How To Successfully Live Frugally

What is the notable difference between those traders who succeed at stock market investing and those whose efforts end in failure? Experts in the field will tell you that it is all a matter of psychological differences. What this boils down to is that you have to be able to deal sensibly with both winning and losing, with downs as well as ups. You must be able to cope well with managing your risks and not let greed get the best of you. These are all elements of what is referred to as trading psychology. Many columns and volumes have been penned on this topic, so we will not go on further about it with the exception of one important area.

The most valuable stock investing tip that I’ve ever grasped is the one I’m about to explain. One thing a lot of folks battle to come to terms with is their own expectations in regard to their trading. A lot of folks, for instance, have unrealistic expectations and want to make triple digit trading profit on a regular basis.

So how did our unrealistic expectations come to exist? I blame the instant-fix mentality that pervades our daily lives, catering to our appetite for gratification now. I suppose it’s not really our fault, as instant gratification is wired into our primitive brains; the idea that things can and should be powerful and easy has been a long-standing technological trend.

During different trader exhibits and events like it, it is remarkable to listen to the many individuals who insist on trading strategies capable of returning many times the investment, who refuse to accept any less than that. Occasionally they are brash enough to scorn sound approaches on trades that could logically be expected to yield a steady 25 – 35% annual return.

Sadly for these people, they have set their expectations to high and unrealistic. There are probably going to be times when these people will suffer a number of losing trades in a row and when this happens, when this happens they normally cannot get back on track. With a tad bit of a drawdown with their trading capital and having their unrealistic goals in their minds, they something begin bending the rules and think about unacceptable levels of risk so that they can regain their losses in a fast way and achieve their lofty goals.

An additional dilemma that some traders face is that even when their goals are a more realistic 20% annually, for instance, they think they will attain that return in only the first few weeks instead of taking a longer term look over the 12 months. Twenty percent annually is merely a bit more than 1.5% monthly but some traders might anticipate attaining that rapidly and might espouse some of the bad habits like the ones described previously.

Ray has found that a winning approach is only one component of trading success. In addition, traders need skills in market profiling and money management. They need to master the psychology of trading success by understanding what motivates them and coming to terms with what scares them.

To be profitable, you must treat trading like a business and keep your head. To do that you need valuable and useful information that you can assimilate in a short period of time.

My goal with this sequence of articles is to drastically abbreviate the amount of time required to take you to the point you wish to be in your trading, preventing distressing losses and changing them into money-making opportunities. This information will provide you with a shield so that you along with your investment are secure on the market battleground.

Time is valuable. Allow us to begin. In my investigation of trading, I uncovered a quite subtle, nearly undetectable phenomenon that provided me with additional intuition into the reason that countless otherwise effective individuals possessing higher than normal IQs apparently can’t make it as traders. I’m talking about something which occurs rather than a personality trait.

I know many qualified brokers who have dozens of patrons who are shrewd, prosperous people”"outside of trading. These folks appear to have all the correct traits, yet for some odd reason, they do things during trading which they would never do in a profit making business. These brokers question why so many individuals appear to take leave of their senses when trading.

The solution is hard to find and frustrating for both the broker and the trader. It is after all the trader who is loosing their invested cash with their behavior that does not make any sense.

The reason for that is what I call The Subtle Trap of Trading. It’s found in Futures, Stocks and Forex markets. As you read the following, you may get the same thought that came to me:

This reeks of a conspiracy!

Even though I did not think it to be true, I seems the system works for a few at the expense of most people.

All that the trading business entails appears to be quite straightforward, yet if you examine in depth how things operate, you start to grasp something that is rarely understood, and you start to realize the reason for the frustration, discouragement, confusion and big losses that so many experience in the markets.

I would call it a trap for a good reason: many traders battle but keep losing money until their accounts are gone. At times it gets them so trapped that it goes even beyond their accounts and into non-risk capital.

How the Trap is Set

Back when you first heard about stock investing –long term investing, not day trading– you were cautioned to do research before investing and to learn the things that made for a good company to invest in.

You discovered there’s a lot to learn before investing in a company. You need to learn about the industry, their market position, the current management, their track record and competitive advantage, how to read the company’s financial statements and annual reports, etc., etc. A lot to learn.

A good piece of advice would be to be safe and choose wisely because you’re in it for the long term. This is a very important attribute on the road to trading profit. Perhaps your investment was merely mutual funds and a 401k plan. This is simple, safe, and comfortable.

But, somewhere along the way, you heard about the wonderful world of the profitable commodities markets. You heard how simple it is and about the fantastic leverage involved.

Also, commodities are not businesses that necessitate investigation to grasp. They are materials, products you have known all your life. Precious metals, oats, maize, soy, alfalfa, coal, oil, and so on. They are universally known.

And here’s where the trap is set.

A few items work in tandem to form the trap, and the first thing is familiarity. This single fact is extremely subtle, however it has an incredibly powerful effect for you and your trades.

In the next article we shall examine the remaining parts of the trap which turn smart, successful folks into struggling traders who make unwise decisions and lose big amounts of money–willingly–when they ought to be recording trading profits.