The Newberry Doctrine

If you take a look at just about any profession, you'll find that people evolve through three stages: novice, competent and expert. Let's take a look at how this works in the trading profession.

A novice trader is a one trick pony. They have one trading style they cling to for dear life. When they perceive that it no longer works, they'll find a new system and believe with all their might that THIS is the way until it too shows itself to be flawed. They are also inflexible and easily become confused when the unexpected happens. And, sooner or later, the unexpected will happen. They have lots of misconceptions, such as "shorting is bad."

After the novice has been bloodied and bruised enough, he has a decision to make. Perhaps "trading is not for him." If he sticks with it long enough, he eventually develops the experience to become competent.

A competent trader has "enough tricks in his bag" that he can adapt to a range of situations. However, he knows he needs to keep learning, and that there is always more to know. The overconfidence of the novice is replaced by the experience to know that uncertainty is a permanent fixture in his relationship with his chosen market.

As a trader matures, it gradually dawns on him that there is no "Holy Grail" of trading. There is no perfect indicator, system or money management approach that will GUARANTEE success. Usually, about the time the thankless search for the Holy Grail ends, a trader is competent enough to find his way without needing such an unrealistic psychological crutch.

A competent trader focuses on acquiring the right facts and making disciplined decisions based on these facts. He feels "safe" if he believes he "understands" the situation. For example, he may have a number of ways of picking stocks and a number of ways of playing his stock picks.

Eventually, a competent trader notices that he understands a situation even if the facts are not all in. This is because he can relate it to similar situations he has experienced in the past. He is then ready to graduate to expert.

An expert trader has enough tools, stock trading software and tactics under his belt that he can confidently take advantage of a trading situation without having to rely on detailed systems. In a sense, this is the opposite of the novice approach, because the expert knows what he is doing on an intuitive level. Getting to this point takes lots of hard work, and, as the saying goes, "many are called but few are chosen."

However, the financial rewards for being an expert trader are greater than in most professions. Being able to pull money out of the market almost at will means you will make a very nice living. However, there is one last hurdle to overcome. It's a battle that will last a lifetime: always be humble. No matter how good you are, the market is willing to take it all back if you ever forget that it will always be much bigger than you are.

Trade well, with earned confidence, and you will prosper.

Doug Newberry is the Director and Founder of Investing Systems Network. He builds very reliable stock trading software so tens of thousands of all kinds of investors can trade with confidence. Investors in more than 25 countries enjoy his newsletter and his weekly online radio show.

Learning to trade takes much longer than most of us would like. How would you like to take a shortcut and graduate early from the school of hard knocks?

When I ask the question that way, almost everyone is ready to learn to do that. The problem is that when I tell you what's required, you'll find a reason why it won't work for you.

Here's my tip. The easy way to save yourself AND your trading account a lot of pain is to learn from other's mistakes.

Let me pause for a moment and wait for our virtual discussion room here to empty out a bit as all the people with really big egos head for the exit.

Still with me?

Great.

Here are some very common mistakes people make when learning to trade which you should watch out for.

First is the belief that trading financial picks is easy and quick to learn. I wish it were so. If it was really that easy, everyone would be doing it. Right? And if everyone were doing it and making money, who would be on the other side losing money? Not you? You never lose money?

Of course, you couldn't possibly be the beginner the professionals depend on to make their living from. I mean, you've paid thousands to learn the systems and techniques that you're now hoping will let you earn your living online. All that money spent on learning has GOT to make you a success, right? Take a deep breath here, because I'm about to tell you that regardless of what you've been promised, there is no guarantee that you will ever make money trading.

Next mistake is not to have clear trading objectives and realistic plans to get you to your objective. The word "realistic" in the previous sentence is worth quite a few books itself. It's not easy to come up with a realistic trading plan because the market tends to be unpredictable. It will test your trading plan at the worst possible time.

A flawed or incomplete trading plan leads to the next mistake. Beginning traders tend to be fickle, trying one market or system after another. They don't stick with any one thing long enough to get good at it.

Such traders are searching for the "holy grail" of trading, searching for a quick, easy, and immensely profitably system. While you may find a system that has two of those three traits, you won't find the "holy grail" of trading.

A final common mistake it to go it alone. Trading can be a lonely profession. It's just you and the market. You need to have fellow traders to bounce ideas off. But more importantly, you need a coach, trainer or guide to show you how to succeed and help you overcome your weaknesses.

This brings us full circle, because I started out by saying that you can avoid a lot of trading mistakes by learning from others. By having a successful trader as a mentor who you can learn from, you'll save yourself untold misery.

Doug Newberry is the Director and Founder of Investing Systems Network. He builds very reliable financial picks software for tens of thousands of all kinds of investors. Investors in more than 25 countries enjoy his weekly online radio show and his newsletter.