Things I have Learned From Daytrading Millions Of Dollars
Daytrading is the best job in the world on the days you make money. You make a trade, then maybe 20 minutes later you are out of the trade with a profit, and for the rest of the day, you think about how much money you made. It's the worst job in the world on a bad day. I would make a trade, it would go against me, and then I wanted my heart to stop so my blood would stop thumping so loudly.
Here's what I learned. All of these lessons I will certainly use today, many years after I stopped day-trading.
1) You can't predict the future, everyone thinks they can but they can't
- This applies not just to trading but everything. You could be married for 10 years and the next thing you know — you are divorced and you would not have predicted that.
- You can always seek to increase the odds in your favor — if I don't jump off bridges, for instance, it's more likely I'll be alive a year from now — but certainly, a path to unhappiness is thinking the future can be predicted and controlled.
2) Hope is not a strategy
- If you get to the point where you "hope" you don't get ruined, then you did something wrong beforehand.
- "Hoping" is not a bad thing. I hope that every day my life goes perfectly. But if Hoping is the only thing I'm relying on, then it means I didn't really look at all the possible outcomes of something that was important to me.
3) Uncertainty is your best friend
- 100% of opportunities in life are created because people are uncertain about almost everything in their lives.
- We are constantly trying to close the enormous gap between the things we are certain about and the things we are uncertain about and almost every invention, product, Internet service, book, whatever has been created to help us close that gap.
4) Taking risks versus reducing risk
- Some people take too many risks and they go bankrupt. This happened to me. And sometimes people are too cautious and don't take enough risks.
- When I first started day-trading I was so afraid of risk that if I had a small profit, I'd end the trade. But then I would take big losses and that would wipe out all my profits.
- The key is that you can take larger and larger risks if you work on better and better ways to deal with those risks.
When I was raising money to day-trade I probably contacted over 1,000 people. When I was starting an Internet business I started over a dozen Internet businesses and watched all of them fail but one. When I was trying to sell my Internet business I contacted over a dozen companies.
6) Say no
- In day-trading, if something is not working out, even if your heart wants it to work out, you have to say "No" and cut your losses.
- If a business relationship is not working out, don't put more energy and time into it.
- There is a cognitive bias called "commitment bias". We think because we've already put time and energy (or money) into something that we have to stick with it. But this is just a mental bias. Say no to it.
- You have to decide every moment if this is the situation you want to be in.
- Just because you were in the situation a moment ago, or yesterday, or for 10 years, doesn't mean the situation is right for you anymore.
- Day-trading pulls everything out of you. It sucks the soul out of your body, blends it up, and then explodes. It doesn't turn into a nice smoothie. It explodes.
- So you have to take care of yourself. If you don't sleep enough. if you don't eat well, exercise, be around positive people, be grateful for what you have, blah blah blah you will lose all of your money and go bankrupt.
- And obviously, this applies to everything else in life. Every day, what small thing can you do to become a slightly better You?
The only way to survive is to laugh. There's that saying: "men make plans but god laughs." Well, you might as well be on the same side as a god.
9) "This is crazy" means you're crazy
- I've seen it a million times. The guy makes a trade. The market goes against him. He says "this is crazy" and puts more money into the trade. And then he loses all his money and goes crazy. I've had to talk people off the ledge or tell them to put the gun down.
- The market is never crazy. The world is never crazy. And I will go so far as to say that your girlfriend who just lied to you about where she spent the night is not crazy.
10) It doesn't matter if a trade is good or bad
Good and bad days happen. But life is about a billion little moments that add up to all the things around you. If you let one of those moments have too much control then you are bound to be mostly miserable.
■ ORIGINAL POST: JAMES ALTUCHER, THE ALTUCHER CONFIDENTIAL