My journey to see the trading and investing profits I now have has been a long one.
While there have been many setbacks on the way and often it’s felt very frustrating, the failures I’ve had have been learning experiences, positive ones and in many ways, I’ve learned by falling forwards.
Early in my trading career, when I learnt about technical analysis, I thought I had discovered something that everyone else had missed; My discovery was the MACD indicator and I thought I could use it to predict where the price was headed.
The MACD is used by technical traders (traders who make buying and selling decisions using chart patterns and indicators) to time their entry into and out of the market.
The theory is that, if used correctly, the MACD can tell the trader when to buy and also when to sell. They can sell if they want to ‘short’ the stock (or whichever instrument they’re trading) or they can sell the existing ‘long’ position they have.
I tested the MACD indicator on price charts to see if it performed as well as in the past and I thought it would do in the future.
This testing wasn’t a science, I just eye-ball where the price was when the MACD would have given a signal to buy and did the same when there was a sell signal.
Going back through historical charts, it looked like it would have worked and so I felt my research was confirming my initial excitement for the indicator. Perhaps in truth, I was just keen to get started with real money – I would be one step closer to the profits I thought I was going to get.
I had the winning lottery ticket – this indicator was the goose that would lay the golden egg on demand.I had a shopping list of things I wanted to buy using the profits the MACD indicator was going to give me.
I clearly remember the feeling of contentment that I had everything I needed, I was both excited and apprehensive. I had the keys to the magic kingdom and my life was about to change forever.
Sky High Expectations
Needless to say, my expectations couldn’t be any higher and when expectations get as high as that, there’s only one way they can go – down.
In my trading story I wrote about how I used the MACD indicator to tell me when to buy Microsoft stock. I was so convinced that I was going to profit from the trade, I put all my savings into it.
What happened next both shocked and demoralised me.
I had been certain I was going to win on the trade, I had been diligent, I had noted the trade in my journal noting why I was entering the position – what my analysis had told me. I felt I had done everything ‘right’.
However, what I didn’t consider was the possibility that a news announcement would cause the stock to open significantly down on the previous close.
I watched, transfixed as the value of my portfolio evaporated before my eyes. It was a horrible experience but a big lesson about indicators and what they can and can’t do. I also got my first insight into how hope and greed can blind me to taking too much risk with my money.
I lost money on the trade but I gained a huge learning experience – the only indicator that matters is the price itself, that’s the only thing that traders need to focus on.
Picking Myself Up After the Falls
I wrote about the Miscroft trade in my trading story but there were many other failed attempts to become profitable.
It was a messy experience, I was inconsistent with what I was doing and my results were all over the place. However, I kept going, I had some very profitable trades and while gave back all those profits in the following trades, I was encouraged by what I saw to keep going. In truth, I wanted success so bad, I was prepared to take whatever hits that came my way if it meant eventually overcoming,
Around this time I began to become interested in the psychology side of trading and the influence mindset can have on a trader’s profits (or losses).
Trading and investing can be incredibly frustrating, full of highs and lows. When I first started, my moods day to day were directly linked to my trading results. When I was losing money, this had a serious impact on how I was in my home life. When things were good with my trading, my home life was a lot happier.