This is Bill. During the market crash of 2020,
Bill saw his friend Bill-the-second make a lot of money through trading.
He also wants to make some Tendies, as the cool traders are calling them now.
But, before jumping on this trading and investing rollercoaster, it is very important
to understand a couple of things. Otherwise, Bill will end up like the 90% of traders.
It's not really 90% because when we asked 100 brokers in a previous video,
the number was more like 70-80%. But yes, most people lose money in the long run due to a lack
of proper education and bad trading psychology. So to be on the right side of psychology,
Bill first needs to answer why he really wants to start trading.
1. Does he want to make money consistently, like an income from a job? If yes, then there
are much easier and more consistent ways to make money. Why does Bill wants to try making money
where most people already fail at making money? 2. Does Bill want to achieve financial freedom in
the future? So he can do whatever he wants? 3. Does Bill have money lying around
and simply want to invest somewhere? 4. Or does Bill wants to grow his capital
at a faster rate than other safer investments? Answers to these questions are very important to
create a strong trading foundation. Trading is not a get-rich-quick scheme. It's like any other
business. You will need to put in the work if you want to be in the top 10% of the traders.
I got into trading because of the 2nd and 3rd reasons.
Let's say Bill wants to replace his job and make money consistently.
If he starts with this mindset, he is more likely to stay in the 90% because he is
thinking short-term. Trading is a long-term game. More consistent income from trading or investing
comes after you become an experienced trader. If you try to start with something that comes
as a benefit to an experienced trader with a bigger account, then you will
have a lower probability of making money. On the other hand, if you start with any
of the other 3 reasons, you will have a much better chance of becoming a successful trader,
as you will start with a long-term mindset. This will also help you avoid some major mistakes
and do things right from the start that I have discussed in the Trading Rush Trading Foundation
Series. 3.
Bill wonders, if around 90% fail to make money in trading,
should he just invest his money instead? Is investing better than trading? Would
it be smarter to invest time and money in long-term investing or short-term trading?
If Bill wants to have almost a 100% probability of making money in the long run, then yes,
Bill should invest instead of risking his money trading. But in the financial market,
low risk equals low reward, and high risk equals high reward most of the time.
So since the probability of losing money in long-term investing is low,
the reward is also low. You will make a lower average percentage gain a year.
On the other hand, if higher average yearly returns are Bill's ultimate goal, then trading
is the way to go. But as Uncle Ben of finance said, with high returns comes high risk.
4. But then Bill
wonders what exactly is happening in investing and trading. Why does investing make lower average
returns and trading make higher returns? Think of it like this. Let's say there are 3
friends. One of them is named Boss, who owns and runs a dinosaur store. The other friend named
Chandler, invests money in his dinosaur store and becomes a part of the company.
He does this because he thinks that people will show more interest in dinosaur things,
and the store will grow in value in the future. A few years later, the store does grow in value.
But then, one day, Boss decides to go on a break for a few days. If Boss is not running the store,
there won't be any profit. If there is no profit, the store will not increase in value.
Chandler doesn't like this. So he sells his portion of the company for a profit
before Boss goes on a break. The third friend Joe hears about this
"going on a break" news and decides to go short on the Dinosaur Store. "Going short" means profiting
from a downward move in the asset's value. In the next few days, Joe closes his short
position and books a profit when the price goes down.
In this story, what Chandler did is called investing in simple words. The
profit was made because the asset grew in value in the long term.
And what Joe did was short-term trading. He bet and profited from the short-term movement in the
asset's value. 5.
Now Bill wonders, what can he buy and sell that will increase and decrease in value?
You can start with the Stock Market. There are 1000s of companies like the dinosaur
store one that you can trade and invest in. When you buy a company's stock, you are buying
a small piece of that company. The point of the stock market is to
allow anybody to acquire and sell fractional ownership in a publicly listed company.
There is Apple, Tesla, Microsoft, Google, Amazon, Facebook, and many others available
to buy and sell. You think Tesla will dominate the electric cars market in the future? You can
invest in its stock. You think Facebook is going downhill from here? You can sell its stock!
But, you have to buy and sell when the stock market is open. The opening and closing timing
of the stock market will depend on where you are and what you are trading, but it generally
opens around 9 am and closes around 4 pm. That's one of the disadvantages of trading in
the stock market. If you have a day job, you won't have enough time to trade stocks.
But even though the timeframe to trade stocks is low, the 1000s of stocks generate many trading
opportunities. That's one of the advantages you will get as a stock market trader.
6. But Bill thinks 1000s of
stocks are too many stocks. He wonders if there is a single good thing to trade in the stock market.
Yes, there is. As an investor, if you don't want to keep track of your 100s of stock positions,
you can buy the stock market index instead. The index is made of multiple stocks.
If you only want to invest in stocks of a specific sector, such as the energy sector,
there is an index for that too. If you have ever watched a business news channel,
you may have seen a headline that says the stock market has fallen or moved up. Most of the time,
they are talking about the stock market index falling and rising.
The advantage of trading and investing in an index is that the price movement
is better. 7.
But if Bill wants to trade currencies like the US dollar and Euro, then he will have to go to the
Currency or Forex Market. Unlike the Stock Market, the Forex Market for retail traders is open for
24hrs a day, from 5 p.m. EST on Sunday to 4 p.m. EST on Friday. And that's one of the biggest
advantages. If you have a day job and can't trade stocks, you can trade the Forex Market.
The disadvantage is that there are fewer currency pairs that actually have a good tradeable price
movement. 8.
Then there is Cryptocurrency. The thing that can make big moves when someone tweets.
It is a virtual currency, exists digitally, and works over the internet. If Bill thinks
that digital currency is the future, then Cryptocurrency investing may be for Bill.
But it is a riskier investment. It is decentralized in nature, so they are not
issued or supported by the government. They are not backed by any other private or public
entities either. Unlike the Forex or Stock Market, Cryptocurrency Market is open 24 hours a day,
seven days a week for retail traders. Retail traders are you and me.
8.1 Bill then
wonders if cryptocurrency is even real money. Cryptocurrencies are an alternative to traditional
money. Many popular outlets have started to accept cryptocurrencies as a form of payment.
There are thousands of cryptocurrencies available to buy and sell, but most of
them have low value. Recently, 1000s of new cryptocurrencies were being added every month.
The crypto market can make big prices move at times. Bitcoin, the most popular cryptocurrency,
made around 1600% gain in less than a year in 2017. But then also gave
back most of the gain in 2018. It did a similar thing from late
2020 to late 2021, made around a 500% gain, and then gave back most of it.
Big price moves can be good for making quick big profits, but the same big price moves can
also lead to quick big losses. If volatility is Cryptocurrency's advantage, it's also its
disadvantage. 9.
If Bill wants to buy and sell primary agricultural products or any raw materials,
then the Commodity Market is the way to go. He can trade wheat, gold, crude oil,
and many other commodities. When inflation rises,
the prices of Commodities also rise. So Bill can use them as an Inflation Safeguard.
Maybe some natural disaster happened, or an economic crisis causes supply disruptions,
the Commodities prices can go higher. If Bill wants to trade Commodities,
he will also have to keep an eye on various economic and geopolitical factors.
10. But after looking at all these different
markets, Bill is now confused. What should he trade and what will be the best start?
I started with the currency market because it was open for more hours.
Bill can do a similar thing. But then one can ask if open
market hours are what we are looking for, then isn't cryptocurrency a better choice? When I
started trading, cryptocurrency was not that popular. Bitcoin hadn't even made the first
big move that got everyone's attention. Now that crypto trading is more popular,
it is still better not to use it as a starting point as cryptocurrency is not stable for the long
term, can be more volatile in the short term, and trading it can get banned in some countries. It is
already restricted in multiple countries. So out of Stocks, Forex and Commodities,
Forex is the one that will give you more experience quickly to grow as a trader.
But what if Bill only wants to trade stocks? Then he can trade stocks when the stock market is open
and then demo trade Forex for the rest hours. That sounds good as a starting point, but then
Bill wonders which market is the best for the long run. Well, all of them are good as long as
you are adjusting to the market. But the thing that has a higher probability of making money,
in the long run is the stock market. Remember Boss and his dinosaur store? Similar to how
the dinosaur store went up in value in the long run, good companies have a higher probability
of increasing in value in the long run. This is not a 100% probability, but if you buy stocks of
multiple good popular companies and diversify your portfolio, there is almost a 100% probability of
making money in the long run. 10.1
Bill wonders if he should stick with one market and master it,
or trade all markets and be master of none. As of writing this video, the stock market
has given a great investing and long-term trading opportunity.
If Bill sticks with Forex for example, he is going to miss excellent opportunities like these.
If Bill trades and understands all popular markets, on the other hand, he can use his
understanding of the markets to make profits. So overall, even if you want to master one market,
it is better to have a good understanding and experience in other markets.
11. But then Bill wonders,
how much money do you need to start trading? You don't! Or you shouldn't! If you are just
starting out, do not put money in your trading account. Remember that most
traders fail to make money through trading. That's not just the case with one broker,
but it was the case with all brokers when we asked in one of the previous videos.
Try paper or demo trading first. Many brokers offer a demo account for you to get familiar with
everything. This demo account will act just like a real account in most cases. It
will have a virtual amount for you to practice buying and selling. Use that feature to learn,
and only add real money if you can make money on this practice account more consistently. The
word "consistently" in trading means making a profit in the long term, like more than a
year. If you can't make it at this stage, then there is no reason to risk your real money.
Once you get past this first stage, the answer to "how much money do you need to start trading"
depends on what you want to trade. If you start with a practice account, as I recommended,
you will know how much money you need to start with. The minimum starting amount is normally
around 100 dollars. 11.1
Bill wonders if he should also do investing while trading.
Yes, it is always a good idea to invest a good amount instead of putting everything
in a trading account and risking it all. If you ever decide to stop trading completely,
you will thank yourself for not risking everything in trading. Plan for 20 yrs ahead. The good amount
Bill invests now will have a higher probability of growing and helping him in the future.
11.2 But Bill wonders
how much money you need to start investing, in the stock market index for example.
Anything invested is good. Bill doesn't even have to invest a large amount in the beginning.
He can invest a small amount each month and watch it do wonders in the future. This is
called Systematic Investment Plan or SIP. You may have heard the story of the Janitor
and gas station attendant Ronald Read. He was a good stock picker and used Billionaire Warren
Buffet's "buy-and-hold" strategy. "If he earned $50 in a week, he probably invested $40 of it",
said his friend Mark Richards. He an interview, he said, "He only invested in what he knew and
what paid dividends. That was important to him." Thanks to smart investing and spending habits,
he accumulated an $8 million fortune. 12.
But then Bill wonders how long it takes to become profitable in trading.
It depends! It depends on how much time you are putting in, what is your learning source,
and most importantly, it depends on your trading mindset. The biggest enemy you
have to face in trading is your own self. For example, many stock and forex brokers have
an educational section on their sites. It shows the strategies professional traders have been
using for a long time. These strategies have a high probability of working in the long run.
But if Bill tries these strategies, he is very unlikely to make money with them. Because Bill
only knows what strategies the professional traders use and not why they
use them. If 70% is trading psychology and 30% is the trading strategy, and you need 100% to become
profitable, then Bill only has half the secret. Developing the proper trading psychology to go
with the trading strategy is what takes time in trading. The sooner you develop a trading mindset,
the sooner you will become profitable. Some take 10 years to develop their mindset,
especially if they don't get enough time to trade the live markets. And some do it within a year. If
you learn a strategy from someone, asking them about their trading psychology or the reason
behind taking the trades can help you develop your trader's mindset faster. In the Trading Rush
Foundation Series, I have an episode dedicated to my trading psychology, so you can see the reason
behind the way I trade. 12.1
Bill wonders if it is possible to make a living through trading.
Think of it like this. Let's say the stock market index gives an average annual return of 10%.
Can you make a living on a 10% a year return? Is your account big enough to live off around a 1%
profit gain a month? Now Bill might say, "hold on a minute. Don't professional traders make
more than 10% profit gain in a year on average?". Yes, so let's bump that number up. Can you live
off a 20% profit a year? Maybe 30%? To live off trading profits comfortably, the lower the profit
percentage you need in a year, the better. If you need 200% profit in a year just to cover
your yearly expenses, then you are most likely not going to make a living through trading profits.
Your account size is simply not big enough. But if you need a lower yearly profit percentage to
cover expenses, other investments, etc., then you will have a better probability of making a living
through trading. 12.11
Now Bill wonders, if he needs more trading capital to make good money and live off
trading profits, should he get a loan? This is one of the stupidest things Bill can
do. In your trading journey, you will come across stories where people took a loan, invested in the
market, made a lot of money, paid back the loan, and then lived a wonderful life. The chances of
this happening to a beginner trader are rare. What's more likely to happen is this:
"Breaking news! Meet Bob! While the sun was rising and birds were singing,
Bob had a brilliant idea of taking a personal loan from the bank and investing in the stock market.
He saw someone on Reddit make a lot of money doing this online. Unfortunately, the stock
Bob bought dropped in value, and now all Bob has is unplayable debts. Don't be like Bob."
12.12 Bill then wonders about putting
everything, his entire savings in the market. One Reddit trader claims to have done this exact
thing. The stock the user bought dropped 80% when an internal investigation revealed that
its CEO falsified sales. The company received a delisting notice from Nasdaq. The Reddit user
ended up with a big loss and claimed to have lost their entire life savings.
But then Bill might ask, the Reddit user probably invested everything in a single stock,
if we don't risk everything on a single trade, we should not lose the entire savings, right?
That's not exactly true. This user claims that their husband lost all of their life
savings trading the markets. Even though 1 proper low-risk
trade is unlikely to lose the entire trading capital, the fact still remains that around 90%
of traders lose money in the long run. So never put your life savings or something
you can't afford to lose in trading or investing account.
And, Don't be the fund manager of the family like this user, and ask relatives to let
you invest their money in the stock market. Don't Let Money Ruin Your Relationships.
12.2 Bill then wonders,
on a scale from 1 to 10, how difficult is trading and investing. 10 being more difficult.
Since the stock market goes up in the long term, making investing a higher probability of making
money, it's more of a 2 on the difficulty scale. All you have to do is research
and find a good investment fund. But if you want to invest by picking and buying stocks directly,
the difficulty will be greater as you will have to research multiple companies, keep track of them,
know when to enter and exit, etc. Trading, on the other hand, will be
10 on the scale. Trading will be one of the most challenging things you will learn in your life.
13. Bill wonders if learning to trade can take some
time, and on top of that since there is a lower probability of becoming successful in trading,
is trading really worth it? Think of it like this. If you are
in your early 20s, understanding how the financial market works can give you a very high probability
of ending up as a multi-millionaire in your late 30s or 40s. This is assuming that you start with a
decent trading account size and don't take a long time to become profitable. All you have to do is
make slightly higher than market index returns. In this case, trading is absolutely worth it.
In other scenarios, it depends on the starting account size, the amount of time you get to
trade in a day, etc. Furthermore, everyone comes with different expectations. Some only want to
cover their expenses through trading profits. Some want a higher yearly return than what they
get from other investments. In these scenarios, only you can answer if trading is worth it or not
by looking at your account size and the time it will take for you to learn.
Overall, since one of the biggest rewards of trading is having financial freedom in the long
run, trading is absolutely worth it in most cases. It's like they say, learning and skill never go
to waste. 14.
See How I made 100% profit in a year, see the Trading Rush Foundation Series,
and get Trade Alerts, by supporting Trading Rush on Patreon. Thanks for watching.