Advanced Trading Tips
WE ASKED A CHARTERED ACCOUNTANT
Is trading easy?
We all know that trading the markets comes with both risks and rewards, so what does a professional with a more risk-averse approach to finances think of it?
In this edition of experts explain, we speak to Andrew Wilson to get an honest, unbiased view of trading from a chartered accountant.
1. Trading is heavily promoted online — but this doesn’t reflect the reality
Trading has been growing in popularity thanks to its huge social media presence, and that can be a problem. There’s a lot of online content about how people can trade easily, so lots see it as a get-rich-quick scheme or a gamble. The reality is that this is a hard business to be successful in and you have to understand the risks.
Social media doesn’t talk about the pain points — it’s all about the Lamborghinis, the money and the nice lifestyle. Actually, there can be huge risks and many traders will regularly lose money. Also beware of anyone that says you can learn to trade in a short amount of time. It’s just not true. With trading, you have to learn your craft to be successful, and doing this takes a huge amount of time.
2. People see trading as a convenient way to control their income
Many people are looking at trading because they want control of their income and this is a way to effectively control some, if not all, of it. Lots of individuals are hitting pensionable age and have excess money available, while interest rates are currently low. People are questioning whether to keep money in the bank and earn nothing on it when trading could be a viable option. Plus, trading has low start-up costs and all you need is a phone or computer to in theory trade from anywhere in the world.
Unfortunately, a lot of people are prepared to pay for convenience but not to put the work in to achieve the end goal. There is a lot of online content saying you can learn to trade in a weekend, a week or a month. Building knowledge and experience to mitigate the risks and prevent losses takes a lot longer.
3. Treat trading as if you were starting a business
Think of starting to trade like setting up a business. Like any business owner, you have to wear a lot of hats and do lots of work to be successful. The biggest and best companies in the world spend huge amounts of money on research and development, and as a trader, you need to spend considerable time and effort on everything there is to do before you actually trade. Very few people talk about the education you need to create your trading plan, manage the risks and build your edge. If you go into trading unprepared and make mistakes, it will cost you straight away.
That said, remember that not every trade will be profitable and sometimes you may make a few mistakes. Think about the level of pain people are prepared to go through to run a company. Every business owner makes a million mistakes and they learn from them over time. You can understand and appreciate where you went wrong through further education, testing strategies and revisiting your trading plan.
4. Look for trading companies and educators with honesty and integrity
There are some really good tools and educators out there as well, but also some that aren’t so good. Choose ones with the same traits an accountant should show — honesty, integrity and openness. Not people or platforms giving false hope or leading people down a road with false pretences.
Companies and educators also need to be open and honest about how risky the trading business is. Everyone has a responsibility to communicate that there are upsides and downsides. If they are only talking about the upside, that is something to be concerned about.
Build your edge in trading over time by doing backtesting work. Otherwise, it's a gamble.