some time to filter out all the get rich quick guys on YouTube and find some channels, that provide real value. The same with online courses. Books and podcasts weren’t problematic. I spent my first weeks listening, watching and reading. In the beginning, you will feel like nothing makes sense and everybody is teaching something different. But after a while, you start to notice patterns and reoccurring themes. This is when you are ready to enter the next stage.
Without practice, your notes are just that: Letters on a piece of paper nothing more. We tend to forget a good part of what we learn in the first few days. With taking notes you did the first step to prevent this. The second step is to apply your newly gained knowledge to a real problem. It’s one thing to hear something in theory, but a whole different beast to do it in real life. Like Mike Tyson said it: “Everybody has a plan until they get punched in the face”.
By applying your knowledge to a real-world problem, you practice a fundamental law of learning called spaced repetition. This means, that it’s more effective to learn for 2 sessions on 2 separate days than to learn all in one session. Every time you feel like you have to think hard to remember what you learned in the last session, you are leaning and not repeating what you already know. There’s also a second advantage to not only learning in theory. Every time you learn something in theory, and you transfer it to a real-world problem, you will struggle. Different parameters, a changing environment and a lot of uncertainty will make the real world case much more complex than a constructed, theoretical problem. So, don’t waste too much time with theory and study real-world problems.
In trading, this is easy, since you can open a demo account with every serious broker. I opened my demo account and started to try out all the different tactics and strategies I learned while listening, watching and reading.
An important part of learning is to get feedback. The faster you can get feedback, the more valuable it is. Day trading is very fast-paced, so you can almost get immediate feedback. It’s important though, to have a system in place to capitalize on the data you generate. To do this, it’s important to have a trading journal. This can be a simple excel spreadsheet, where you write down all your trades with details like time, entry, exit, winner/loser, stop loss, etc.
Over time this will become an extremely valuable asset, where you can run statistical analyses and optimize your strategy.
Flow expert Mihaly Chikzetmihay describes flow as a state of optimal human performance. To achieve flow, you need to operate at the outer edge of your abilities. But the challenge can’t be too hard as well. In a flow you find yourself losing your sense of time. While you are in flow, you learn more than 200 % faster and you can perform at your best. So every time you manage to get into a flow, you manage to shorten your learning time.
Trading offers a good chance to get into the flow. Your money is on the line and you get fast feedback from the markets. Use this to your advantage. Go into your demo account, pick a small timeframe, block out all other distractions and trade like your life depends on it.
Put in the work
No matter how clever your learning approach is, at one point you have to invest time. I found pattern trading the best option for me. I picked the Gratley, Bat and Cypher pattern since I found the best data of them. I chose to trade the 4-hour timeframe.
First I would go on the daily timeframe to assess the market structure and the overall trend. I would draw in the major swings and trend lines. Then I switch down to the 4-hour timeframe to do the same.
Once I have the trends, I look for upcoming patterns. When I find a pattern, I place a pending order, that gets filled, as soon as the marked passes, a certain value. I either go long or short, depending on what the pattern is indicating.
Once you have a strategy like that, the “fun” part begins. You have to backtest your strategy. This means you load old data and test your strategy with data from the past. Even if you have a good program, this is very time consuming, since you have to do a lot of statistical evaluation of your results.
But once you’re done, you know what your strategy would have delivered in the past. Of course, this is no guarantee for future results but a solid start.
The number one rule in trading is to not go broke. This sounds simple, but many amateurs go all-in on every single trade. I never risked more than 1% of my account in any single trade. With a maximum drawdown of 10 %. Let’s say I lose 10 trades in a row, the cumulated loss can’t be higher than 10% of my account.
Once I developed my strategy and adjusted it after backtesting, it was time to enter the markets. I started with small investments and built up over time, as I got more data from my trades. In the beginning, you feel nervous every time you have an open position. But over time it gets easier to control the emotions and to trust the system.
Why I don’t trade anymore
At the moment I stopped trading completely. My UK broker closed all the accounts because of the upcoming Brexit and I felt like it’s the right time to step back. I didn’t lose any money trading for 2 years. But I didn’t get rich as well. I made some money, but my account wasn’t big enough to live only from trading or to get as rich as they tell you on Instagram. The main reason I stopped trading is, that I changed a lot as a person over the last years. When I got into trading, I looked forward to being on my own and extracting money from the markets. Today, I feel like making money without contributing to something is not what I want to do. I want to build something and help others realize their dreams.
Even though I never felt like a creative person, I realized, that I’m much more creative, than I gave myself credit for and that I enjoy creative work. In trading, you need to work very analytically and you must love statistics. Whereas creativity goes hand in hand with uncertainty, you try to minimize uncertainty as much as possible in trading.
I love to learn new things and with blogging, I found a possibility to share, what I learn with likeminded people. At the moment I feel very confident in my decision to focus on blogging and to stop trading.
As you can see, it’s possible to learn things, where most people tell you that you will fail. Just don’t feel like you have to stick to something, because you invested time and energy in it.