All good things come to those who study. At least that’s what parents say and it’s why some new traders start on an arduous journey of applying the famous 10 000-hour rule to their studies of the market.
But is this number really relevant when it comes to trading forex, stocks and cryptocurrencies?
To answer that we need to look a bit deeper into what the rule states and then see how much in terms of BOTH quantity and quality of trading experience you can get for that time.
The 10 000-hour rule is something author Malcolm Gladwell came up with in a book called Outliers. He claimed that practicing anything for 20 hours per week, for 50 weeks per year for 10 years equals 10,000 hours. A number that according to his research is more or less equal to that of an experienced professional in any field.
What does that number mean when it comes to trading?
Being active in the markets for a decade provides value because it puts all traders in different situations and changing circumstances. If you were starting exactly ten years ago in 2008, your first year would have included the U.S. financial crisis, followed by the debt crisis in the Eurozone.
If you started last year you would have been witness to the birth of a whole new asset class – cryptocurrencies. They’re actually still maturing out of their cocoon phase and reaching for a real trading status.
By combining all these events that don’t happen every day or month a trader can know a lot more about what to expect of the market as a whole. As a consequence they can develop trading strategies quicker and with more variables in mind. Not to mention that they’d know where to look for better opportunities.
Constant, or at least regular trading allows traders to have their own unique perspective on things and find what works for them, just like we’ve identified the Elliott Wave method as our most trusted type of analysis.
So does everyone need to follow the 10 000-hour rule to become good at trading? That depends.
If you walk into the challenge of setting aside just time for it, then it’s possible that 20,000 and 30,000 hours won’t be enough.
But if you use that time wisely to accrue more and more knowledge, then the likelihood of becoming profitable increases.
How does this positive experience manage to build?
It works by combining the three periods of a trade:
1. Preparing for it
2. The time it’s active
3. It’s analysis after you close it (it doesn’t matter if it was profitable or not)
These three phases are made up of studying the setup, identifiyng your entry and exit points, along with a stop loss levels and the variables you’re going to watch.
Then comes the actual trading part, that moment you click buy or sell and watch what happens. We’ve discussed how important it is to observe yourself during this time as well. Emotions can be a killer and you need to master them as well.
And third and final comes the analysis, reviewing the previous two periods. What went right, what went wrong and why. Making mental and physical notes about how to do the good things again and what to watch out for.
Maybe all this doesn’t require the full 10 000 hours but it definitely needs a lot of attention and concentration to make the most of your time.