Note: This is the first in a series of articles in which the author will discuss what it takes to become a successful, profitable trader.
Is all that glitters gold? With stock tickers moving up and down anywhere between ten to 20 percent, the greedy mind starts calculating the millions you would have made within the shortest period of time, how you could have bought your dream car or planned a long-desired vacation to an exotic location, dreams you could have made true just by being glued to the screen or from a tip from a so-called expert.
Welcome to the world of trading, or what most folks think trading comprises.
After all, it doesn’t seem to take much to be there in the market, buy a stock, and then to sell it when it goes up by a couple of percentage points, one thinks.
You can mint money by the minute, you think, child’s play.
Apologies for bursting your bubble.
If this profession is really so very easy as it seems, why do less than three to four percent of traders make money on an annualised basis while over 95 percent lose money on an annualised basis. A point to ponder, wouldn’t you agree?
The Trading Journey Trajectory
A majority of trading beginners usually start their journey with what makes them most comfortable. The most effortless way of testing the waters for them is usually by watching business channels 24x7, YouTube videos from so-called market gurus or scouting for stock tips from those in the know. A minuscule few do follow the hard route, namely, self-educating themselves by reading books on trading by the experts in their search for the Holy Grail of trading. Apologies for bursting your bubble yet again. There is no Holy Grail of Trading.
The markets, however, are kind to beginners. Beginners’ luck is a common phenomenon that sucks a newbie trader in with few winning trades. This beginners’ luck is a double-edged sword, while it gives the fledgling trader the confidence needed, it also creates the false assurance that the market is easy to beat. This leads to a big fall with the fledgling trader ending up giving back all the profits made along with the principal. This can be devastating for a new trader. Some might never recover to dare trade again. Some might sink even further in their determination to recover their losses.
This is a path I have walked on too, so I know. Honest confession, I did blow up my account about thrice in my initial years of trading, and was a losing trader for over five years before I turned profitable.
What It Takes?
In my experience, it takes anywhere between four to five years to become a successful profitable trader on an annualized basis. Malcolm Gladwell in his 2008 bestseller ‘Outliers’ says, “ten thousand hours is the magic number of greatness." Basing his statement on studies of elite performances, Gladwell added, "an extraordinarily consistent answer in an incredible number of fields ... you need to have practiced, to have apprenticed, for 10,000 hours before you get good." This holds good for trading as well, as it does for any professional field.
Some folks might not need the 10,000 hours. They might become successful, profitable traders on an annualised basis much earlier. Here is where the luck factor comes in. As Market Wizard Ed Seykota says, “Luck plays an enormous role in trading success. Some people were lucky enough to be born smart, while others were even smarter and got born lucky.”
Follow the entire series here.
In the subsequent articles, I would be elaborating about the steep pitfalls one may encounter in this business.
Kirit Manral is a professional trader, and has been running a mentorship program in trading since 2019, with mentees from around the globe. He can be found on Twitter at @KiritManral