THE BLOG

Trading: The Truth Behind the Myth

18/09/2013 12:32 BST | Updated 17/11/2013 10:12 GMT

Really!?

Telling someone I am a trader is one of those career choices that gets a broad range of responses from the extremely intrigued to the highly critical. This, as most things in life we fear or do not have a good-enough understanding of, simply comes from a lack of knowledge and exposure. I used to have an unnecessary fear of dogs growing up, simply because I was never around them. A girlfriend who had the most adorable basset hound killed that fear in me in moments. A short conversation with me later, most not only have a better understanding of trading but also walk away wanting to know more. Several I have spoken to, who really understood the benefits, have even become traders proving that trading really is a career choice for anyone who has the desire to learn.

The infamous

Others failures and incompetence should not in anyway govern our own choices in life. The masses are always bombarded with disaster stories whenever you pick up a newspaper, such as Kweko Adoboli in 2011 who lost $2 billion as a trader at UBS and of course, the infamous Nick Leeson, who brought down Barings Bank, after losing $1.4 billion. Both were jailed. In the case of Nick Leeson, his book Rogue Trader, was of course made into a movie starring Ewan McGregor and Anna Friel. No doubt, Adoboli's time will come. It must not be forgotten that this was of course not their money but our money, which was most likely the psychology behind their gambling madness. By trading our own money we must have a different approach, as only we can only be accountable for our own trading success.

The success stories

We live in a world where it seems success stories always take a firm back-seat. We all know who Warren Buffet is, making his money from investments but technical traders are far less known and understood. Technical trading is where investments into the market are based on charts and patterns in price action and not news and fundamentals, such as investors like Warren Buffet use.

When I ask people who John W. Henry is, the response is usually "Who?". John W. Henry, American owner of Liverpool FC and Boston Red Sox, is the perfect example of a technical trader who made his billions from trading the markets. I also suspect most people have probably not heard of the now infamous "Turtle Traders", a project that turned over $175 million in 5 years. I recommend reading "Way of the Turtle" by Curtis Faith if not. The story closely resembles the 80s Eddie Murphy classic "Trading Places". It is these people, along with amazing individuals such as James Caan and of course my own trading mentors, who I have chosen to follow. As they say, you are only as good as the people you surround yourself with.

The good ol' days!

Going back even 10 years, institutional traders would fight it out in the battle ground known as "the pit", which to the untrained eye would seem like a hand-gesture away from a mass brawl. However, there was very much a language and method to the madness. Private investors, on the other hand, would have a direct line to their broker to a place an order.

Times have changed

The reality is, with the advances in technology and computers, the trading world is now very different to the days of old. The modern-day trading world has moved online, with software giving access to live market data at your fingertips and brokers now having online accounts so orders can be placed instantly and without the need of a broker's approval. In short, the markets, investment opportunities and the potential to make life-changing money is far more accessible to us all.

And there lies the double-edged sword for private traders, as most that enter the investing and trading world understand the money that can be made but most get burned due to a lack of understanding of how the markets work. It really does not have to be like that and far more people should be trading successfully than the facts suggest..

Clever marketing

Unsurprisingly, brokers play a big part in this with their marketing techniques, simply because they have a different agenda. They want their commission and spreads and are unconcerned with how well their clients actually do. There are also training academies that promise riches overnight, again relying on clever marketing, but if money could really be made that easily and quickly then we would all be doing it. Playing on peoples' psychology makes individuals act on a whim when really they should take a step back and absorb the information before acting on it.

The truth v The myth

The truth is that huge monetary rewards can be made by private traders but the myth that trading is a get-rich-quick scheme is totally exaggerated. Like any other career choice, trading requires education, investment, commitment and time. By far, the easiest way to master the markets is finding a mentor; one who is a full-time trader and can guide you and give you support especially in the first year of your journey. The facts do not lie. Only 5%, known as The Smart Money ever go on to make a living from trading.

Trade to take control!

Once mastered and consistently extracting money from say the $4 trillion dollars traded in the Forex (Foreign Exchange) market, trading gives you a way out of the system. The Smart Money have understood that "less is more" and that life-changing money is made through holding positions over days to weeks to months.

Most risk large sums of money on small moves, usually with very little logic to their approach. This gambling-mentality is how they get burned and lose large sums of money. The Smart Money approach the markets very differently, seeking knowledge from the very beginning. After the initial education process, which can take several weeks, we spend no more than 30 minutes a day looking for entry points in the market and managing open positions. We also know when not to trade as market conditions are not favourable and avoid over-trading our profit away.

Mastering trading means making your money do more for you. It affords you to work smart and not hard. It will give you far greater annual return than a savings account and in minutes a day of your own time spent actually trading the market. Smart Money trend trading ultimately gives you total empowerment of both your money and time. It is a total lifestyle changer. Will your current career ever offer you that?