I’ve mentioned this a few times now, but I was recently bit by the options bug once again during a LEO Roundtable podcast ~2 weeks ago. Since then, I’ve been going down a deep rabbit hole and learning about various types of spreads and different strategies and indicators that I hadn’t paid attention to the in the past.
It’s prompted me to think about what the real value is in trading actively. My style of investing is to long on things that I believe in for the next 2-20 years. That’s why my largest investments are in Bitcoin, ETH, BAT, HIVE, TSLA, SQ, etc.. so for a person like me who doesn’t want to actively trade and stress over open positions on a day-to-day basis, what is the value in exposing myself to risk and opening trades that might lose money based on short-term activities that I have no control over?
My answer: exposure.
Exposure to the markets is an underrated facet of learning. Many people enter the space — whether younger or older — and they think that the key to learning is winning. They immediately start jumping into things that give off the perception that there is a lot of money to be made.
This is why we see the phenomenon of the ICO boom of 2017 when easy money piled into the crypto space looking for these new “IoT, hash graph, blockchain, supply chain” yada yada coins to invest in. It’s also why penny stocks are so popular amongst new (and naive) investors.
The goal of investing or trading should be different than just making money. Of course, money is a scoring unit.. just like scoring a basket is the unit of measurement in basketball. You don’t go out and tell people to play basketball and not score baskets… you tell them to go and learn the techniques about how to best score baskets. Trial, failure.. rinse, repeat.
The same thing goes in trading/investing — trial, failure.. rinse, repeat.
Go Out and Try to Lose Money
No.. I’m not saying go out and try to lose money. Obviously, none of us wants to lose money and if your goal is to lose money in the markets, I think there are plenty of people out there who will happily take it off your hands.
Instead, however, you should go out and try to expose yourself to different investments with the understanding that some of your decisions will lose money and some might make money.
Your losers don’t make you a bad trader… they make you a more experienced trader — but only if you pay attention and seek to understand why exactly those trades went against you.
On the flip side, your winners don’t make you a good trader either. One thing that is just as dangerous as an investor on a losing streak is an investor on a winning streak.
I’m no expert on investing or trading and if I were to make money on my next 1,000 trades in a row, I would still fight tooth and nail to curve my monkey brain into understanding that even 1,000 positive trades in a row doesn’t make me a genius.
Everyone is a genius until they’re not.
My answer to doing anything in finance/crypto/trading/investing is to expose myself to as much data and experience as possible. The more trades, investments and transactions you get under your belt, the more experienced you become. The more experienced you become, the more (hopefully) levelheaded you will become in future scenarios.
Exposure is everything. That’s why giving yourself a lot of room to breathe and using small amounts for any trade or investment is an extremely vital aspect to learning.
With my latest foray into options, my goal is not to get rich. In fact, I know that options trading is not going to make me rich. The guys on the podcast have gotten me all obsessed and excited about this new styling of trading and I’ve spent a lot of time recently studying spreads and various ways I can use them, but that doesn’t mean I’m going to uproot everything I do and become a full-time trader.
On the latest show that we recorded today, I mentioned that I’m just using a small amount of capital. Enough to keep me engaged and excited about my trades but not enough to blow up my entire life if (and probably when) I make a big mistake and have a setback that requires a learning and reassessment.
4 Rules to Follow
As I keep reiterating, I’m no expert. Just someone who likes to learn. If I were to give out just 4 simple rules to follow when trying to learn something new (like I’m doing with trading options spreads currently), it would be:
- Keep your position sizes small
- Look for # of trades rather than # of $
- Dissect your winners & losers
- Leave your ego at the door
Keeping your sizing small will allow you to play the game. This ties into point #2. Your overarching goal should be to “shoot as many baskets” as you can. Practice practice practice. The more exposure the better.
With #3, you want to make sure that while your “playing the game” you also have moments where you step away from the court and look at your trades. Take time to reflect on what went wrong or what went right and how you could’ve done it better. The key to learning is to seek understanding.
#4 is important, especially for anything finance related. We all have moments where we feel we’re touched by the gods and can’t do anything wrong. We also have moments where we feel down in the dumps about some recent thing we did that was a poor decision.
Regardless of where you are, fall back on the previous 3 points. Keep looking for exposure and keep looking for more valuable knowledge as you dissect your prior decisions.
It’s cliche, but as far as I’m concerned — it’s all upside. I can either win or learn.
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