TheWeb3Capsule#013 Six Life principles Learned from Trading The Market.
Trial and error leads to success.
2 years ago I lost 3567 € in less than 34 minutes. I know those are super precise numbers and for a reason. It was a trauma, one that hurt but gave me valuable lessons on how to navigate life.
At that time i was trading forex (Foreign exchange currencies) for about 8 months, i was consistently making profits for 4 months, starting to get my edge over the market as some would say.
But in trading you're always one decision away from blowing up everything. One should not track his aptitude to make profit consistently but his mental state. Or how stable his relation is in regards to making and losing money.
Learning this skill was an amazing experience, and what I learned in the journey impacts me in every part of my life. I would compare it to high level sports because you need a precise game-plan, one from which you can’t deviate because if you do…
Done, you lose.
Before giving you the 5 most important lessons I took from this journey, I'll give you more context.
So trading is the action of speculation on the price of an asset. In Forex it’s a bit different as the asset is a pair of currencies. Let me illustrate with an example.
Currency 1: Euro
Currency 2 : US Dollar
This pair is denoted as: EURUSD.
I have two options to make money :
1/ I either ’long’ the pair which means that I believe that 1 euro will give me more dollars in the future.
2/ Or I ‘short’ the pair which means that I believe that 1 euro will give me less dollars in the future.
Believe is not the right word as you don’t speculate on mere believes, you base your decisions on two different factors :
1/ Fundamental analysis:
This is the ‘rational’ macroeconomics analysis of the markets :
Rise or fall in GDP relatively to last year/last semester/last month.
Relative Increase/decrease in unemployment.
Increase/Decrease in central banks interest rates
Geopolitics state in the country
And many other elements. Oh and you should do for both currencies of the pair, as any change should be compared to the other country's change.
2/ Technical analysis
For this things are a bit different, you analyze charts and what we call ‘Price action’.
This is price action, you analyze what price did in your trading time frame and base your decision on it. You can also use indicators that can help you understand if the price is ‘Overbought’ or ‘Oversold’.
But that is not the theme of this week newsletter, if you want me to share more on this part don’t hesitate to send me a DM !
How did I lost that money ?
One Friday, I was overconfident in regards to my strategy and I made a bunch of money. Which normally in my original plan should lead to one thing → I close the day and stop trading.
But my stupid brain at the time told me to go, continue, you still have half a trading day in front of you, you didn’t lose one single trade come on don’t be a …
You got the point, winning streak + overconfidence + being dumb is not the ideal mix.
I took one trade and lost it instantly due to a massive move in the market.
Decided to give the same trade a second chance. Lost again.
“Jamais 2 sans 3 ?”
I gave it a third chance. Lost again. At that point I lost half the money I made that day.
Rational thinking would lead to the following : “Ok right i f***ed up but now is the time to stop.”
No, no, no, I don't think I was that rational at the time. Here’s what happened in my brain
“Ok now, i am gonna make twice the money i lost and be super profitable”
No, and the worst thing about it is that a part of my brain was ready to lose all the money just to be right. EGO is the enemy, not every time but most of the time.
I was ready to go to war against the market…
Dumb move, I know you can laugh at me. It took me time to digest that but it did teach me what I needed. This event may be the one from which I took the best lessons.
Now let me share them with you.
Six Ways Trading Has Changed My Life: Life Principles Learned from the Market
1/ If you don’t have a repititive plan you’ve already lost
Last week we’ve already talked about this. Planning is essential yes.
But for some goals it’s a bit different, your plan takes the form of a repetitive step by step process. An action routine that must be followed until proven wrong.
Then it can be modified and followed again.
Without a plan, you can’t monitor what’s wrong, get data and see what led to the wrong outcomes.
2/ Everything starts in your mind and ends there
You’re the only one in control.
You’re the only one that can stop.
You’re the only one that can get you to act.
You’re the only one responsible for your actions.
When I trade I know that every decision I take can lead to two outcomes, i win or i lose and i have no one to blame or to congrats except myself.
This pure sentiment of responsibility will never leave me and I want it to stay forever.
Why ?
Because it makes me move, it drives me internally to achieve greatness. Once you figure out that no one will get you what you want you take yourself seriously.
Your mind in the bottom trigger line.
3/ Risk only what you could bear to lose
First always consider that the money you trade with will be lost.
Second, never put at risk more than what you can financially and psychologically bear to lose.
Financially means that you’re safe, your family is safe and you don’t use LIFE money.
Psychologically means that losing that money won’t perturb your plan, won’t lead to irrational decisions.
Protect your mind by following your strategy.
4/ The game don’t end when you lose
The relationship I have with losing has completely changed. It became a natural part of the game, sometimes you win, sometimes you lose, you appreciate the process, learn how to take lessons from the difficult time and always start with the same enthusiasm.
More than that, I would say that without losing you never know what it means to win. We need that to develop an appropriate level of satisfaction.
So go out there, try things, loose and try again.
5/ No risk, No reward
In trading if you don’t put money on the line you can neither lose it nor win over it. As Nassim-taleb would say, you need skin in the game. The only certitude that exists in life is that whatever is it you want, if you don’t work for it you won't have it.
Every new journey I start is based on those principles.
I like to say that not every journey has to make you financially richer, my trading one made at first broke, they gave me the keys to learn how to make money.
Thanks for reading me.
Don’t hesitate to send me a DM if you have a specific question, a feedback or a topic you would want me to write on.
Here’s a good meme for you to visualise what happens when you day trade.
Happy Monday everyone !