One of the first things to consider when embarking upon any new endeavor is to: a) know why you are doing it and b) what you expect from it. This is especially true for trading. In a previous post, these questions were brought up; did you take time to ponder the questions and the answers? Okay, so don’t tell me, let me guess–the answers were: a) to make money and b) to make a lot of money. Am I right? There’s no need to even answer that because I’m 99.99% sure I am correct.
So, is there something wrong with the answer “to make money”? Honestly, I personally cannot answer that question because it has been on a rare occasion that I’ve ever approached any job with that in mind. And let’s remember that trading is a job like any other. It’s been my personal experience that when you do something you absolutely love and do it really well, the money will certainly follow. Does a kid who picks up a tennis racket at 8 years old and passionately practices every day after school and on weekends for years do this because he thinks, “someday I want to make a lot of money”? I doubt it. Or the kid who races go-carts and then becomes, through hard work, practice and dedication, a famous and very rich race car driver. Was money their motivation? Probably not.
So let’s ask the question again–why do you want to be a trader/investor? I’m wondering how many of you will answer like this: Because I find markets fascinating and challenging and I’d like to become a good trader. But becoming a good trader requires a lot of hard work, dedication and time investment which is why there is such a high failure rate. This business is not easy and walking into it thinking you’re going to hit a home run the first, second, third, fourth, or fifth time up to bat is in no way any different than buying a lottery ticket or playing the slot machine. If you do hit a home run, it’ll be shear luck and being able to repeat it won’t be likely because you won’t know how it happened in the first place. And that is huge in this business – learning to repeat your winners, and filtering out the patterns which are generally losers. Trader Scott calls them “trading patterns” – learn them. So once again, how much sacrifice do you want to make, because that’s what is required for the success which is in your reach.
Oh good, so you are still reading. I’m glad you weren’t scared off. It would be so easy to tell you how effortless trading is, and for $400-$1500 a month we could teach you the secrets to make you a millionaire in 3 years like many trading gurus do on the internet, but that would be false marketing. If it were so easy, there wouldn’t be that high failure rate. Think about it. And why such a high failure rate?
One thing we can rule out for an individual trader, even just trading their own small (at first) account – that would be a lack of money. The bulk of that money at first should go into education – proper education. A few thousand dollars at first should be fine, between educating yourself about the real way that markets operate, in the real world. That would be spread between education and opening up an account. There will never be a better “teacher” than the actual trading itself. And we’ll never spend enough time and focus on improving, if the passion doesn’t exist for seeing the consistent profitability. Which leads to the real problems:
Lack of education and passion
Motivation. passion, and the desire for educating oneself work hand in hand. It’s far too common for most people to always think that they only need to learn a strategy/a method and then follow the rules of that strategy, and voila, the money will start pouring in. Sometimes a few people actually do this for awhile, and it works. But the right way to do this is to develop an overall approach to markets, which encompasses everything. The problems arise because most people don’t spend the (boring) work preparing to enter the trading world. We first need to get a good foundation of the markets – the markets change, there are drawdowns, there are self-doubts, and then we start making mistakes. Those mistakes lead to self-sabotage even in someone who has a generally healthy, clear mind. There are those who are only trading to make money, instead of cherishing the process of learning to make profits (not lose). And if someone dislikes the learning process, then they’ll never even learn the multitude of prerequisites required to build a trading foundation. When you do something you do not enjoy, eventually your subconscious mind will figure out ways to make you stop. Even some who start out with passion often find the workload and sacrifice is too much and when the passion goes, so does the work ethic. Trading well is no different than any other endeavor. Some people have the persistence and the drive, while others don’t. But the great thing is, all of this can be learned and acquired. There have been many, many people who just fell into trading and became very successful at it. So the precedents have been established, in other words, it can be done by anyone.
Lack of an approach and not understanding our psychology
As stated above, it’s the overall approach to markets which is the foundation for all of this. Scott told me this a long time ago. The approach encompasses everything – the method, the trading skills, the daily trading plan, the education, the work ethic, the persistence, the focus on risk, the lack of focus on money, and the understanding of our own psychology. The assessment of our psychology will include judging strengths, and especially, weaknesses. The key is – putting it all on the table, accepting who we are, and learning how our unique psychology can work/mesh within the day-to-day trading environment. And the really nice thing is that any one of us is capable of having success in the markets – it’s only up to us.