There is a massive flaw within the world of investing that doesn’t seem to exist in other spheres of business, at least not to this degree. Would you endeavor to fly an airplane based on your knowledge of airplanes? Probably not! Would you endeavor to fly an airplane after watching hours of tutorials? Once again, probably not. However, when it comes to trading and investing people seem to think that they can succeed without any grounding or experience. Once again, the data confirms this statement. Officially, approximately 90% of market participants lose money in financial markets.
Why Does This Occur?
Well, the obvious reasons have just been mentioned. People approach the market with very little knowledge and experience. However, there is one very important aspect of this “reasoning” that is imperative to investment success. When you take a closer look at investing you will notice that there is a dual objective. The majority are overwhelmed by the most obvious objective, making money. Unfortunately, the most obvious objective is not the primary objective. You may wonder how I can suggest such a thing, surely, making a return on your investment is the primary objective. Let me explain.
The Number One Objective
If you are traveling to another city then your arrival in that particular city is your objective, correct? However, your ability to get there is reliant upon your mode of transport. In other words, your main objective is to secure your means of transportation because without it you cannot reach your destination. Investing and trading rely on a similar principle. You cannot make money without having the money to invest. The number one objective in this game is the preservation of capital, otherwise known as risk management.
Here Lies The Problem
Not only do inexperienced investors not understand the two-fold dynamic at play but they also choose to only focus on securing gains. For many, risk management is something reserved for hedge fund managers. Not only is the art of investing misunderstood but the primary key to success is ignored, the preservation of capital. If you have a trading account of $100K and you miss a move you still have $100K. Make a premature trade and you, unfortunately, don’t share the same luxury. A basic form of common sense that seems to elude the majority, but that’s what greed will do you.
My posts are often very data-driven, along with psychological tips in regard to human behavior. I am not really interested in sharing opinions. I choose to try and help my readers think clearly and accurately. To understand, as well as to interpret the market as accurately as possible. I don’t see many taking this route, as it’s not the type of “thing” that guarantees clicks, tips, upvotes, and whatever other form of monetization. However, I continue on this path. There have been those who have reached out to me to thank me for what they have learned over time, which is a form of currency few understand and therefore cannot appreciate. There are many investors who are more experienced than I but they are not revealing their knowledge to others.
This market, along with any other market requires emotionless processing of data and information. This then is further processed through an understanding of charting and technical analysis. When the end product is bearish, I am bearish. When the end product is bullish, I am bullish. I remain impartial. When you need something to happen in the market, you have clearly positioned yourself outside of the key principle, the preservation of capital. I only move on setups that are backed by confluence. When that doesn’t happen, I don’t happen. A game of probabilities… and you only move when the odds are on your side.