Tuesday, June 22, 2010

Nothing Can Replace Experience

Hi guys,

My good friend Joe Fahmy wrote this great little piece which i urge everyone to read!! "Experience" is something very few people talk about in trading. "Experience", in my humble opinion is single most important tool in a trader's arsenal! The bottom line is that trading is a "people" business and until you learn and gain knowledge thru 'experience', then trading as a whole will be a fuzzy mess to you. This is an excellent piece written by a man i have the utmost respect for.

Please enjoy.

Since I started my TV show on the StockTwits Network, I have received hundreds of emails asking me questions about trading, etc. The majority of these questions are very good and not only do I appreciate the overwhelming response to my show, but I also respect the people that are taking the time to learn about the stock market. One thing I would like to remind traders is that managing money and trading stocks is not something that one can learn in a few months, or even in a year. Only years of dedication, study, and experiences allow you to become successful.

When I worked in New York, people used to ask my old boss: "Can I stop by your office for an hour so you can teach me how to trade?" He used to respond: "That's like asking a brain surgeon, can I sit in on surgery for an hour so you can teach me how to do brain surgery!" At first, I used to think this was an absurd response. However, over the years this answer has made more and more sense to me, and I find myself responding to people the same way.

My point of this story is to stress that years of hard work, experience, laughs, tears, and broken computer monitors is what it takes just to BEGIN to have a clue about the market. Again, nothing can replace experience when it comes to stock trading.

For example, in my TV show over the weekend, I mentioned a few stocks that looked poised to move higher. When we gapped up on Monday morning, my opinion changed and I sold most of my positions. Why? Because of 7 factors that I saw in the first two hours of trading that told me there was a high probability we would close negative. What are those 7 factors? I would be happy to explain them, but each one would take too long to describe in this blog post. I did, however, tweet 3 times in the morning that I was locking in profits and that we would most likely experience a pullback.

Again, I am simply hammering the point that EXPERIENCE and 15 years of trading is what helped me make my decisions on Monday morning. This experience helped my managed accounts to finish positive on the day, when in the past; I may have finished negative on a day like Monday.

In The Battle for Investment Survival, Gerald Loeb says: "Nothing is more difficult than consistently profiting in Wall Street...Knowledge born from actual experience is the answer to why one profits; lack of it is the reason one loses. Knowledge means information and the ability to interpret it marketwise. No amount of study or practice can make one successful in the handling of capital if one is really not cut out for it."

If you are willing to dedicate yourself to stock trading, keep in mind that it takes years of hard work, losses, and disappointments before you become successful. Trading is a full time job and not just a hobby or part-time endeavor. If you don't have the time, you should consider having your money professionally managed.

I continue to welcome your questions directly via email: I will try to respond to the best of my abilities, or discuss them on my show if I feel they are too difficult to answer in a simple email. Also, feel free to email me if you are interested in our managed account products (including IRA accounts). I strongly believe that my experience and hard work is why I have been able to significantly outperform the market so far this year.

Follow me on Twitter @jfahmy

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