Some ugly truths about trading

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October 6, 2019

Some ugly truths about trading

When I look back to when I first started trading, there are a lot of things that I wish someone would have either told me, or I would have listened to. (In all honesty, someone may have tried, but I certainly didn’t get the memo.) I cannot tell you how much heartache and stress you can avoid if you listen to me in this article. The biggest issue that I will have with others when it comes to this essay is that it won’t be what a lot of people want to hear.

Everyone is against you

The world of trading is full of snakes. I can assure you that you aren’t going to meet anyone who is approaching you with completely altruistic intensions, as this is an industry that is dog eat dog. I don’t say this to pound the idea of the “manliness” of trading, what I am saying is that you will meet a lot of people that are looking to part you from your money. Some will lie, others will cheat. Beyond that, there are a lot of traders who will take that money from you in the market itself. The world of Forex is full of shitbags, and to be honest, I cannot emphasize enough just how alone you truly are in this world.

You are alone in almost everything you do. The learning, the losses, and the stress – its all yours. So are the decisions, and this is where a lot of newbies find trouble: They aren’t sure what to do in the beginning. It’s a new world, and it is natural to look for an experienced trader to help you. The biggest problem is that most traders are liars online, in order to protect their egos – or worse yet sell you something. Always trust your “gut feeling” when it comes to those you meet online – me included.

It’s a business, and a difficult one at that

The fact that trading is difficult shouldn’t be a huge surprise, but the reality is that roughly 90% of traders fail. This is a scenario that isn’t emphasized enough. I won’t lie to you, its easier to start another business that will be more profitable than trading.

For me, I had a background that included doing a lot of contracting work, mainly working on residential homes. That was an easy business to start, and was one that was always in demand, to one point or another. However, when it comes to trading, it is very easy to lose money. In general, if you are painting a couple of rooms – you get paid when you are done. When it comes to trading, you can put in a lot of work, only to PAY someone else.  Under most circumstances, I made money working as a contractor. Granted, there was more physical work than trading, but at the end of the day the risk was very low.

If you don’t love trading, you have already failed

Trading is no joke. It takes an incredible amount of resiliency, as the ups and downs are quite wild. One minute you are riding high because of a string of profits, and then one days you blow up and lose four days’ worth of profits on a stupid trade. That’s the reality of trading for most people. It only takes one bad decision or break down in discipline to ruin a lot of work.

It is because of all of the work involved, you had better love trading. If not, there is nothing wrong with that, and perhaps you will find another outlet for a side business. That’s okay, because being self-aware will save you a lot of time, whether it is to become profitable, or to move on to something that suits you.

What you are trying to accomplish is almost impossible for a lot of people, but it isn’t because the act of trading itself is hard, but it’s a huge mental battle that you will be in, with yourself. This brings me up to the next point, and perhaps the most important one that we all ignore when we start trading.

The system doesn’t make the trader

There are about a billion systems out there, and a lot of them are profitable. There is a reason that some of the classic systems are still around decades later. However, you can see a couple of traders get wildly different results using the same set ups. Why? Because execution of a system is easy but sticking with it is a totally different issue. In other words, the most important part of a system is the trader. Its almost all psychology once you understand how to read a chart.

The trader will have issues taking losses, and perhaps even hanging onto trades. (These are two of the most common issues.) You need to learn to understand that over time, your system should make money, assuming that it has a statistical advantage. However, most traders will let a few losses cause havoc for their psychology, thus causing a lot of mistakes. You simply must be able to let the system work out over the long-term. This assumes that of course there is a statistical advantage over time, such as it has more winnings than losses over a large sample of trades. However, can you as a trader ride out the ups and downs? Most can’t.

There are multiple schemes out there to watch out for

As a general rule, if the trader/educator you are watching online suggests something about the extravagant lifestyle they enjoy trading Forex, you need to ignore them. The pitch will be something like the trader once was almost homeless, but now travels the world and takes his business with him in a laptop. Also, they will spend a lot of time talking about the huge wins they make.

If you hear the phrase “What the banks don’t want you to know”, it’s a bad sign about a system or educator. The truth is that your account is so small that the banks really don’t care what you know. Sheer volume means that you are like a mosquito in a herd of elephants. They don’t even notice you.

One of the biggest ones is the “prop trading” one. While this is more common with the futures markets, there are a few that are focused on Forex. In general, there is a challenge that you need to pass, and then you get “funded.” However, most of the time the parameters are so difficult that it is almost impossible to pass the challenge. This is the idea: These “opportunities” come with a monthly fee most of the time. For example, you may have to pay $350 a month to participate. The idea is that you take several months to get through, and even if you do make it – any profits you make will be covered by the other traders trying to make it. If you read the fine print, there is normally something mentioned about the firm being able to put you on demo, even if you are “funded.” They will pay you, but the odds mean that over time, they collect more in fees than they will ever pay out. The idea of a $250,000 account will always appeal to people, but in the end, few will ever have the chance to trade it. Even then, they will often have parameters that mean you can’t lose more than a couple of percent before being kicked out. Also, they normally ask you to day trade, which means you won’t be buying and holding – which could lead to the firm taking massive losses. Its all in the numbers.

There is no “get rich quick” scenario

Unfortunately, far too many people get into trading with the idea that they are going to get rich, and quick. It simply isn’t true. Some of the best traders in the world are competing against you, and even they will earn something like 30% a year. When you think about it, traders of Forex of other self-directed situations don’t allow themselves to be human. For example, you are happy when a “professional” earns you 15% over the last year in your retirement account, but you feel like a failure if that’s “all you get” in your own trading, although the fund that handles your investments has an infinite amount of resources that you – at least in comparison.

You can make money, and even good money. But it’s not overnight. It’s a marathon, not a sprint.

That “expert” you are talking to online is probably a losing trader

It never ceases to amaze me how many random people on the net are more than willing to trade based upon what some total stranger suggests. There are entire threads in some of the most popular forums online that are run by people that clearly have no real expertise. However, there is always someone that has even less experience than the original poster, and therefore people will end up finding followers no matter who they are. It is literally a case of the “blind leading the blind.”

In the end

In the end, its not impossible to make money. However, it takes a lot of work and patience, which isn’t something that a lot people want to hear unfortunately. However, if you are cautious and willing to work hard, you can be something that most people aren’t – profitable.

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