17 December 2012

If You Fail to Prepare, Prepare to Fail

Have your considered speculatively trading the world's financial markets? Then look before you leap.

Anyone reading this has either opened a personal trading account recently or is thinking of doing so. In my personal view, trading for oneself can be one of the most challenging yet liberating occupations in life. There are ups and there are downs, but at least you are in control – not some employer, partner, friend or colleague. The benefits of trading are rooted in freedom and of course money although the pitfalls are just as pervasive and inversely take freedom away, not to mention your money! The key to understanding how you can facilitate becoming a successful trader is actually very simple; the difficulty is coming to terms with it.

Most people who take an interest in financial markets and trading tend to do so because of widespread stereotypes and flawed assumptions regarding how this line of business works in practise. Hollywood films such as ‘Wall Street’, ‘Trading Places’ and ‘Rogue Trader’ amongst others have cultivated an incredibly skewed understanding of how financial products are traded around the World; and most importantly, what the people actually trading them are like in order to be in such positions.

Most people aren’t content with their current financial situation and see trading as a solution for any financial needs or desires they may have. Most people see themselves as their ultimate selves and are fully confident when first depositing their capital because all they choose to see is imminent profits. Usually, people get into trading because they have seen or heard that trading can be very profitable – with all the added perks such as independent working hours, no deadlines, no boss, working from home and who could you balk at the vastly better tax regime when trading for yourself? These are all true but these are only the perks after the graft. The graft is what most people fail to contemplate when setting off with a fresh trading account.

In cold, brutal reality, trading can only generate riches and provide perks if the trader undertakes an all encompassing mental shift – a psychological transformation whereby instead of focusing on the outcome of a trade or a series of trades, he/she focuses only on the process of making each trade given his/her trading strategy. A trader becomes successful by becoming something akin to an athlete. Only after dedicated assimilation of all the necessary factors such as what level of performance is satisfactory, who is the competition, what equipment is needed to compete, rigorous training with an aim of reaching a particular state of readiness and finally a disciplined routine that is followed by instinct rather than conscious thought can an athlete say he/she is an athlete. The same applies to becoming a successful trader – profits are simply a by-product of hard work, dedication and disciplined actions the same way that Olympic medals are a by-product of years of training, self-analysis, and discipline.

In other words, trading is hard work and should be considered as a significant lifestyle change rather than a pastime that can be visited on a whim in order to make money. However, despite this reality, most people reading this, have or will, open a trading account with the perception that they will double their money within days or weeks.

The statistics don’t lie and the statistics indicate that between 80% and 90% of ALL novice traders will lose 90% of their capital within the first two months of opening their trading account. This level of failure is very similar to new business start-ups i.e. only 10% of new businesses survive their first year. That shouldn’t be surprising because in any competitive environment that is potentially lucrative, there are likely to be challenges and challengers – those that walk into it expecting a free-lunch are almost certainly going to be disappointed.

In order to avoid failure and become a part of the 10%, you should all know that it will take dedication, self-awareness and discipline. Dedication in researching all the necessary factors that will be important like what market(s) you are going to trade – how you are going to trade them, at what time, how much risk will you take, and for what kind of reward? Self-awareness in understanding that all decisions made with respect to money are going to involve emotions that must be suppressed and taken out of the equation via pre-planning and visualising scenarios before they happen so that you can react quicker and avoid panic. Most importantly of all you will need iron-clad discipline in carrying out what you’ve planned to do regardless of what your emotions tempt you to do. In trading circles it is said that fear and greed are a trader’s worst enemy rather than a rival trader or big bad bank for example. In any trading session, your worst enemy is yourself which is why self-discipline is so pivotal. Trading is what you make it and invariably it will be up to you as individuals to either excel at managing your own selves, being realistic in the goals you set and having sufficient time to dedicate to trading that will decide whether you are successful or not. One thing is for sure though; trading will teach you a whole lot about your own psyche, emotions and character… and fast. As I said, understanding how to become a successful trader is simple, its coming to terms with it that’s difficult.


Commissioned by Forex Club