People who come into the markets usually share three characteristics: a) they had previous success, b) therefore they have capital to trade with and c) as a group they belong in the top percentage intelligence-wise.
These people then put up their money in an account, start to analyze the markets and actually trade it.
Eventually, this ends up at over 90% losers.
The logical question you ask now is, “Why are the most intelligent people of the entire country coming out as 90%+ losers in the marketplace?”
Is it true then that nobody can win in trading? Are they using the wrong analytical tools? Is the market manipulated? Or are they just not working hard enough?
Even though the answer to the question why more than 90% lose in trading might be a slightly different one for every individual, a lot of people will find their answer simply in their background. This has deep implications though, behavioral structures anchored in the human psyche are hard to change, because they make up the fundamental belief-system of an individual.
While growing up, at school, and later in college or university, and further down the road during your career the process of obeying somebody else’s rules takes place. You are brought up by your parents in a way of avoiding risk and being pad on the back when having done something right. “Don’t touch the hot stove!”, “Don’t go near that cliff!”, “Read page 45-90!”, “Study XYZ to pass the exam!”, “Be at work from 9-5!”, “Take your holiday on …!” and so on and so forth.
You are being told what you are allowed to do, suppossed to do and how society rates your actions all the time. Now, this makes a lot of sense in the case of a child actually running towards a cliff or wanting to touch the hot stove, but limiting a child’s and a person’s actions and even more so judging whether they were “good” or “bad” is really problematic. Actually, growing up in a usual home graduating from a state school and university, all you have learned and will ever learn is how to satisfy the authority, how to behave in an acceptable way for society. This of course also includes what is acceptable/not acceptable or good/bad in terms of achieving financial success. Your good results in school, university, your bonus or raise all stem from one place: you obeying somebody else’s rules.
Coming into the market place though, there are no rules! It’s a free environment. Or have you heard and seen of anyone judging what is right or wrong? No. You can buy anything in any quantity at any time. And then you can sell it again under the same circumstances.
It should come naturally now, that everyone needs some sort of goal and guidelines to reach that goal in such a free space. Nobody would just roam around in free space forever without trying to establish some sort of organisational system or order.
What you actually need when it comes to trading are detailed tools to navigate in the markets, then you have a chance for success. This would include a methodology, Risk Management Parameters and a decent trading process.
In order to attain these tools you actually have to use your own brain, think about where to find them and how to use them. There is nobody else who does the work for you. Sure, there are teachers and seminars, but there is no standardized curriculum that everyone takes learning the basics. You are more or less on your own researching. Then when you get the materials and have studied them, there is no test putting your knowledge on the line. Should you know nothing, failing the non-existent test, there is no one who blames you. Also, should you have learned a lot and should you really be up to the task, there is no one to praise or thank you.
So, when talking about trading, it’s your journey, you decide how much time and effort to put in answering the following issues:
You have to judge whether the systems you encounter are trustworthy and profitable. You also have to do reasearch into different Trading Approaches. Short-Term, Long-Term? Mean Reversion or Trendfollowing? Technical or Fundamental?
Risk Factors are also not to be neglected, you will have to go out and put together your perspective on how much to risk on each trade, how much total exposure your account carries and what your personal risk tolerance is. There is more.
What about you having a family and a full-time job? When are you ever going to do all that work – and eventually trade? If you do find the time, what about timeframes? Should you put on and take off trades while at the office? Or would it better to trade the 6h chart? Or maybe the daily or weekly timeframe? I am not finished yet.
Have you considered the aspects of backtest and documentation? How will you be able to trust your approach if you haven’t seen extensive backtest results? And directly in connection to that, how will you keep track of your current performance?
What markets should you trade? How many markets should you trade? What are the holding times of successful traders?
Once you have spend some time and have come up with the answer to all of those questions, remember, there will be nobody padding you on the shoulder for your hard work, there will be nobody praising you for anything – because so far you haven’t really done anything, you did some research, great.
Remember, you haven’t even traded your approach live yet. If you do, who guarantees you positive results? Who says this will definitely work? Who will tell you what your mistakes are and what you should be changing? Who will thank you for your profits if you should have any?
The answer: nobody.
It’s all on you.
You do the research. You do the backtest. You have the faith. You do the trading. You do the documentation. You revise, reflect and try again. You manage the risk and come up with a steadily climbing equity curve. You create your perspective on the markets. You make all those profits.
There is nobody else.
And in this regard, making money in the markets is a creative process. It has nothing to do with anybody telling you which books to read, taking an exam and getting a good grade for writing down what has been expected of you to write down.
The markets, and so is life, are an ever-changing, always-moving entity that reward the flexible and open-minded, not the one’s looking for approval, only being able to act on commands and sticking to narrow-minded concepts. The latter are the ones society loves, because they will always stay in the realms of the expected. They will never reach the border and try to accomplish something. Instead, they are being told what they are allowed to accomplish.
Trading is very different from that. In the markets you choose your research materials, your systems, you do the backtest, engage in the activity. You revise and reflect. You try again. You do the documentation. You keep your personal psychology in check. You stay disciplined for years, if not decades.
You create your financial success, you create profits in trading. It doesn’t just happen. This creative process needs to be taken care of. Hence you need to take care of yourself to be creative.