Surviving the Learning Curve - Trading-Lab

Alchemist · #1 06-25-2007, 02:41 PM

Have you ever heard a trader say, “ I’m just getting over my learning curve and starting to make money” or ask, “How long does it take to make it through the learning curve?”? You probably wondered what exactly is a learning curve as it applies to trading and, do I need to go through one?

Everything you do in life comes with a learning curve. A toddler taking her bowlegged first few steps will have to go through her own learning curve, before she will be able to walk on her own. The same goes for when the same toddler, now a child, will try riding a bike for the very first time. She will probably loose her balance and coordination the first few times on it. But eventually, after several tries, she will be able to proudly stand on and ride her new shiny bike.

Trading, as most other things, has a learning curve as well. However, its length is highly dependent on two key things:

How the trader approaches trading and the extent to which he regards trading facts as opinions. That is, the extent to which he underestimates/overestimates key trading realities.
The initial starting capital needed to put any trader through a reasonable learning curve of at least 1 year of live trading.

Let’s start by analyzing a few popular misconceptions about trading, and how they can negatively affect and lengthen a trader’s learning curve.

POPULAR MISCONCEPTIONS

I make money paper trading. Therefore, I can make money LIVE trading. Even though a period of paper trading is strongly advisable when starting out as a trader, regarding it as a quick way to understand and conquer the markets is a major flaw. Paper trading is just that, PAPER trading. It does not have any emotional implications as virtual funds are employed rather than real money. As a result, paper trading is nowhere near as stressful as trading with real money. Since real trading is 90% emotions and 10% technical, it should now be clearer to you how paper trading cannot be regarded as anything more than just a way to get your feet wet, to get acquainted with your new trading platform. Put some real money on it, and you will undoubtedly experience a dramatic decrease in your paper trading profits.

Trading is a get-rick-quick scheme. During the late 90s, a lot of people were lured to trading as a way to make big money fast. And some people actually did. However, most of them lost it all and probably even more when 2000-2001 came around. Truth is: if you are looking for a quick way to get rich, stay away from trading. You may be better off trying other endeavours. Trading is hard work. Very hard work. Most people underestimate the difficulty of trading. In order to make it to the list of possible successful candidates, you have to put in very long hours of hard work and research. And even then, you have no guarantee of actually becoming successful. Trading is one of the most competitive fields around. Remember that every trader is competing for the same profits which are scarce in nature.

Overestimation of returns. New traders often overestimate the return they can achieve by trading their own capital. They tend to think they can earn upwards of 5 figure incomes on their capital of, let’s say, $100K or even less. However, let’s analyze that: even $50K a year on an initial capital of $100K represents a 50% yearly return. Is that realistically attainable? It’s possible, but most people don’t make that much if any, especially during their early stages as a trader. Truth is: expect to make zero or negative money when first starting out as a trader. Analyze your income expectations carefully and make your decisions accordingly.

Length of learning curve. Most new traders underestimate the length of time it takes to go through the learning curve and become a competent trader to earn enough money to at least support themselves. Do not expect to spend less than a couple of years learning the ropes. Otherwise, you are in for a nice ride. Having a mentor would definitely help shorten your learning curve. Still, you have to pay your dues.

INITIAL TRADING CAPITAL

Once you have clearly understood the difference between the above mentioned trading realities and misconceptions, you have to worry about putting together your initial trading funds. In fact, the initial trading capital you are able to set aside to undertake your trading endeavours plays an important role in determining your success in trading. It goes without saying that if it takes at least a couple of years of live trading to even be considered a possible successful candidate, you should have enough capital to put you through that length of time. This does not include any money you would need to live on while you go through your learning curve. But how much is how much? If you are trading very small (and you should), meaning no more than 100 shares or even less on each trade, you should set aside at least $40-50K in risk capital. While doing this you should be aware of the fact that you will probably loose some of that money while learning trading. As a result, you should only trade with money you can afford to loose. Otherwise, you risk running into mental blocks which would further lengthen your learning curve.

SURVIVING THE LEARNING CURVE

Now that we have analyzed the key factors affecting the length of the learning curve, it should be easier for us to have a clearer picture of what we should DO and what we should NOT do to succeed in trading. Trading should be regarded as a learning experience rather than a fast way to riches. By learning trading, you are really getting a glimpse of your inner self and how it plays such an important role when dealing with emotions. If you approach trading exclusively from a monetary standpoint, you are probably bound to fail.

Statistics say that over 90% of people who try their hand at trading fail miserably and quit trading within their first year. Why does this happen? Simply put, people approach trading for the wrong reasons. And even those who attempt to trade for the right reasons, tend to not regard it as a business. Consequently, they fail and quit. However, any new trader who is able to discern realities from opinions and willing to treat trading as a regular business (i.e. put in lot of hard work) should have no problem removing the factors that impede trading success and making it through the learning curve. Truth is: it is possible to be among the remaining 10% who make it. But you have to play by the rules!

OverTheTop · #2 06-26-2007, 09:36 PM

hey,

congratulations again on you SECOND article. I also read your new blog entry. I appreciate the fact that you considered adding an articles section after I started my "are you afraid of pulling the trigger" thread. Your articles are an easy read and are concise and effective.

looking forward to your third article!!

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#1 06-25-2007, 02:41 PM
Alchemist founder of Trading-Lab Join Date: May 2007 Location: New York, NY Posts: 296	Surviving the Learning Curve Have you ever heard a trader say, “ I’m just getting over my learning curve and starting to make money” or ask, “How long does it take to make it through the learning curve?”? You probably wondered what exactly is a learning curve as it applies to trading and, do I need to go through one? Everything you do in life comes with a learning curve. A toddler taking her bowlegged first few steps will have to go through her own learning curve, before she will be able to walk on her own. The same goes for when the same toddler, now a child, will try riding a bike for the very first time. She will probably loose her balance and coordination the first few times on it. But eventually, after several tries, she will be able to proudly stand on and ride her new shiny bike. Trading, as most other things, has a learning curve as well. However, its length is highly dependent on two key things: How the trader approaches trading and the extent to which he regards trading facts as opinions. That is, the extent to which he underestimates/overestimates key trading realities. The initial starting capital needed to put any trader through a reasonable learning curve of at least 1 year of live trading. Let’s start by analyzing a few popular misconceptions about trading, and how they can negatively affect and lengthen a trader’s learning curve. POPULAR MISCONCEPTIONS I make money paper trading. Therefore, I can make money LIVE trading. Even though a period of paper trading is strongly advisable when starting out as a trader, regarding it as a quick way to understand and conquer the markets is a major flaw. Paper trading is just that, PAPER trading. It does not have any emotional implications as virtual funds are employed rather than real money. As a result, paper trading is nowhere near as stressful as trading with real money. Since real trading is 90% emotions and 10% technical, it should now be clearer to you how paper trading cannot be regarded as anything more than just a way to get your feet wet, to get acquainted with your new trading platform. Put some real money on it, and you will undoubtedly experience a dramatic decrease in your paper trading profits. Trading is a get-rick-quick scheme. During the late 90s, a lot of people were lured to trading as a way to make big money fast. And some people actually did. However, most of them lost it all and probably even more when 2000-2001 came around. Truth is: if you are looking for a quick way to get rich, stay away from trading. You may be better off trying other endeavours. Trading is hard work. Very hard work. Most people underestimate the difficulty of trading. In order to make it to the list of possible successful candidates, you have to put in very long hours of hard work and research. And even then, you have no guarantee of actually becoming successful. Trading is one of the most competitive fields around. Remember that every trader is competing for the same profits which are scarce in nature. Overestimation of returns. New traders often overestimate the return they can achieve by trading their own capital. They tend to think they can earn upwards of 5 figure incomes on their capital of, let’s say, $100K or even less. However, let’s analyze that: even $50K a year on an initial capital of $100K represents a 50% yearly return. Is that realistically attainable? It’s possible, but most people don’t make that much if any, especially during their early stages as a trader. Truth is: expect to make zero or negative money when first starting out as a trader. Analyze your income expectations carefully and make your decisions accordingly. Length of learning curve. Most new traders underestimate the length of time it takes to go through the learning curve and become a competent trader to earn enough money to at least support themselves. Do not expect to spend less than a couple of years learning the ropes. Otherwise, you are in for a nice ride. Having a mentor would definitely help shorten your learning curve. Still, you have to pay your dues. INITIAL TRADING CAPITAL Once you have clearly understood the difference between the above mentioned trading realities and misconceptions, you have to worry about putting together your initial trading funds. In fact, the initial trading capital you are able to set aside to undertake your trading endeavours plays an important role in determining your success in trading. It goes without saying that if it takes at least a couple of years of live trading to even be considered a possible successful candidate, you should have enough capital to put you through that length of time. This does not include any money you would need to live on while you go through your learning curve. But how much is how much? If you are trading very small (and you should), meaning no more than 100 shares or even less on each trade, you should set aside at least $40-50K in risk capital. While doing this you should be aware of the fact that you will probably loose some of that money while learning trading. As a result, you should only trade with money you can afford to loose. Otherwise, you risk running into mental blocks which would further lengthen your learning curve. SURVIVING THE LEARNING CURVE Now that we have analyzed the key factors affecting the length of the learning curve, it should be easier for us to have a clearer picture of what we should DO and what we should NOT do to succeed in trading. Trading should be regarded as a learning experience rather than a fast way to riches. By learning trading, you are really getting a glimpse of your inner self and how it plays such an important role when dealing with emotions. If you approach trading exclusively from a monetary standpoint, you are probably bound to fail. Statistics say that over 90% of people who try their hand at trading fail miserably and quit trading within their first year. Why does this happen? Simply put, people approach trading for the wrong reasons. And even those who attempt to trade for the right reasons, tend to not regard it as a business. Consequently, they fail and quit. However, any new trader who is able to discern realities from opinions and willing to treat trading as a regular business (i.e. put in lot of hard work) should have no problem removing the factors that impede trading success and making it through the learning curve. Truth is: it is possible to be among the remaining 10% who make it. But you have to play by the rules!

#2 06-26-2007, 09:36 PM
OverTheTop Member Join Date: Jun 2007 Posts: 46	hey, congratulations again on you SECOND article. I also read your new blog entry. I appreciate the fact that you considered adding an articles section after I started my "are you afraid of pulling the trigger" thread. Your articles are an easy read and are concise and effective. looking forward to your third article!!