Larry learns about a new trading system from a popular Forex trading website.
The website says, “When you see signals A and B, buy. When you see signals C and D, sell.”
Excited, Larry opens up his charts and scans through the historical market price movements, as he mentally “backtests” this new system.
An hour later, his eyes light up.
“Wow… I could make money with this!” he exclaims, quietly to himself of course. (No one else must learn of this secret method.)
“This would get me about 50 pips a week… multiplied by 4 weeks… that’s 200 pips a month!”
“And if I trade with just two standard lots, I could make $4,000 a month…” his eyes widen.
“I could quit my job and trade from home!”
Not wanting to waste another moment, Larry promptly funds his live trading account with $10,000 of his savings.
The Journey Begins
Over the next two days, Larry dutifully applies his new trading system. He watches the market carefully for signals A, B, C and D.
Suddenly, he finds what he’s looking for.
“That’s signal A and B!” he sits up. It’s game time.
Checking one last time to make sure there is no mistake, Larry clicks the ‘Buy’ button on his trading platform. “Here we go!”
Two hours later, Larry hears the sweetest sound he’s heard in a long time. “Ding!” The trade had just been closed for a $800 profit.
Larry could barely contain his excitement.
“This is IT!!”
This is what he had been searching for. This is going to change his life forever!
Fast Forward 6 Weeks Later
Larry is getting increasingly annoyed.
His trading account hovers near $6,300 and he’s losing patience.
“I don’t think this is for me…” he thinks to himself, feeling somewhat frustrated.
Tired of waiting for yet another signal that might or might not work, Larry opens up his web browser and goes back to the Forex website.
“Let’s see if I can find a better trading system.”
— The End —
Larry Lives In All Of Us
Larry’s story may have struck a chord… after all, his experience is not unique. Most retail traders would have gone through something similar at one point or another.
We learn about a new trading system from a website, book or seminar, and apply it with the best intentions. Almost invariably, we end up losing a significant portion of our capital.
Faced with such a frustrating experience, most people just quit trading altogether. And indeed, that’s probably the smartest thing they’ve done since getting into this business.
You see… unlike what some marketers may claim, trading really isn’t for everyone.
For one thing, it’s not for people who just want to “follow instructions and make money”.
That’s called “having a job”.
Instead, successful traders must think like an entrepreneur. It’s about learning, reflecting, planning, testing and monitoring, all at the same time. There are no instruction manuals or checklists that will automatically turn you into a successful trader.
Mentorship and guidance can ease the learning curve, sure. But long term success ultimately depends on the trader’s ability to think rationally, realistically and independently.
An Independent Thinker Speaks With A Trading Guru
Guru: “Buy when the fast moving average crosses the slow moving average.”
Independent Thinker: “Why?”
G: “Because it means that the price momentum is picking up.”
IT: “Does that mean that the momentum will continue on, after I buy?”
G: “Hmm… not necessarily.”
IT: “Then, why should I buy now?”
G: “Well… this method has worked 70% of the time in the past.”
IT: “So… the only reason you are telling me to buy now, is that it USED to work 70% of the time, in the past. And you are telling me to bet that it will continue working in the future.”
G: “Yes, that’s a fair statement.”
IT: “And what is the basis of believing that this system will continue working in the future?”
G: “You are thinking to much. The important thing is to make money first, and question later.”
IT: “Sorry, but I disagree. Based on that logic I can be trying all sorts of trading systems and waste years of my life without getting anywhere. My priority is not to make money right now, because even a dart-throwing monkey can do that. My priority is to learn how to think and act as an independent trader so I can keep making money in the long run.”
G: “Well… why don’t you just try out this system and see for yourself.”
IT: “No thanks. I’m seriously concerned that this is the sort of advice you’re giving your followers. Instead of teaching them to think for themselves, you’re teaching them to blindly follow instructions. I am not an expert, but I can’t imagine this is how real traders think and behave.”
The Truth Behind The Learn-To-Trade Industry
To be fair, many trading “gurus” provide fixed trading instructions because that’s what the trading education market demands. Most people prefer to learn tactics over fundamentals, because it’s simpler and more exciting to think and talk about.
And whenever there’s sufficient demand for something, supply will rise to meet it.
This quickly becomes a cycle of:
- Wannabe traders demand superficial trading tactics
- Trading “gurus” provide exactly that. They come up with an exciting product launch and get the audience whipped up into a buying frenzy.
- Wannabe traders buy the “trading system”, in hopes of making money quickly. The “guru” turns out to be the only one who gets rich from this arrangement.
- The wannabes apply the “trading system”, lose money and get discouraged. Some quit, while others look for a new magic bullet.
- The same gurus start a new website, sell a new course, and put a new face on the package. Soon, a new product launch is announced.
- The wannabes continue to look for superficial tactics and buy the new product.
This is the ugly truth behind the trading education industry. I should know — I’d been invited to be a part of it.
The ugly truth is that there are significant conflicts of interest in the retail trading industry.
Brokers want us to trade as often as possible, and the gurus want us to keep buying their latest products that cannot possibly work in the long run.
The reality of the situation is that they’re looking after their own interests at the expense of the people they claim to be helping.
For example, I find it ridiculous that people are learning how to trade from brokers that make money when they lose. That’s like learning how to guard the hen house from a fox.
And yet people do it every day, often with no idea that this is happening.
Another example: Do you frequent the Forex Factory forums?
Ever notice whose advertisements are supporting the site?
Take a look for yourself: http://www.forexfactory.com
As the saying goes: Free advice is usually the most expensive advice.
Don’t Let Someone Else Do Your Thinking For You
All truly profitable traders are independent thinkers, without exception.
This doesn’t mean that we can’t learn from others. It just means that we shouldn’t accept everything that’s presented to us without question.
Beware Of Conflicts Of Interest
In 2006 many people in the U.S. believed that housing prices would never go down.
Instead of questioning this premise, an entire sub-prime mortgage industry was built upon this idea.
Of course, there were plenty of people who saw through the illusion, including the investment banks that made a lot of money marketing that illusion.
In the end, those who blindly listened to the “experts” were left holding the bag of worthless mortgage derivatives.
Whose fault was this?
Was it the banker who knowingly sold worthless mortgages?
Or was it the fault of of the buyer, who trusted the fox to guard the hen house?
Among these two parties, only one was thinking for himself.
Take Back Control Of Your Trading
Now think about your trading approach. Have you questioned the premise behind it?
Why should it work? What is it really based on?
Do you understand its philosophy? Or have you just copied parts of someone else’s system?
Let Me Know Your Thoughts (In The Comments Below)
This post took me longer than usual to write, mostly because it upset me.
Nobody likes to be a wet blanket, but I feel this topic is too important to be left unsaid.
What do you think? Have I been overly critical?
Let me know in the comments below.