So you think you want to start trading stocks? You've been studying up on how to find clear path to trading, and perhaps you've already taken a deep breath and are ready to make the plunge. Before you do, however, you should hum a few bars from that great Kenny Rogers' "Gambler" song:
"You got to know when to hold 'em, know when to fold 'em."
Keep singing that song as you sit down at the metaphorical stock trading gambling table, because it will remind you that a stock trader has to have the cast iron gut of the Gambler in that song. As you hum the tune, hold back the part that says "Know when to walk away/know when to run..." You'll want to start singing that part later.
Well, you've been looking for the right signals to pick up the cards and play the game, but before you do, you should start with a little self-evaluation. Ask yourself the following questions:
1) Do you need somebody else to tell you what to do?
Most of us come from 8 to 5 jobs where we sit in cubicles, insert parts into other parts, write reports (to regurgitate what we are told to write), or... (fill in the blank -- anything involving slavish non thinking). The question you've got to ask yourself is can I really act for myself...think for myself? Take a careful...and honest...personal assessment and the situations you feel most comfortable living in.
How much latitude have you been allowed? Can you really act independently, according to your own judgement or assessments? Do you need permission before you do something? More to the point: Do you need somebody to tell you when to buy, or when to sell stocks? The answers to those questions may spell the difference between winning and losing at the stock market gaming table.
2) Do you have a problem making a profit?
Some people have a real problem with the notion of making a profit. This may sound crazy, but many of us are imbued with the notion that making a profit is somehow "immoral" or "unethical". Note that the Kenny Rogers' song ends with the gambler breaking "even", somewhere "in the darkness". Somehow "breaking even" lends a note of moral superiority to the song, making it more socially acceptable. A lot of us have this hangup, and if you have it, you need to get rid of it. Decide to enter the stock market to make a profit, pure and simple, with no apologies to anybody.
3) Do you always have to be in control?
If you are somebody who absolutely has to have everything "under control" you're in the wrong place with the stock market. The most you can do is study the signs...have good sources of information and predictions by seasoned investors, economics theorists and recognized prophets, and base your trades on their predictions and past stock market behavior. But remember that you can't control the forces that will determine whether your trades are profitable or not. A need for absolute control can easily lead to a trip to the hospital with a stomach ulcer. The tip from the Gambler is that "you never count your money while your sitting at the table". When the market has it...it isn't yours. It may give it back to you, with a little extra, or it may take it away altogether.
4) Can you handle losing?
Some people will never expose themselves to a situation in which there is a chance of losing. Some say that the moment you get on a motorcycle is the moment you've decided to "get dumped". The same is true of the stock market...the moment you start to play guarantees the day you will lose. The best thing to do is to learn how to handle the risk, and don't let the "house" make the rules. You avoid this by managing your risk: assessing the probability of making a profit and never betting more than a reasonable percentage of your assets...what you can comfortably lose.
5) Do you have the patience for adequate research?
You need to know the market you are getting into: its history; the economic forces that govern it; the probability of its future behavior. If you don't have the patience to adequately investigate the trades you are contemplating; if you don't have an adequate understanding of the patterns of the past (and don't want to spend the time to find out), you won't be able to predict the future or be ready for the ups and downs of the unexpected. For this you need good sources of information.
6) Can you "hang tough" when you are losing?
Do you have the cast iron stomach to watch your investment fall with the certitude that it will "come back up again" because of your confidence in your market analysis? Too many people bail prematurely on an investment, and are constantly making losing trades because they "jump" at the first sign of loss. This is where thorough market research is absolutely vital, and faith in your own judgments comes into play. "You got to know when to hold 'em, know when to fold 'em", and the only way to learn this is with experience.
7) Do you know a scam when you see one?
Some people, like me, were born to be gullible. We jump when we're told something that may be too good to be true, and like Charlie Brown who always runs at the football Lucy holds out, we can't seem to learn from experience. Here comes the keyword 'research' again. Always check out broker's claims. Type in the name of the broker and add the word 'scam' after his name. See what comes up. You can't win at the gaming table if somebody's got an extra Ace up their sleeve and I'm sure the Gambler knew this, but didn't mention it in the song.
Well, in his last moments the Gambler was so broke he drank the listener's last drop of whiskey and "bummed a cigarette". In the darkness "he broke even".
That won't be you. Why? Because you've made a personal assessment of yourself; because you have evaluated the maximum risk you can take; because you've watched the market assessments made by the professionals; because you know your stock, what it has done, what affects it, and you're not going to get "suckered" by ruthless brokers.
Above all, you have the rock solid guts to ride it out in the "planned chaos" of the stock market.
John Young lives in Southern California with his wife and pet cat "Bear". He has started a new blog
http://www.online-stock-trading-today.com/
that publishes articles on stocks, futures, day trading, stock options, day trading, and currency exchange.
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