You’ve solved one trading problem and another crops up.
You thought you were over one hurdle, but you run straight into another obstacle.
You feel you are stuck in some part of the trading journey and you just don’t know where the answer lies.
You look for help and have found someone to ask for trading advice. ¬†You want to make that phone call or write that letter, or send that email.
How do you phrase the question? ¬†What do you ask?
Let’s first start with What You Shouldn’t Say.
Don’t ask the person: “What stock should I buy?” ¬†or “Where is the EUR/USD going over the next month or the next year” or “What’s the best forex robot I can use” or “How can I make $1,000 per week trading forex with only 5 minutes a day around breakfast time?”
If the person is a good trader, he or she will probably be turned off by such questions. ¬†They worked hard to attain their skill and can be taken aback by them.
I know that personally, I along with many other people would have probably asked those questions when I first started learning how to trade. ¬†You grow and evolve. ¬†But you should always strive to be better than that and avoid some common traps if you can.
So now that you know what you shouldn’t say, lets look at What You Can Ask:
There are some general principles you should follow.
First, you should show genuine desire in the subject matter that you are asking about. ¬†Show that you are genuinely interested and that you actually put forth the effort to try. ¬†Show them that you did some of your homework. ¬†Show them that you tried to use your mind and think about the problem.
In other words, show them that you were willing to help yourself and better yourself. ¬†When they know this, they will be much more likely to provide a response, and sometimes they can even go out of their way to provide very good answers and resources for you. ¬†Because they know you took the time out to help yourself and that you are a good bet and good investment of their time and efforts.
You would be surprised that most people don’t do anything. ¬†Most people haven’t read a book since they finished college. ¬†Most people are just looking to get by and not better themselves.
The person who is looking for a hot tip has already established that they currently aren’t a person looking to better themselves. ¬†That is what the masses have been asking since time immemorial. ¬†They asked that question in the bull market of today, in the dot com boom, in the 1980’s, and even back in the early 1900’s as was written about in the book Reminiscences of a Stock Operator. As Livermore said in his book How To Trade in Stocks:
It’s my conclusion that most people pay more care and attention to the purchase of an appliance for their house, or in buying a car, than they do to the purchase of stocks.
If you show that you are a person of value and intelligence, then the other person will be much more likely to reciprocate his or her knowledge and wisdom to you.
Not only will you have a higher likelihood of getting a good response, but the mere act of putting in the effort to ask a more intelligent question and stronger research and notes, will raise your skill level.
The second question to ask, is to think in terms of principles. ¬†In my opinion, you shouldn’t always bee looking for the “right answers.” ¬†Because everyone has a different version of what the right path is, etc. ¬†Therefore, the better way is to think in terms of principles. ¬†You want to know about the thinking behind the “right answer.” ¬†The processes behind how they got to the “right answer.” ¬†You should find out about the principles behind the “right answer.” ¬†Because once you know how the machine works – how the system works – the principles of how the market work, then you can analyze those principles and pick them apart one by one and see if they fit into your personal market philosophy, etc.
Therefore, instead of asking the question: ¬†What good stocks can I buy?
You can ask the question: ¬†What are the principles of a good stock purchase? ¬†What should I look for? ¬†What are the key criteria and elements involved?
This completely changes the chemical dynamic in your mind. ¬†You immediately start thinking differently. ¬†Because instead of limiting your search to “what is the right stock to buy now”, you start thinking about the key principles regarding what ALL good trades or investments have. ¬†It’s one thing to know what a good trade is today, it is quite another to know the key principles involved, and can pick good trades in any market environment. ¬†It is the difference between giving a man to fish, and teaching him to fish.
Now depending on who you ask, you can get different answers to the question: ¬†What does a good trade consist of?
If you were to ask Jesse Livermore about stocks, he might answer:
My principal method is to study the effect of present and future conditions on the earning power of the various companies engaged in different lines of industry. ¬†Anticipation of coming events is the whole thing.
If you were to ask Warren Buffett, he might say
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business who’s earnings are virtually certain to be materially higher five, ten and twenty years from now.
Michael Steinhardt might say:
Concept number one is variant perception. ¬†I try to develop perceptions that I believe are at variance with the general market view. ¬†I will play those variant perceptions until I feel they are no longer so.
If you were asking¬†George Soros, he might respond by saying:
I’m much more interested in looking for changes in the rules of the game or, if possible, even changes in the way the changes in the rules of the game occur. ¬†When I identify something like that, then I really like to move in.
Now you have some interesting information to work with! ¬†Far more interesting than if someone just gave you the answer and told you to buy a certain stock or make a certain trade without explaining the process involved.
There are a lot better questions to ask and think about than where is the USD/JPY going to be in a month, or getting a hot tip from someone! ¬†Questions that revolve around the principles of the market, position sizing, etc.
I actually had one person ask me, “All I am looking for is a stock or investment, that goes up 1% a month. ¬†That’s all I am looking for.” ¬†I used to think like that as well. ¬†I don’t blame him. ¬†After all it seems so simple: ¬†Just find something that makes 1% a month. ¬†Don’t get greedy, just 1% a month is all you are looking for, etc. ¬†It sounds so sweet and so simple. ¬†But you need to think beyond this simple stage.
There are just so many other things to think about such as: ¬†Has there ever been an investment or trade that went up 1% per month for years and years? ¬†What about the volatility along the way? ¬†Etc.
In the investing and trading reality, sometimes you can find a trade that will make you 5% or 10% or 50% in a month or week. ¬†Other months, you may not find many good opportunities. ¬†Although I would say that the smaller your account, say if you have less than $1 million, then there are ample opportunities to make money every month.
Other months or years, you may suffer a draw down before you go into profit. ¬†In 1995, Soros lost -10% first, before recovering the loss and then making +40% for the year.
There is such a principle as volatility along the way as your trading positions change in value and profit and loss goes up and down.
You just don’t know. ¬†Don’t force yourself to only looking for something that will make you 1% a month. ¬†You can think about that problem in a much broader way. ¬†There are some people who make so much more. ¬†George Soros made +122% in 1985. ¬†Paul Tudor Jones made +62% in the month of October 1987, and made +200% for the year in 1987. ¬†Heck, Facebook stock jumped 30% this past week. ¬†Have you ever asked why they made what they made? ¬†What trades did they place? ¬†What did their trades have in common, etc?
These are far more thrilling questions to ask.
They are thrilling, because once you find concrete answers to them, your knowledge and skill level reaches a much higher level. ¬†And you experience the sheer joy of understanding ¬†something and seeing something that most people don’t.
You want to ask the right questions to the right person. ¬†Don’t ask the right question to the wrong person. ¬†And don’t ask the wrong question to the right person. ¬†As I talked about in my blog post¬†Asking The Right Trading Questions.
There is no shame in asking questions or seeking trading help and advice. ¬†Not everyone knows everything. ¬†Not every trading book is easy to understand. ¬†Trading books such as The Alchemy of Finance and The Invisible Hands, really do put your knowledge and skills to the test. ¬†It is nice sometimes to have a team of people or an inner circle that can help you.
Make the effort to ask good questions. ¬†As best as you can given the knowledge, skill and beliefs you currently have.
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