Ten Truths About On-Line Trading

This is another extract from my upcoming book. It is part of the opening chapter and I thought it would be worth sharing it here first. This is a condensed version as each topic actually takes up several pages in detail. I hope to shed some light about what trading is REALLY about and not what is widely being conceived. Happy reading!

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Ten Truths About On-Line Trading

Since I started teaching about six years ago, I have come to realize that there are many people out there who have no idea or the wrong idea about on-line trading as a source of income or even as an alternative job. Many who have come to my Previews seem to already have a pre-conceived notion about this business and are surprised when I tell them the truth. And in spite of the truth being so obvious, they would still choose to believe in their idea about what trading is about and will not accept that I am offering nothing but the truth about it. They want to continue believing that there must be another way and that I am just bullshitting them into signing up for my class. Many walk away unconvinced only to come back months and even years later, acknowledging that what I said before was true.

Where do these people get the concept that trading is going to make them rich? How do they get the idea that it’s as easy as reading a book, attending a workshop or learning off the Internet? Why do they believe that they are the lucky ones that will become the next Buffet, Sorros or Peter Lim? And what is it about trading that draws these disillusioned people into getting slaughtered like flies to a flame?

The answer can be found everywhere. It’s called Media. It’s in the advertising, in books, on the Internet and it’s being sold at every workshop, with every software and in every website. It is a sales pitch and you can’t sell anything if you don’t hype it up. And you can’t hype anything up if you don’t sell a dream. And you can’t sell a dream without lying or hiding the ugly truth.

I should know. I am in the business of trading and selling.

But I have always been at odds with selling the dream. This has been the case since I started selling a class. It was tough at the start. No one wanted to sign up for the class because I was too brutally honest. The first truth I ever sold was that you will lose money. (Now, is there anything about that statement that you can’t believe?) And unless you banished any and all ideas of easy and quick wealth, you were likely to lose everything first before you wake up and discover, accept and learn from my first truth.

It was also a painful start as the naysayers and disbelievers questioned and grilled me about my credibility. I was even labeled as one of those gurus I despise for selling dreams. Such labels came from people who hardly knew me or knew what I stood for and why I wanted to teach … a topic that has been discussed in great detail in several series of posts on this blog including; Why I teach what I teach (2 parts), Why teach then you can trade (4 parts) and Why Traders Fail (3 parts).

I didn’t care. And I still don’t care for those who won’t believe or accept. I do what I do because there are many others who want to learn and many more others who want to unlearn. And the only way for me to teach them is by being honest and brutally truthful. For those who want to buy dreams, I can’t do much for them and I am sure they are not interested in my help.

The second truth I want to share with everyone is that on-line trading is tough. Thus, it is also about the mindset. It’s the toughest thing I have ever done in my very tough life. (Now, why won’t anyone believe that to begin with?) There is so much that need to be learned, so much more to do after learning and even more work before you can begin trading. It will take a toll on your life-style. It will eat up your time. It will force you to manage your time better or lose sleep over it. It will take its toll on your family and those closest to you. It will change your mood, your appetite and your hairstyle. I will change your life for better or for worse. In most cases, for worse.

The market is not a black and white place. It’s not even a grey area. It is a manipulated hellhole filled with crime and lies. It is a money-laundering machine where big money wins and small money loses. Those with the wrong mindset thinking that trading is all about looking at charts will be in for a huge surprise. Those who believe they are doing everything “the right way” will find out that the wrong way can be more profitable … and sometimes not. (read “Novice vs Seasoned” for an idea about what this is about.) Those in the wrong mindset will not accept that you can make money by losing money. The wrong mindset will also not allow a trader to make money more often by shorting the market because most dreamers are only of a bullish mindset while the market is never bullish for more than 70% of the time. (Now, is that hard to believe? If you want proof, you should come to my Preview.)

It is a place where small minds with little knowledge or experience will suffer against those who know that will prosper from those who suffer. It’s mean, it’s rough, it’s irrational, it’s unreasonable, it’s unforgiving, it’s thankless and it’s damn tough. And I mean it.

The third truth is the most obvious one. (And yet many believe otherwise.) There are more losers than winners. It’s around 8 to 9 losers for every single winner. Amongst the very few winners are an even smaller number of highly successful traders. And amongst the minute number of highly successful traders are even fewer successful traders that have made millions.

One of the possible reasons for this lopsided ratio could be that most of the market are bulls when the market is not bullish more than 70% of the time, as previously mentioned. The reason there are so many bulls is, once again, because of the hype, the sales pitches and the media. What they don’t tell you is that most professional traders make more in a bear run that a bull run. Why do you think we have that age-old joke in the market that goes, “The bull ran up the stairs and then bear jumped out the window“?

What makes everyone think that they will be good enough to be amongst the elite few if they don’t even accept my first two truths? And there are the extreme dreamers that believe that they can make a million by trading. A very good, very experienced trader friend of mine once said that he could make a million from trading in a very short time. I asked him how and he answered without batting an eye, “By starting with two million.” Which leads me to the fourth truth.

The fourth truth is another obvious one – it takes money to make money. (Now, is there anything you would like to differ to?) Therefore if you don’t have much to start with, don’t trade. You are likely to lose it all first because a small amount of money doesn’t last at all in this business in which you are likely to lose money (1st truth). If a very experienced and profitable trader can admit to how difficult it is to make a million, then you have to wonder why there are so many that believe that trading is the answer to becoming a millionaire quickly.

I should know. I started with almost nothing and lost almost all of it. It was a mighty struggle to trade on a tiny account to make any money at all. For a while, I was trading to make a mere $10 per scalp with no room for error because one mistake would take me five trades to make it back. Looking back, I could have done it differently but with no one to mentor me, I did what I could and knew. I wouldn’t wish it on anyone and I will definitely not encourage anyone to believe that it can be done.

If you don’t have the money for it, start saving first. Build a reserve of no less than US$5,000 on top of an already available cash amount of another US$5,000 if you want to consider trading. Anything less will severely test your psychological endurance especially if you have poor financial management. This should be money that you are willing to lose and never see again. And it should not change your life if you lose it all.

If you can’t save it, then don’t trade. Saving is the first good habit every trader must have. It is the first lesson in good financial management.

The fifth truth is that it takes a long time to become a good trader. The minimum by any outstanding measure is three years. (Now, why would I bullshit about that if I wanted to sell you a dream of quick easy money?) With so much to do, there is no damn way anyone can rush the process and be expected to be a profitable trader within a year. Some even believe that a weekend workshop is going to help them become millionaires! (When I started, I was one of those naive ones!)

It takes a lot of experience to be a good trader and experience means that it takes a long time. You can’t rush time therefore you can’t fast-forward the learning experience in any way. The minimum learning time is already one year because a trader needs to know the market cycle of a complete trading year, its seasons, cycles and rotations. They have to get intimately acquainted with all its self-fulfilling prophecies, economic data, earnings, money flows, sector leadership, etc. And you cannot rush the process that takes at least one year with so much to learn and apply. Which is why …

… the sixth truth demands that you must learn everything instead of only learning how to trade. It is very obvious that in order to learn anything in any professional field, you need to learn everything that the professional learned. (Now, isn’t that common sense?) And just who are these pros? They are graduates from Princeton and Harvard. They become fund managers, bankers, analysts and institutional traders from some of the finest financial institutions in the world who were mentored by some of the best traders in the world.

Now consider those ignorant victims who were sold a dream in a weekend workshop that trading is as easy as watching for blue and red arrows. Consider that they don’t know who’s on the other side or exactly how disadvantaged they are when going up against the best, the most knowledgeable, the most influential and the most manipulative professionals in the business. It took them three to five years to learn their craft from the best universities in the world, another two to three years in mentorship under the very best and experienced professionals in the world and then another two years on the floor of one of the worst dog-eat-dog places on the planet to hone their skills and experience.

Trading is a profession, a very serious profession. So are being a surgeon, a lawyer, an accountant, an engineer and even a soldier. If it takes these professionals years of study, years of practice and a lot of experience to become good at what they do, then why do some dream that trading is any different? A soldier takes years of training, mental preparation, physical fitness, weapons knowledge, field experience and even leadership management in order to operate in the battle field. Anything less will surely get him killed. Anything more doesn’t guarantee he’ll become a General.

In spite of this obvious truth, there will still be those who believe that a book or a workshop or something off the internet will make them good enough to beat these professional traders.

I don’t know of any soldier who became a high-ranking hero just by reading a book. Do you?

Having said that, the seventh truth is about training. (Now, Can you get good at anything without practice?) It takes endless hours of training and practice. It takes a lot of dedication to learn this craft. It takes even longer to understand its form. And it takes forever to apply what you think you’ve learnt.

Trading is not an academic subject and demands that you put into practice what you’ve learnt. That is not easy for most. Singaporeans are largely academia based meaning that they are academically intelligent but severely challenged in a practical sense. You can’t argue with me about it because I train plenty of them. Knowledge alone is never going to be enough because, as previously mentioned, it takes experience and experience means practicing and that means training will be required.

Part of this training is about being flexible and adaptable. Taking trading as an academic subject will not allow the learner to be either. Academia is rigid, static and theoretical. The market and the economy are not. If one is not ready to be flexible then when the market becomes irrational, nothing will make sense. If one is not adaptable then such irrational changes will hurt the trader and worse, opportunities will be missed. Academics need to quantify and justify everything – something the market will not allow you to do all the time. And most of the time, you are going to have to wait for the market to tell you what to do.

Thus, the eighth truth is that you need a lot of patience. (Now, there a serious problem … most of us are not patient at all!) You’ll need patience to learn so much stuff, patience to paper trade out your first year to get that minimum one year’s experience, patience to learn to control your losses, patience to wait for the market to present its opportunities, patience to wait for your profit, patience to tolerate how irrational the market can get, patience to control your emotions and patience to continue the learning process even when you become a good and profitable trader.

Anything done in haste never lasts and good things come to those who wait.

The ninth truth is that this is a very emotional business. (Now, this is one that you won’t appreciate until you’ve clocked up a few losses.) Even with rules, strategies and and the best technical knowledge, you will still lose money. And it won’t be because of the wrong kind of rules, the inflexibility of strategies or the unreliability of technical analysis. Even when those things do work, you will still fall victim to your own uncontrolled greed and irrational fear.

Your trading psychology can either be your best ally or your worst enemy. The market will do what it will do. It will give you what it wants to give you but it will take away whatever it wants too. You have no control over what it will give you thus you can never demand from it. Yet there are traders who plan their trades based on what they want to make instead of planning on how much they are likely to lose first. You are the one variable you can control thus you can control how much you lose to the market … but you are the most difficult element to control because you will be emotional. And when you are emotional, you have no control over your financial management. And then you will realize my first truth.

The tenth truth is …

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I guess I’ll keep the best for the release of the book. Are you still skeptical about what you just read? If one thing changes after reading this, it will be the way you look at the market from now on.

Happy Hunting!

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