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The way to Think being a Trader

Here are some of the most common questions I get as a trader.

  1. What can I buy now to make a lot of money?
  2. How can I make a lot of money in the markets?
  3. What is the best stock to buy now that will definitely go higher?
  4. Will the market go higher?
  5. Will the market keep going down?
  6. When will the market bounce?
  7. Should I keep holding or sell the stock I have?
  8. Why did the stock market crash?
  9. Is now a good time to buy the dip in price?
  10. Is this the bottom?

That’s not how it works that’s not how any of this works. To believe these are answerable questions is to believe in psychics and fortune tellers. No one knows the future, not in the stock market or any other endeavor. These are not even the right questions to ask. Sports and elections are much simpler than the stock market and how many experts can predict them regularly? 

The complexity of the financial markets with all the different buyers, sellers, government interventions, weather, natural disasters, health emergencies, bubbles, and crashes is not predictable. 

You can look at the current probabilities and odds of what could happen next but the financial markets are complex with hundreds of millions participants making new decisions every day based on their own fear, greed, and ego. To think that you or anyone can know for sure what is going to happen next in the markets is naive at best, arrogant at worst, and many times both.  

The way that profitable traders make money in the long term trading and investing in the stock market is through quantifying profitable systems, creating good risk/reward ratios, and exercising discipline in following a good process with an edge. You can know what a current trend is and how strong a company is fundamentally right now. If you have a trading system then you can know if you are getting buy signals or sell signals now. As you get to the hard right edge of a chart where the future begins, it gets blurry.  

Here are the right questions to ask as a trader.

  1. What is the current market trend?
  2. What types of stocks are the strongest historically?
  3. What are the current leading stocks in the market?
  4. What stocks should be on my watchlist?
  5. How much should I risk on this trade?
  6. What is the risk/reward ratio on this trade?
  7. Why am I getting into this stock?
  8. Where will I get out if I am wrong?
  9. Where will I lock in my profits if I am right?
  10. How can I create a profitable stock trading system?
The way the stock market works is you create a quantified trading system with and edge. You need a systematic process for filtering for the best stocks then you need signals for buying and selling them for either a small loss or a big win. Your system needs to fit your own belief system and be within your risk tolerance with a chance to also meet your return goals. You must position size right based on volatility to avoid ruin and then trade your system with discipline over the long term. That’s how it this works, that’s how all of this works.

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