It is commonly said that retail traders are subject to the 90-90-90 rule:
90% of them lose 90% of their money within 90 days.
Although this is somewhat an exaggeration, the point is nonetheless anchored to the reality that the vast majority of retail traders lose money more quickly then they expect.
Why? Because this is an industry with a strong conflict of interest from multiple parties.
Most of the so-called “educational” websites you’ve seen offer practically nothing more than entertainment, which keeps amateur traders interested and excited about trading.
These websites are funded by advertisements, and their goal is to keep their advertisers happy. How do they do that? By getting you to keep coming back to their site and spending time reading their “educational” articles and participating in online forums.
Like television programs, these sites get paid for keeping you distracted and entertained. Not for helping you trade better.
And who are paying for the advertisements that support these sites? Most of the time, they are the brokers who promote trading to be an exciting, fun and profitable activity.
Like the flashing neon lights you see in Las Vegas, these are all distractions to sucker unsuspecting traders to adopt a gambler’s mentality.
This tactic works exceptionally well, as it often leads people to over-trade.
Over-Trading is for suckers
Over-trading refers to a situation where the trader either trades too often, and/or trades too large.
This is a situation that brokers encourage, simply because it generates more revenue (fees) for them. They provide all kinds of technical indicators, advanced trading platforms and often hold “educational” webinars that claim to help you trade better.
But if you really think about it, this is like the fox convincing you to let it guard the hen house. In reality, what they’re really trying to do is get you to press the ‘buy’ and ‘sell’ buttons more often.
One result of this, is the popular perception of retail trading to be an ongoing, active process. That is to say, “if I’m not buying or selling, I’m not trading”.
In practice though, most of profitable trading is about the waiting. You plan ahead and don’t take action until you see an obvious opportunity. For the rest (80-90%) of the time, you’re choosing to stay out of the market.
This runs contrary to what most people assume profitable trading to be like – watching fast-moving prices and furiously clicking the mouse.
I am reminded of a wonderful phrase by Jim Rogers that summarizes this mindset.
When asked how he makes money, he said,
“I just wait until there’s money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”
Now think about that. Although Mr. Rogers is primarily an investor, this mindset is relevant to trading as well.
The way I see it, the last sentence is the most important.
Ironically (but unsurprisingly), it’s the part most people ignore.
They’d rather look at the flashing lights, go on an information binge and have a “great” time, rather than focus on making money.
So the next time you open up your trading chart, pay attention to your mindset:
Are you looking for a trade?
Or are you sitting back, waiting for a trade to ‘show itself’?
Instead of asking, “where can I take a trade?”…
… try asking “what’s going on in the market?”
The paradigm shift comes when you notice how the best trades tend to show up on their own, instead of you having to search for them.
And in the meantime, you would be doing nothing.