the know-nothing investor

…money doesn't grow on trees, you know?

Tag: Financial Independence

3.BEFORE TRADING DAYS

As I said before I spent almost two years studying technical analysis and how to behave in a trading environment. In that period,  I came across many times with two key ideas, money management and trading psychology behaviour.

I read some articles about money management and I understood its importance quickly. Every trader use it and every good system must have it. Why? Because in trading, especially in a learning process we can do much harm to our money. Money management is like our safety belt, we don’t drive to crash but it’s a possibility when we get in the car.

While I was studying I used a paper trade account and I achieved decent returns. I was admired how good I was and how I was making quick and easy money, but I tried to stay humble and I always remembered myself that it was only a paper trading account.

Every trader I read are always reminding how difficult is to succeed in the business, how hard is to have a system that gives you an edge and how you must keep a balance between winning and losing. You should not be to confident about your winning trades or completely devastated about losing money.

I read a lot about this in forums. Although I tried to stay humble, sometimes I thought to myself how can this douchebag make any money if he has an enormous ego and he never changes his opinion.  If he can I certainly will do better than he does.  But can people with big egos and zero tolerance to change their opinions do good in the markets? Of course it is possibly, but they will be a very small minority for sure and in the internet world we can say and we can be whatever we want.

Comparatively to others I seemed more focused, more eager to learn and most importantly more humble and I thought that this was a good mental setup to start trading. The plain truth is that you need to stay focus, be eager to learn and be humble if you want to succeed in the markets.

 PTEN

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1.FIRST YEARS

In 2010 I was expecting my second child and I started to wonder what could I do to improve my family’s income. Not because my income was not enough, but mainly because I wanted to insure a steady future for my family, where my kids, my wife and me could have plenty of options to decide big family’s dilemmas, such as “should our kids study abroad?”, “should we move to a bigger house?”, “Am I saving enough for retirement!?”. And if you want to have a wide range of option, money certainly helps.

So I remembered a forgotten passion that was investing in equities. In my early twenties I invested part of my first salaries in equities and I did quite well. In a short-term period I made more than 20% of profit. Then I wanted to buy my first car and I sold everything for that purpose, car which I still have by the way, but if i would have kept that stocks for much longer I would not have much left, with losses more than half of initial capital. Beginners luck I guess…

This comeback would be different, because I wanted to learn all trading secrets and tricks. I established a plan that would take me a year to study while I would save enough money to start trading. What could go wrong? And if everything went according my mind plan I probably would quit my job! Yeah right…

With such wishful thinking overflowing in my head I started to read books about technical analysis and differents styles of trading. I also became a regular visitor of trading blogs and forums. I was really curious and passionate about trading and I wanted to learn the most I could. I learnt about charts, moving averages, RSI, MACD, support and resistance lines, long, short, swing, momentum and day trading, options, CFD’s, ETF’s, money management and psychology, psychology and psychology.

Finally I got it, I needed to be psychology strong and to have some kind of money management that would allowed me to preserve my money from myself (Good lessons by the way). I also decided that I would be a long-term follower trader and I would trade contracts for difference (CDF’s), a trading instrument that is a financial derivative and is not available in US, due to restrictions by the US Securities and Exchange Commission on over-the-counter financial instruments, but allows you to have a leverage ratio of 10:1 in stocks, which was what I needed because the initial capital wasn’t much.

In 2011, after I spent one year studying and getting ready to trade, Portugal went almost bankruptcy and needed to go under EU/IMF/ECB financial assistance programme. For me as a government employe was a setback because I saw my wage shrinking. This made me re-thinking my expenses and investments and gave me more strength to learn more about investing. Nonetheless, I got real upset for seeing my pay-check cuted, I understand the implications of being a public worker, furthermore in Portugal where is real hard to get sacked in public administration. But I had always been a pretty good worker, skilled and honest, why should I have to pay for a bureaucratic, bad managed and sometimes corrupted public administration? I have not, as my liberal friends tend to tell me “If you are not glad go and find something else”, but the private sector was also hit hard and jobs got scarce. Anyway I was still in comfortable position, living near work and able to see my priority investments growing up, my kids. Why should I bother to be good at investing if can’t raise properly my children? Their are in fact my most important and valuable assets. So if I try to be the best  father I can and give them love and a good education, probably in the future I will avoid a lot of headaches and money thrown out of the window.

Since I am a father I am always remembering one sentence:

‘Prepare today your future investments’.

 PTEN