I received an interesting email the other day, asking a very intriguing question.
Its a question that made me pause and reflect for a while. I didn’t really have an immediate answer.
Oh, I had several ideas pop into my head immediately, but I quickly realized that these weren’t the right answer to the question.
The question was this:
What is the very worst thing that can happen to a new trader?
You can see how there are many different ways to answer this question, many possibilities.
But I needed to find just one.
Most people would think that the obvious answer is the complete annihilation of their risk capital account.
Of course, that’s the worst thing that can happen to ANY trader. The complete loss of your capital account suggests to a Trader that they have failed (which may or may not be the truth).
But the complete loss of your capital is a destination that generally takes new traders a while to get to. So that wasn’t really the answer to the question this new trader was looking for.
Assuming that the complete of your capital account signifies failure, the answer to this question would be something that would hasten the losses, that would clear the pathway to financial ruin.
The answer to this question needs to be what would point a new trader in the wrong direction, right from the start. What would be their biggest obstacle to overcome.
After much contemplation, I arrived at an answer for this new Trader.
The WORST THING that can possibly happen to a new trader is this:
Winning your first trade.
This may not make sense to you at first. After all, isn’t winning ALL of your trades the ultimate goal of a Trader? Of course it is. But at the same time, it is a completely unrealistic and ultimately unobtainable goal. Perfection is what we as Traders strive for, but understand we will never really reach. In reality, what Traders really want to achieve is a high level of consistency.
So how then is the worst thing that can happen to a new Trader WINNING their first trade?
Any experienced and successful Trader will tell you that the key to consistency in trading is to have what is known as a “winner’s mentality”. This only comes through experience, patience, and persistence.
But if a new Trader wins their very first trade, they won’t develop a healthy respect (NOT FEAR!) of the risks and dangers inherent to trading. By winning the very first trade, this new Trader will experience something very similar to the “winner’s mentality” without actually truly developing it through maturing as Traders.
And that makes them dangerous as a Trader. Dangerous to themselves, and dangerous to their capital accounts.
If the second trade is also a winner, they will go into the third trade with an even higher boost of artificial confidence. And if the third trade is also a winner, this is further enhanced. Each subsequent win convinces this new Trader that trading is the easiest way in the world to make money, Greed sets in, and Fear is never experienced.
A Trader will struggle to develop a healthy respect for the market, and for the risks inherent to trading, if they start out with winning trades.
I’m not suggesting that a Trader should intentionally lose their first trade. Of course, that would be idiotic. But if you ARE lucky enough to win your very first trade, DON’T LET THAT GO TO YOUR HEAD! You didn’t just discover the first fool-proof trading strategy. You just got lucky.
I recently found myself consulting with a new Trader who thought they had found the Holy Grail of the market! He “discovered” a trend or pattern in the market following certain events that he thought he could exploit. But it required opening himself up to extreme back-end risk, with no “safety net”. I tried to convince this trader of the folly of his trading strategy, but he wouldn’t listen. He had tested it, it seemed to work fine. So he was going to take it live.
And you know what happened? He won his first trade. And it was a BIG win, over 100%! Over the course of the next few weeks, he experienced similar results. He was pulling in 200%, even 300% weeks. He was starting to think he was invincible, that with his new strategy, he couldn’t go wrong. He even commented to me that trading with this strategy was like “shooting ducks in a barrel”.
But then the day of reckoning came. Just like I knew it eventually would. In ONE DAY, The Market took back ALL of what this new Trader had gained over the the previos few weeks. His strategy went against him for just one day, and it nearly wiped him completely out.
I don’t think that this new Trader has ever mentally recovered from the beating the Market administered to him that day. He will probably always be a very tentative Trader, for as long as he makes it.
The whole point of this article can be summarized like this: If you are a new Trader, and you win your first trade, it gives you a false sense of security and accomplishment. You won’t immediately develop a healthy respect for the Market and the inherent risks involved in trading. You will develop an artificial and false “winners’ mentality”. You might even get cocky in your trading, overconfident, feeling like you can’t lose.
If there’s one thing the Market LOVES to do, it is to humble arrogant Traders.
Don’t wait for the Market to humble you. To discover how you can learn to trade to develop the ”winners’ mentality”, and how you can avoid the many costly errors that could ruin you as a Trader, simply enter your name and email address in the following form, and you will receive a FREE copy of our e-Book The Guerrilla Trader – Classified Insiders’ Report
