What You Need to Know Before You Begin Market Trading

Aaron Fifield market trading
Aaron Fifield July 13, 2017

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Are you afraid to begin market trading?

Aaron Fifield, the host of the financial podcast, Chat with Traders takes the mystery out of market trading is and explains how to get started. Doug and Aaron discuss what sort of attitude best serves a trader.

They also debunk misconceptions people have about market trading. Aaron offers advice for newcomers who might be intimidated by bigger traders and confirms that even a small trader has a place in the market. How much money should a trader start investing?

Do you know what’s in your portfolio?

Doug warns investors not to ignore their portfolio. Investors need to review their statements and have a full understanding of what is going on. He has some options for investors who may have lost interest in their account.

He explains the difference between a basic financial advisor relationship and a “separately managed account” (SMA) with a money manager. If you are out of the loop on your investment portfolio, then let Doug help you get back up to speed.

If a SMA sounds like something you could use, then watch a short video that gives an overview of what a financial advisor and what a money manager could do for you.

To listen to Aaron Fifield on Chat with Traders go to chatwithtraders.com. You can also follow Aaron on Twitter.

If you’re not already receiving updates on new episodes, sign up now, and as a special bonus, receive Doug’s free ebook The Retirement Planning Book.

Watch What You Need to Know Before You Begin Market Trading on YouTube.

Read the Transcript

Interview with Aaron Fifield

Is trading a high-risk venture? Can the average Joe be a successful trader or is trading an arduous venture reserved for hedge fund managers only? Aaron Fifield answers this question and also uses an interesting analogy of the casino versus the player.

Douglas Goldstein: I’m excited to have on, The Goldstein on Gelt Show, Aaron Fifield, who is the host of the podcast Chat With Traders, which has had literally millions and millions of downloads.

Aaron, I know you talk to traders and you’ve spoken to many of them over the few years you’ve been doing your show. What’s the attitude that someone has to have to be a good trader?

The Attitude of a Good Trader

Aaron Fifield: I’d say first and foremost that attitude is a big part of it. Someone definitely has to have a lot of discipline and be willing to put in a lot of hard work.

There’s a common stat that goes around: 90% of traders fail. Anyone who’s been trading for a couple of years has probably heard that over and over again. But I know many of your listeners are newer to the active trading space.

A large portion of active traders don’t make it. It takes a lot of hard work, a lot of perseverance, and somebody who’s willing to put in the work to find a strategy, find an edge, and find something that has a high probability of actually making money in the long run.

Douglas Goldstein: Yes, I think that’s a great point because I think in so many areas, like in anything in life, people always go, “Oh, look. It’s so easy to make money in real estate. You just buy property, take out a mortgage, flip it a year or two later, and you make your 20%.”

Somehow, people believe this is true and they don’t understand that there’s a lot of hard work that goes into it.

When you talk about trading, what do you mean exactly? Because trading is a broad term. It’s like saying, “Yes, I go to restaurants.” What are you referring to?

What Is Trading, Exactly?

Aaron Fifield: When I talk about trading and the traders who I speak with, these are people who actively trade in financial markets.

That might range from equities like stocks, Apple, IBM, that type of thing, to things like commodities, oil, grains, or corn. Also things like currencies, for example, trading the U.S. dollar against the Australian dollar. It’s the whole gamut of different financial products.

Most of the people I speak with are either buying or selling, and they fall into the category of day traders, otherwise, people who are more swing traders to position traders.

These are people who might be holding positions anywhere from a couple of days up to a couple of weeks. Anything beyond that gets closer towards what would be categorized as investing, just broadly speaking, and I don’t really speak to too many investors. The people I focus on, and the things I focus on myself, are more active trading strategies.

Douglas Goldstein: It always seems to me, when we talk about trading or I talk to traders, that this is a super high-risk kind of endeavor.

My guess is that there are probably other misconceptions that people have about trading - one, that it’s high-risk and is only meant for people who have the money to lose?

What are some of the common myths or misconceptions that people have about trading?

Myths and Misconceptions of Trading

Aaron Fifield: I think that’s a good question and something worthwhile bringing up because a lot of people think that trading is very high risk.

It definitely is, but if you really step back and take a look at most things, there’s a lot of risk involved in everything.

There’s risk even in owning your own home, if you want to step back and really look at it.

A lot of traders are quite risk adverse. Obviously, risk profiles between traders vary quite a lot but just generally speaking here, a lot of traders are very conscious of risk.

Depending on who you speak to, some might tell you that risk management is the key ingredient of successful trading. A lot of active traders just put a huge amount of emphasis on managing their risk.

They don’t like to lose money; it’s as simple as that. They’re in this business to make money, so if you take a lot of large losses you’ve got to work twice as hard, or maybe even harder than that, to recoup those losses and get back to where you started.

You definitely can lose a lot of money very quickly if you don’t know what you’re doing and if you don’t manage your risk.

That is why it’s so important to be disciplined and to have a strategy.

There’s a lot of factors that go into it. It is high-risk, but there are things that can be done to try and mitigate some of that risk.

Douglas Goldstein: As a financial advisor, I tend to be the long-term investment strategy guy. It seems like you’re taking that and making it more into a casino, but the difference, I’m guessing and maybe you could just help me to define this, is that in a casino, it’s just chance.

There are some odds you’re either going to win or lose and you’re just playing those odds, whereas when you’re a trader, you’re able to bring in some sort of strategy so that there’s some tactical reason for each of your trades.

Is that a fair distinction between casinos and trading?

The Difference between Playing in a Casino and Trading

Aaron Fifield: Essentially, yes. As a trader, you want to be the casino. You don’t want to be the player in a casino. You want to try and act as though you are the casino.

You want to stack probabilities in your favor. You want an edge, so you want a strategy with an edge. If you do something enough times over a large enough number of trades, you want a strategy that has a high probability of producing money in the long run.

That’s the way I like to look at things, and probably one thing I’d say to anyone who wants to get into trading is that unless you have an edge, you’re severely disadvantaged.

Douglas Goldstein: It seems that the people that have an edge are the people who are the hedge fund managers or the big institutions. Can a normal guy, a guy like you and me, have an advantage over these big traders?

Can Anyone Trade or Is It Just for Big Institutions and Hedge Fund Managers?

Aaron Fifield: Absolutely. One of the things that comes to mind when you’re talking about large billion-dollar fund managers or billion-dollar hedge funds is a lot of them, in some ways, are the market.

A guy like you and I, or probably the majority of the people listening to this podcast, have an advantage of being very nimble, so we can get in and out of markets.

Obviously, as long as we’re trading fairly liquid markets, we can get in and out fairly quickly, and I guess that’s an advantage of being a small guy.

But yes, absolutely, and in the strategies that someone like you and I can trade, we trade very different strategies for the most part.

Someone who is trading billions of dollars can’t get in and out of the market within a couple of hours because they push the market around quite a lot.

If they want to take out a large position in a certain company, they might work that position over a couple of days, so we’re trading very different strategies to someone who’s managing billions of dollars. So yes, absolutely, it’s possible for smaller traders to get an edge.

Douglas Goldstein: Let’s look at an example. We’re talking about strategies. Let’s say a guy has $50,000 in savings and he says, “I listened to The Goldstein on Gelt Show and I liked this guy Aaron and I want to get started.” First of all, how much money should he start with? Secondly, what would be an opening strategy for someone like that to look at?

How Much Money Is Needed to Start Trading?

Aaron Fifield: Two parts to that question. How much money to start with? I guess it’s a tricky one to answer. It’s a good question, but difficult to answer. I normally suggest, and this is not financial advice, but I think $5,000 is a good starting amount to get your feet wet.

Some people try starting with $500 and I think that’s very difficult. I think a $5,000 account just to get your feet wet is okay.

What you want to be doing is you want to try to make good trades when you’re starting out. You don’t want to be trying to make money as such.

You want to be identify and catch good trades. I think that’s a good way to look at it instead of going, “Okay, I’ve got a $5,000 account. I want to try and compound this twentyfold within the next 12 months.”

I think that’s a wrong way of looking at it. If you can identify good trades-

Douglas Goldstein: What is a good trade if it’s not one that makes money?

Aaron Fifield: It would make money, but you’re not trying to compound your account by 20 times within the first year; that’s unreasonable.

Sure, people have done it but a lot of them are outliers. What you want to be doing when you start out as a new trader is you want to be taking good trades.

You don’t want to try to swing for the fences and make a million dollars in your first year.

You want to identify good trades. Once you do that, it then becomes a matter of scaling up, adding size. Then you can think about adding more capital to your trading account and trying to push for larger profits.

Douglas Goldstein: We’re going to wrap it up now. We hit our time but I’m going to lead people back to you.

That sounds like a great approach to getting started, putting in a reasonable amount of money, given your overall net worth.

Also, not trying to swing for the fences as you’ve described because you might end up wiping yourself out so quickly that you’ll never learn anything and you’ll never develop into a good trader.

I know one of the ways, Aaron, of learning to be a good trader is to follow what other people do. You’re certainly at the forefront of that with your show and all that you do. In the last few seconds, can you tell us how people can follow you and follow your work?

Aaron Fifield: The podcast is available at chatwithtraders.com. All the episodes are there, 100% free, and you can listen on demand any time you like.

If you want to chat with me, I’m very active on Twitter, so probably the best way is to get at me there. @chatwithtraders is my handle.

Douglas Goldstein: Aaron Fifield, thanks so much for taking the time.

Aaron Fifield: Thanks very much, Doug. I appreciate it.

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