Should You Trade Stocks?
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Conventional wisdom says that active trading is a sucker’s game.
A fool’s errand.
It’s something at which you can’t win, like three-card Monte, or an argument with my wife.
You’re putting yourself in a situation where the fix is in.
Operating in a clip joint.
Where you’re just a rube with a chalk mark on your back, destined to get hustled, bamboozled, grifted, flimflammed, or any other number of terms I remember hearing in The Sting.
However, this is not an accurate portrayal of the realities of day, swing, position, or any other type of active trading.
Plenty of people make money as active traders.
I’m not talking about newbie traders fueled by stimulus checks and frictionless technology, flipping in and out of the latest r/wallstreetbets stock, or racking up roundtrips in exotic crypto coins based upon the Tweets of a billionaire.
We’ve seen these types before.
Their ancestors are the secretaries, used car salesmen, and dentists who showed up on the covers of Forbes and Fortune in the late 90’s boasting of four-hour workdays, trading on the beach in the Bahamas, and giving up their day jobs due to the piles of cash they were pulling out of the markets on a daily basis.
No, that’s not the reality of a successful active investor.
These are highly skilled, disciplined traders, who use risk-based methodologies and continually adapt their trading to the changing nature of the market.
They make money based upon their own actions.
They are not beholden to analysts, CEOs, the financial press, Fed governors and heads of Central Banks, false accounting scams, or earnings announcements.
They don’t have to wait to make their money.
They make it today, and tomorrow, and the day after that.
And best of all, since they are always actively watching the markets, and positioning themselves accordingly, they are largely insulated from outsized financial fallout, the likes of which we saw in 2022.
So is it easy to be a trader?
No.
Do most traders lose money?
Of course they do.
So with the odds stacked against you, should you take a shot? Should you try to be an active trader?
Or is it really a sucker’s game?
I don’t know.
Is trying to become a pro athlete a sucker’s game?
Is trying to become a rock star a sucker’s game?
How about trying to become a famous actor?
Or an astronaut?
Or an Olympian?
Or a neurosurgeon?
Or a professional poker player?
Or a hedge fund manager?
Or a billionaire?
Or the President of the United State?
You get the point.
Anything that requires focus, drive, discipline, specific skill sets, and yes, at times luck, is hard to do successfully, but just because the vast majority can’t do it doesn’t mean it can’t be done.
Nor does it mean it shouldn’t be attempted, as long as you go about it in the right way.
What’s the right way? Glad you asked.
IMO, you should only actively trade if you satisfy one of these three criteria.
You are independently wealthy and it doesn’t matter how much you lose.
You are young, as in under 25-years old. (Because if you get your ass handed to you you’ve got plenty of runway to make it back).
You’ve got your financial house in order.
What does this last point mean?
It means having a financial plan in place and actively funding it.
This includes retirement planning in the form of a 401(k), 403(b), or IRA - Traditional, Roth, SEP, or otherwise - that you’re maxing out.
Got kids?
Then you better have that 529b in place with regular contributions from you and as many grandparents as you can corral.
Credit card debt? That’s your number one priority before a dime goes into your trading account.
I shan’t bore you with all the other prerequisites that should be satisfied before embarking upon the trading life - you know what they are.
However, should you have your financial house in order and find that there are excess discretionary funds of which you will not be adversely affected should they be completely lost, then by all means, plunge headlong into the world of the active trader.
But make sure to put the odds in your favor.
And there’s no better way to do that than to become a Lund Loop subscriber.
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