Why is systematic trading important and why should you start trading stocks first?

Systematic trading can apply to all financial instruments like stocks, futures, Forex, and even options. The principles of systematic trading can be used everywhere and the rules that work across the different markets will differ.

Why do I teach and encourage stock trading as the first step into trading for your account?

The main reason is that stocks are the easiest and most reliable place to start. It’s the easiest place to protect yourself and stay in the game. Stock traders have a much longer expected survival rate in the beginning than Forex traders do.

When you start as Forex trader, the brokers encourage you to use very high leverage to make money fast and take high risks. They also encourage you to frequently use concise term trading strategies and trade. They do all that, so the broker makes money out of your account before your account blows up and you lose everything.

I’ve spent time with a lot of brokers and advisors. One of the advisors I spoke to, who’s a big introducer for Forex brokers, told me that the average lifespan for a retail Forex trader is three months before they blow up their account and lose everything. Some people are going to last longer or less than that, but frankly, that’s pretty terrible.

It doesn’t need to be that way, and the reason it happens is that people aren’t taught the right skills. Because they’re in an environment that is very highly leveraged, and the odds are stacked against them.

In stock trading, simple rules with low leverage can make you very solid returns and allow you to build wealth. I’m not saying you can double your account because that’s impossible in any market. However, stocks are easy to place to start trading, since you don’t have to worry about leverage, and you’ve got a lower correlation than in Forex. Contrary to popular belief, commissions are lower in stocks in many cases because when you buy stocks, you don’t have to use a hundred times leverage. That little spread you pay in Forex when you lever it up a hundred times is a huge cost.

In stock trading, if you’re trading in liquid stocks and commissions are close to zero, the spreads are narrow depending on which market you’re in. That’s why I like trading stocks. I’ve had a lot of success teaching new traders, and it’s a great wealth-building tool. That’s why I talk about stocks primarily rather than Forex.

However, if you learn about systems, you can also apply systematic thinking and the processes to all markets.