Updated: Sep 28
One of the most common reasons I get rejected as an investment specialist is meeting a confident trader, boasting 100% returns a month or whatnot. When I was a lot younger, this would irk me quite a bit.
In any case, most of these traders would turn out to be much bigger talkers than they actually were do-ers. And during this Covid period, this has proved to be even more prevalent.
Of course, over time I had the privilege of meeting traders who endure the test of time, have the right mindsets and even fail, adapt and succeed later on.
Some of my favorite traders who I happen to know personally are Thomas, from TRT Academy and a friend who shall not be named [but is fairly obvious if you've been hanging around my Facebook often enough.]
But being a successful trader continues to elude the overwhelming majority of people, regardless of how many Financial Gurus claim otherwise. It starts as difficult as learning a language - except that the language continually changes its rules and there's a lot at stake if you suck it it.
From my own experience and interviews with traders [and even some trading idiots], I'd like to summarize the somewhat-futility of trading. Even when you do everything right, you're likely to get kicked in the face. Ready?
Step 1: Wrong Attitude
Step 1 is going in with the wrong attitude.
The fundamental basics of trading is to buy low, sell high; or to buy high, sell higher. Many times, there are clear signals to cut your losses short and not everyone can take it.
The right attitude involves very disciplined parameters, sometimes a good mentor, and typically some hard work and research.
People who go in with the wrong attitude towards trading typically see it as a quick rich scheme or easy money, they don't think it will take too much effort. So they typically get dissuaded very quickly, call it a scam and they give up.
Step 2: Right Attitude...Till Envy Kicks In
Step 2 probably makes up the FIRST 3/5 of the Pyramid above, which is why I'll spend more time on it.
People get disgruntled by the missed opportunities. 'The Right Attitude' is actually really easy to find online, to be honest.
'Trading needs to be logical, not emotional', they'll tell you. 'It's not about intelligence, its about hard work and managing your emotions.'
As a result, its not difficult to start with the right attitude and expectations. The problem is what happens when we fundamentally compare.
Comparing is something that we do as human creatures as a survival/benefit instinct, which is natural and good. The problems come when we start to compare things like the following:
A) Trading Strategies:
Some people would have started out with a less profitable strategy than others.
There's been many traders who've started off with safe, gradually profitable strategies that eventually devolve into much higher stakes or much higher risk because they compare against other traders taking similar risk.
Most of the attitude is the same. While they initially go in with proper expectations, they start to covet higher yielding strategies which they may not be suited for, used to or simply aren't prepared for yet - especially since they may not realize that it adds on higher risk.
B) High Losses:
Even if you have all the fundamentals down in theory, things become very different once you actually lose hard earned savings.
The 'Right Attitude' helped you understand this. Initially you're okay.
But then you can't help yourself and you're curious to see what would have happened if you DIDN'T follow through with your disciplined plan. Gasps! If you hadn't cut your losses short, the market would eventually bounce back and you wouldn't have lost money! Of course, this doesn't happen all the time, but it happens often enough - and with enough case studies, we get very dissuaded from our original stop-loss strategy: which eventually leads to trading emotionally.
C) Lower Profits:
Out of the all the problems created by Envy, I feel this is the number one reason why traders tend to not make it - because a lot of them tend to succumb to emotional greed.
For example: let's say I bought a stock for $10 - and my plan was to sell it at $20. After I accomplished this, it would mean I made a 100% profit. Most people would be very happy with that.
However, when they look at the same charts later on, and they see that the same stock would have hit the 500% profit if they had waited a little longer, that's when that particular effect of greed kicks in.
"If only I had waited a little longer! Next time I'll wait to sell."
That's really when the Right Attitude deteriorates for good.
Step 3: Complacency
Once upon a time, Lara Croft was dodging trading traps left and right with her emotional resilience.
After getting used to the labyrinth and seamlessly escaping death left and right, she just collapses and dies. Why? Poison gas, y'all. In this case, Complacency is like Poison Gas - it's not something you get to see actively like Expectations or Attitude. It really sneaks up on you.
Imagine trading in a standard bull market (in the last 12 years, for example) and after being accustomed to working strategies and avoiding pitfalls for so many years, a bear run comes and you're unable to adapt - killing years of hard work. By the way, this actually happened. I actually know a LOT of traders personally who have been completely demolished by being unprepared for Covid.
It only takes one bad day to make things completely wrong for someone who is typically bursting with confidence. Hence if you happen to come across a season such as financial crisis, which you only experience once every 10 years or so, certain corrections which happens once every 2-5 years (luck dependent), your trading strategy may not hold off if you didn't prepare for such things.
After you lose enough money, the harsh way to erode your complacency might leave you to quit, with losses.
Step 4: Mid Life Crisis
Some traders are experienced, or lucky enough - that their strategies were prepared for Covid or other Financial Crisis-es. There are news stories circulating of some institutional traders who refuse to leave because they've made more money in the last few months than the last 10 years.
Once you've made it this far, it's already honestly commendable. And you should feel really old. You have seen a ton of friends you started out with disappear. On your end, its not just about the trading anymore - it's about your life.
Perhaps trading started out as an interest. Then maybe a serious source of income. However you view it, it's going to affect the ongoing course of your life - if you have a family or job or things that trading may or may not help you achieve.
You start to realize that being a successful trader has a serious impact on your real life. When you have that mid-life crisis, you start to wonder... 'Could I have done this better? Do I want to do this for the rest of my life?'
'Is this enjoyable, are there better things that I could be doing?'
'If I'm successful at trading, how much is successful enough to feed myself and my family?'
I've seen full-time traders actually quit because the family pressure on them was so huge, to do something with more 'job security'.
Additionally, like every other occupation or hobby - some fella will show up who's 10 years younger than you will happen to be better in every way.
The Mid-Life Crisis again comes back to the comparing psychology, but it's on a completely different level because when you're younger there's usually less at stake and less expectations.
When you're older and the rest of the world weighs into you with their social problems and expectations or if it becomes too tiring to keep adapting and adjusting just to make a decent living compared to doing something else safer - it's a different psychological attack compared to less mature issues like managing your greed and expectations.
And so even without failing, you quit.
[And fail, by that extension.]
Step 5: Volume and Adaptation
So you've made it to the Final Step.
#traderforlife or some nonsense like that.
There's a pretty decent chance you've doubled or tripled your initial capital, or even much more than that. Doesn't matter - volume is about to kick you in the face. I have a good friend in London now who would testify to that.
(London has one of the fastest trading speeds in the world, or something like that.)
Trading 1000 units is much easier than trading 2,000,000 units for the exact same result.
Eventually you'll start to notice that you have to be adaptable despite the fact that you have done all the things you were supposed to do in relation to discipline, strategy and making sure you're not swayed by all the psychological attacks you have experienced up to this point.
Trading requires speed, and at certain volumes it becomes impossible to implement quite a few of the original trading strategies that you have started out with as a retail trader.
Even after you've survived all of that, you may still not be able to get past a certain point in your trading journey, it may still have all been for nothing, because at certain volumes you may just not be able to beat something like a mutual fund or the SNP500 in annualized returns.
If you've made it to the end, congratulations!
Either you're reading this for curious kicks - or on conservative estimates, you're the top 5% of traders in the entire world. Realistically...you're likely a fraction of a percentage of the top 1%, so that's even better.
To be honest, I'm genuinely not trying to dissuade anyone from becoming a full-time trader or to make money by trading. This may not have come across very well, but it's the truth. I wrote this article out of fascination, learning and respect (okay at least respectful to TRADERS).
I just want to emphasize that any endeavor worth undertaking takes really hard work, and you should be aware of the risks.
If you're not willing after reading this article, don't do it.
I am not an expert on this particular subject, compared to the other subjects that I am a literal expert on. So I would appreciate any critique, or just questions. Okay? :)
Disturbingly enough, if this is well received I will probably write a follow up on how similar this is to:
1) Investing [DIY], to kind of point out the irony of people who spend so much time on it and rarely produce results.
2) Financial Consultancy, to balance out point , because I can make fun of the ridiculousness of both endeavors. I mean, the median Financial Consultant doesn't even make $50,000 a year [MOM stats].
And we have no CPF or medical benefits.
I wouldn't be surprised if 80% of newcomers left in the first two years.
With that, I'd love to highlight two options for you.
Two Options Now:
a) You're convinced, but you still need to make money somehow:
For investors, time in the market is much more important than timing it.
If you're not a fan of trading strategies, a Buy and Hold strategy with an Investment Specialist who can guide you and assign you an asset allocation that is both profitable and suitable to your risk might be your best option.
Nothing good is ever easy, and I'd love to just speak with you and take you through the risks properly so you understand what it takes to get certain things and whether you're up for it.
b) You are unconvinced because you're awesome:
If you're not using IB, I can probably get you a platform with lower trading fees than your current platform. You will also have no holding fees. This includes if you intend to trade ETFs.
There will be no advisory involved on my end, there will strictly be a platform. I will not try and sell you anything. If you're the best, by all means - you can enjoy the lower costs and do your own thing.
Some Credits and Shoutouts/Thanks
While I am not entirely sure if I am botching this article, I'd like to do a little shout-out to Dr Wealth.
Dr Wealth, managed by CEO Alvin Chow, is one of my favorite publications despite the fact that we're often in opposition. Chris Ng, who runs the Retirement Class as a working partner and founder of TreeofProsperity, is a good frenemy who has also been completely open about wanting the destruction of my industry of commissioned based consultants.
But on the road to becoming Money Maverick, I actually read almost all (if not all) of Dr Wealth's e-books, which was partly why I started to make friends with traders outside my circle - giving me the opportunity to write this article.
It may not be much, but its the best article I could do from my perspective as someone who is not a full time trader, yet very involved in Finance and Investing.
SEE ALSO: DR Wealth [Case Study] My embarrassing investment in Sing Tao: 31% Gains
Articles like the one above really explain a very objective perspective for people who are new and don't understand Financial Jargon, and highlight some mistakes new traders can look out for from the perspective of someone with experience.
You'll notice that instead of just/only bragging, which a lot of 'gurus' like to do, Alvin can also objectively look at mistakes and reflect. This is what we all need to do as humans and is commendable, regardless of how much you disagree or even dislike some people. I am not sponsored by Dr Wealth in any way (though I will welcome it), and to emphasize - we're often in conflict.
...I guess you might say that commending them at all really shows my Morals, Editorial Values and Integrity. Or something like that. Some might even call my writing impartial, even though my editorial standards don't need absolute neutrality on every issue for you to make smarter financial decisions.
Have a great day guys!
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