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Risk your life savings

  • #1
  • First Post: Mar 17, 2010 2:39pm Mar 17, 2010 2:39pm
Never invest more than you can comfortably afford to lose!

I have to say that I personally totally disagree with that statement with regards to trading.

When I go to a casino, I play with money I can comfortably afford to lose because I am playing for fun.....not as a business. If I win, I may take my wife away for a weekend break. If I lose, so what, I just spent money on a good night out. I risk money I can afford to lose because I am doing it for entertainment, and recreation. Winning at the casino doesn't matter because I'm there for the fun factor. It's no different to "losing" money on a nice meal or several bottles of wine.

However trading is entirely different. It's a business and I don't start a business with the assumption that it can, will, is likely to, or could possibly fail.

I'm not trying to be confrontational with this, I'm just looking for other peoples thoughts on the matter.

Do you think that the wide spread attitude of only attempting this with small amounts and not really risking anything substantial, contributes to the high failure rate of new traders losing their account?

Imagine wanting to start any other business, and trying to do it without investing considerable capital and taking significant risk. With any other business you would sit down and carefully construct your business plan, you'd get full financial backing (either your life savings, a hefty bank loan or both), and you'd make sure every angle was covered and you were prepared. And then you would work 18 hours a day for the next 12 months or 2 years or however long it took to make your business a success. After all, you were risking everything you own and more on this venture, so there is no way you are going to let it fail. You certainly wouldn't do it for an hour or two in the evenings or when you can fit it in around other things part time.

But with forex, you start with $100 and "give it a go". That's not a business and there is no way that is going to succeed.

it's like wanting to start a McDonalds franchise, and when the franchisor says:

"no problem, we just need $300,000K from you to get started",
and you turn around and say:
"actually I was hoping to start with maybe $300 and see how it goes from there....perhaps I could sell micro burgers first and then build up if it works. I don't really want to risk anything on this".

The franchisor would simply turn around and say: F@*# off Mr Smith, your wasting my time and not taking this seriously!!

I personally think that if you truly want to make a success of your forex trading, you have to take it seriously (like any other business) and have something to risk/lose.

Obviously I have formed my opinion about this, but I would love to hear contrary opinions that may open my eyes to a perspective I hadn't thought about.

So my question is: Do you think people would have more chance of success if they took this more seriously and risked everything they have on this business, rather than only playing with money they can afford to lose?

Thanks
  • #2
  • Mar 17, 2010 8:10pm Mar 17, 2010 8:10pm
The business model you are using is totally different to trading forex dont you think?

You should treat forex like a business I agree, but dont get confused with the 'type' of business you are comparing them with.

The Franchise is more like an investment IMO. You are trading burgers...but the prices are not fluctuating like forex where you will not be able to work out if you will make a profit at the end of the day etc....If this happened, it would induce fear like in forex.

I think it works backwards in FOREX... the more you have in liquid assets the more you are likely to risk if greed sets in. In a normal buisness... the assets are liquid and illiquid (Fixed assets)....so you cant really risk it all etc.

I have heard banks loaning £500 to small businesses and they turned it into a blue chip multi million company...

I think a micro account is 'essential' for traders to learn. If they decided to be serious with £200,000 and inexerienced... they would blow the lot.. jus tthe same as the micro account.

1am here... my eyes are going blurry
  • #3
  • Mar 17, 2010 8:16pm Mar 17, 2010 8:16pm
Quoting flotsom

So my question is: Do you think people would have more chance of success if they took this more seriously and risked everything they have on this business, rather than only playing with money they can afford to lose?

Thanks
No, apart from being an irresponsible thing to do the pressure would be too much. The psychology behind only risking what you can afford to lose is probably very complex but 'scared' money rarely makes money in this business.

95% of traders spend all their time chasing after systems and strategies, even strategies which are so obviously a mirage, that's probably why they lose, that and having ridiculous expectations as far as returns go.
  • #4
  • Mar 17, 2010 11:31pm Mar 17, 2010 11:31pm
Quoting Acedup
I think a micro account is 'essential' for traders to learn. If they decided to be serious with £200,000 and inexerienced... they would blow the lot.. jus tthe same as the micro account.
But isn't that assuming that they are going to blow the lot anyway, so it's best to only blow a small amount rather than a large amount?

And for me, that's where the problem lies. They are coming in to this with the underlying belief that they are going to lose regardless. I'm no psychologist, but it makes sense to me that if you "think" you'll fail, you're "guaranteed" to fail. My thinking is that if new traders came in to this with everything at stake, failure would not be an option (excuse the cliché). They'd be forced to take things a lot more serious and perhaps take the time to learn more before they actually rush in and start trading right from day one.
  • #5
  • Mar 17, 2010 11:54pm Mar 17, 2010 11:54pm
Maybe if you had "employees" actually make the trades and you just wrote down what you wanted to do, entry and exits. This would mitigate the fear aspect some what.
  • #6
  • Mar 18, 2010 12:06am Mar 18, 2010 12:06am
Quoting pipmutt
No, apart from being an irresponsible thing to do the pressure would be too much. The psychology behind only risking what you can afford to lose is probably very complex but 'scared' money rarely makes money in this business.

95% of traders spend all their time chasing after systems and strategies, even strategies which are so obviously a mirage, that's probably why they lose, that and having ridiculous expectations as far as returns go.

I completely agree that "scared" money is unlikely to make money. A person would be a fool to risk everything and be totally reliant on making a forex profit in their first month in order to pay the bills. But just because you risk a large amount, it doesn't mean you have to be scared. Doesn't the scared part simply come from being totally unprepared and not treating this as a business? If they looked at this the same way they would (or should) any other business, they would see it as a long term goal to build profit over months or years before they even considered taking any profit out. You'd be reasonably scared if you'd re-mortgaged your house to finance any business, but that's just a healthy respect for the money you are using and doesn't mean you are doomed to failure. For me it would personally motivate me a great deal more to make sure I was a complete success.

Yes 95% of new traders chase systems and unrealistic dreams, and 95% (so it is said) fail miserably at this venture. Could it be because 95% of new traders see this as a get rich quick scheme where they can start with $100 and be millionaires in 6 months only working 1 hour in the evening if they can fit it in? Not really a basis for a successful business is it??? If we risk only what we can comfortably afford to lose, what does it matter if we do lose? it doesn't! We've effectively lost nothing. So where's the motivation to really drive this to success? Whereas if we do actually have something at stake....a real risk.....we would be much more likely to treat this with a more serious attitude. We may stop and think about these silly systems and realise what a pipe dream they are and wouldn't waste our time on them, and would therefore be less likely to fail with them. We may actually take the time to learn to trade properly.

I realise forex is a different business model to most, but doesn't it still need to be treated as a serious business with serious commitment (time AND money)? I just feel that if more people risked more, they would give this more respect. I get the feeling that people come in to forex thinking "I'll give it a go and see if it works". I doubt anyone would have the same approach to property development for example.
  • #7
  • Mar 18, 2010 12:12am Mar 18, 2010 12:12am
Flosom, your new at this and from your perspective what your saying makes perfect sense. I've been in this business for over 5 years now and I'm speaking to you from experiece.

The problem with your line of thinking is that you assume (like a real world business) all you need to be successful is a good plan and committment to success. In THIS business that and a quarter won't buy you a pack of gum.

It doesn't matter how smart you are, how successful you have been in other areas of your life, how dedicated or passionate you are about this. YOU ARE GOING TO BE A 100% GUARANTEED LOSER for at least the next 2-3 years. Period, end of story.

Even if you had a guaranteed winning system of trading, your still going to lose money due to bad psychology. Its not that your retarded or anything, you just haven't trained your mind to properly deal with the hard realities of subjecting your money to the risks this market represents. EVERY SINGLE TRADER here suffers/has suffered from the same psychological issues. And if your telling yourself that you won't have such problem... the fact that you won't admit it is indicative of a problem that will blow up your account in short order.

That says nothing for how hard it is to truly develop a winning system. Its not a 50/50 chance of winning. The spread makes it more like 60/40 against you. By way of comparison, blackjack is only ~52/48 against you. So unless you can justify plunking down your life savings at the blackjack table, you can't justify putting it into your trading account.

It takes 1 to 2 years to even know what a winnig system looks like (and there is a TON of garbage to sift through). It will probably take you another 1-2 years to develop a system that fits your personality.

If you can survive that long and have developed a PROVEN system of consistnet wins, then yes you would be stupid NOT to put all your money behind it. Sadly, if you do it at this stage of your career, you can kiss your money goodbye.

If this post scares the shit out of you, then my mission was accomplished. I've seen way too many peoples lives destroyed because of the thoughts you expressed in this post. Take it seriously. Talk to others who have been around for several years. Listen to what they tell you. If after that you still want to put your life savings at risk on a hope and a dream, then you deserve everything you get as a result.

Best of luck in your trading career.
  • #8
  • Mar 18, 2010 12:41am Mar 18, 2010 12:41am
Quoting flotsom
I completely agree that "scared" money is unlikely to make money. A person would be a fool to risk everything and be totally reliant on making a forex profit in their first month in order to pay the bills. But just because you risk a large amount, it doesn't mean you have to be scared. Doesn't the scared part simply come from being totally unprepared and not treating this as a business? If they looked at this the same way they would (or should) any other business, they would see it as a long term goal to build profit over months or years before...
what in the hell is you talkin about. THe same failure rate applies to businesses as it does in the trading world. Do you know how many businesses fail? For every successfull business you read about, there are hundreds of similar businesses that failed. People who risked their life savings, people who had business plans, still fail miserably.

Putting in the hard work behind a business or trading doesn't guarantee shit. Some people will fail because they are conditioned to learn incorrectly and they fail to see the big picture. I actually blame the school system-they teach and ingrain in you 'what is right must lead to success mentality'..

Anyway, the point is, you can still fail even if you put a lot of work and money into a business or trading. The market is a perfect ecosystem, and the survival of the fittest applies. It's about outsmarting your competition.
  • #9
  • Mar 18, 2010 12:53am Mar 18, 2010 12:53am
Quoting flotsom
....
However trading is entirely different. It's a business and I don't start a business with the assumption that it can, will, is likely to, or could possibly fail.
i think your problem starts from this statement.
anything can happen, therefore any business CAN fail.

Quote
Do you think that the wide spread attitude of only attempting this with small amounts and not really risking anything substantial, contributes to the high failure rate of new traders losing their account?
the amount of money is not the main issue.
the preparedness/psychology of the person involved is the main issue here.

Quote
...
But with forex, you start with $100 and "give it a go". That's not a business and there is no way that is going to succeed.
dont forget the value of $100 is perceived differently depending on your location in the world.
i can think of $100 as 'BIG' money while u can think of $100 as 'play' money.
in short, it's relative.
Quote
...
I personally think that if you truly want to make a success of your forex trading, you have to take it seriously (like any other business) and have something to risk/lose.
similar view to my post above:
u can be serious even with small money (example, $100)
Quote
....
So my question is: Do you think people would have more chance of success if they took this more seriously and risked everything they have on this business, rather than only playing with money they can afford to lose?
...
Not necessarily.
u are trying to associate the amount of money with the seriousness/psychological strength of a person. that's not how it works.

amount of money used is NOT directly proportional to seriousness/mental acuity/success
  • #10
  • Mar 18, 2010 12:53am Mar 18, 2010 12:53am
Darkstar, thank you for posting on here. I've read many of your posts and greatly respect what I've seen of you, so thank you for taking the time to add your opinion here.

I realise I may not be right in my opinion on this. That's why I wanted to hear other sides that may offer me good reasons why it is a good idea for people to never risk much when starting out.

I do actually trade full time, and have done for the past two years. Trading forex is my sole source of income, and I started with a substantial amount of money. I wouldn't have lost my home if it had all gone wrong, but I would have been back to square one and starting from scratch if I'd messed this up. I basically put in my life savings. For me it was the only way. I had to take it seriously and commit 100% to this. I knew I wanted to do this for a living, so I approached it the way I would have approached any bricks and mortar business....and that meant putting everything I had in to it.

I'm certainly no expert on the markets. In fact having read some of the senior members posts on this site, I am amazed at how little I actually know in comparison. It seems some of you have brains the size of planets. However, I am a winning trader. I never had a problem risking or losing money on trades so the psychology was never an issue for me (probably because I'm an avid poker player).

Because I knew I was investing all my money in to this, I took the time to "learn" before I started trading or risking anything. Effectively I risked less than those people who only risk what they can afford to lose, because I risked zero until I was fully prepared. Many people seem to come home from work one day having seen a forex broker advert, and decide to give it a go with $500 without bothering to learn a thing. Of course they are going to lose. It's a bit of a false economy because they end up risking far more than I ever did (they blow small account after small account after small account). I spent close to 15 months reading and studying before I even thought about opening a broker account. When I finally started trading with my large account, I was as prepared as it is possible to be in any business. Yes I took losses and still do, but from my first year onwards, my account grew steadily. So although I started with an apparently greater risk than most, I actually lost far less than those who start with micro and mini accounts. Because the $$ amount at stake was higher, I spent more time preparing for this business, and ultimately lost less. When the $$ amount is insignificant to your bank balance, you are less likely to really put the required effort in, and are therefore more likely to blow the whole account. And blowing the whole account, no matter how small, I would imagine has a devastating psychological effect on a new trader.

Again none of this is intended t be confrontational. My approach made perfect sense to me and it worked well for me. And I was thinking that most people take the opposite approach and most people fail, so is there a correlation?
  • #11
  • Mar 18, 2010 1:06am Mar 18, 2010 1:06am
Quoting supremeChaos
dont forget the value of $100 is perceived differently depending on your location in the world.
i can think of $100 as 'BIG' money while u can think of $100 as 'play' money.
in short, it's relative.

Yes sorry. I should have made clear that when I am talking about these numbers, I mean the risk should be significant to YOU. If $100 represents a substantial amount which would hurt you, then that is a large amount and big risk. Didn't mean to offend anyone by suggesting $100 is small for everyone.
  • #12
  • Mar 18, 2010 1:22am Mar 18, 2010 1:22am
Some good replies there, be glad some of the more experienced posters here care about new people still
  • #13
  • Mar 18, 2010 2:21am Mar 18, 2010 2:21am
Quoting flotsom
Many people seem to come home from work one day having seen a forex broker advert, and decide to give it a go with $500 without bothering to learn a thing. Of course they are going to lose. It's a bit of a false economy because they end up risking far more than I ever did (they blow small account after small account after small account).
You make a good point, for some reason everyone automatically assumed you were one of those people, just planning on doing it with your life savings!

I think the problem is trading forex looks so easy to a novice, up or down, how hard can it be? The rewards look phenomenal, a $500 account, 100:1 leverage, 100 pips a week, they'll be wealthy in no time! The majority don't do what you've done, they don't have the patience or insight, it might take them half a dozen blown accounts before they accept they don''t actually have a clue what they're doing. Would they have taken it more seriously if they risked serious money and only had one chance at it? Perhaps, but it's a bit late to find out after they've blown it that maybe they weren't as prepared as they thought they were!

You probably know this yourself, learning to trade is a 5 minute job, any fool can follow a simple strategy, but trading takes a little longer and has very little to do with strategy.
  • #14
  • Edited 10:13am Mar 18, 2010 6:54am | Edited 10:13am
Quoting flotsom
...
So my question is: Do you think people would have more chance of success if they took this more seriously and risked everything they have on this business, rather than only playing with money they can afford to lose?
Flotsom,
I never risked everything that I own but I risked an amount which could have bought a small business or which I could have used to employ a extra salesperson to go out and grow my existing company.

I lost that chunk of cash and it hurt badly. I never intended to lose it because I had (naively) believed that because I had a successful international management consultancy, and have started successful businesses before, and because I'd been a former British Champion and amongst the top 10 in the world in a sport; that I was different. That I was then ready to excel in trading in the way I had excelled in other things.

I had the belief, the confidence and the frame of mind that I had when I was about to win international sporting events or new business contracts.

But the reality check kicked in after a number of months when I had $1.38 left in that account. And no matter how much belief I had in myself (and it was a lot because of my other successes) I had to face the reality, psychological pain and humiliation that I had failed. I've got back up onto my feet and I am still on my trading journey, but I lost that account. I failed at creating profit with that account.

I am still 'not there yet in my trading', but I have learned the harsh realities the hard way and I have now chosen to seek out the people who are "REAL SUCCESSES" in this business to learn from them. I am still on my mission, but somewhat wiser about it.

To more succinctly answer your question, if I had risked everything I had I would have probably lost all my capital, my home, my relationship, my confidence, my sanity, my pride and who knows what else.

But I didn't. But I will never forget the pain of losing what I did (and that in hindsight was too much) and how it humbled me like nothing else has.

Take care out there.
Rob
  • #15
  • Mar 18, 2010 12:28pm Mar 18, 2010 12:28pm
Quoting flotsom
I do actually trade full time, and have done for the past two years. Trading forex is my sole source of income...

...

Because I knew I was investing all my money in to this, I took the time to "learn" before I started trading or risking anything. Effectively I risked less than those people who only risk what they can afford to lose, because I risked zero until I was fully prepared.
Hi guys

Quoting flotsom I'd like to ask for advice. I've fallen in to the trap of thinking forex is easy as it can only go 2 ways (up or down). Having been mislead by silly ad's that say "Forex Trading is EASY. UP or DOWN", I opened a demo account and had a bit of luck making 10 pips on each demo trade.

I decided to go for it and opened an account with 5,000 € only to realise I know NOTHING about forex. Although I have been taught lots of theory on technical and fundamental analysis and come from a financial background at university, I have blown away half of the money I had in my account. This is money I have saved up over the past years.

Before i see it go, I'd like to know if you guys could advise me on good books or material free or not, that can help me understand trading forex better (not your average technical analysis stuff).

Any advice would be helpful as I have decided to spend lots of time no matter how long it takes, to study this and practice before I start trading for real.


-Moneyman-
  • #16
  • Mar 18, 2010 4:58pm Mar 18, 2010 4:58pm
Quoting priceaction
Flotsom,
I never risked everything that I own but I risked an amount which could have bought a small business or which I could have used to employ a extra salesperson to go out and grow my existing company.

I lost that chunk of cash and it hurt badly. I never intended to lose it because I had (naively) believed that because I had a successful international management consultancy, and have started successful businesses before, and because I'd been a former British Champion and amongst the top 10 in the world in a sport; that I was different. That...

If you go to this thread and read the second post you will see the differences between a normal business and forex trading business. http://www.forexfactory.com/showthread.php?t=27286
  • #17
  • Mar 19, 2010 3:21am Mar 19, 2010 3:21am
Quoting moneyman85
Before i see it go, I'd like to know if you guys could advise me on good books or material free or not, that can help me understand trading forex better (not your average technical analysis stuff).
Sounds like you need to understand 'trading' better. The specific market (forex, equities, commodities, whatever) and what you use to trade them (technicals, fundamentals....moon cycles!) is to a large extent irrelevant (although some strategies are better suited to particular markets), it's how you trade and the psychology behind it which separates consistent winners from consistent losers, there have been several studies and practical experiments which demonstrate the point.

Also, contrary to popular misconceptions, there is no mandatory minimum time frame for learning to trade and become consistently profitable, it's what you learn which is important, and how long it takes you personally to absorb it and adapt. That could be weeks, months....or never!

Reading material, I would say Trading in the Zone by Mark Douglas can help to put things into perspective. It's not market specific and you won't find any trading strategies in it, but like I say market and strategy are about the least important aspect of consistently profitable trading.
  • #18
  • Mar 20, 2010 7:36am Mar 20, 2010 7:36am
Thanks for your reply pipmutt.

A question regarding leverage. 5000 € may not be enough to trade forex. Would you recommend trading mini contracts that some brokers offer?

Also, how many trades do you guys do per week? I'm just trying to gather as much information as I can.
  • #19
  • Edited 2:45am Mar 21, 2010 2:33am | Edited 2:45am
Quoting moneyman85
Thanks for your reply pipmutt.

A question regarding leverage. 5000 € may not be enough to trade forex. Would you recommend trading mini contracts that some brokers offer?

Also, how many trades do you guys do per week? I'm just trying to gather as much information as I can.

Stop. .

You need to bring yourself to a place where the money doesn't matter, but where "good" trading matters.

IMHO this is what you should do:
Go back to your demo account, go through the threads, the first post on the james16 thread is excellent for getting your business plan together. When you feel that you've gotten the plan together, trade your demo...for months if you have to, after that start out with your 2500 euros and take out 1000. Trade with 1500, trade the smallest possible contracts you can trade, and try to emulate your profitability in your demo account. When you hit 2500 in ur trading, take out another 1000....do this till you're back at 5000. Then take out half, and trade until you're back at 5000, and 2500 in the bank. Then you'll be in a place psychologically with confidence, less fear, and less greed (you'll find u'll be more addicted to trading well, than making more money).

Don't be discourage, of the few successful traders i'd say 99% have gone through what you are going through now at least once. If you think that the above mentioned process will take too long...
consider Tom Baldwin, one of the biggest bond traders in the market ever, he was profitable from the start, made a over a $1m his first year. He leased a seat on the exchange with no trading experience, put his life savings in it, had enough money to lease the seat for 9months, had a wife and kid and no other income. He stood there for 6months, 9 hrs a day 5 days a week, didn't make one trade for 6months...just watching and waiting. Strapped for cash like that, everything on the line, kid and wife...and he can wait 6 months to make his first trade. So unless you think you can do what T. Baldwin did, i recommend you take as many weeks,months, years as it takes to learn this business properly.

p.s.

5000 is plenty to start with.

My first year trading full time after getting out of uni, after blowing several smaller accounts trading part time in school (rampant foolishness and stupidity), i got to a place where things really started to click together (3yrs after my first demo acct trade), i had 20,000 in borrowed money to both trade with and live off of my first year out of school. I was going to plonk the whole wad in to my trading account in a do-or-die fashion, but a good friend stopped me.

Following his advice i put 5000 in the trading account and put the 15000 into savings, budgeting it out so i could at least cover the bills for a year without stressing out. I traded minis to start -- smallest my broker allows. Making $11 - $15 a day sucked....it felt like it would take eternity. I just kept risking 0.8% - 1.5%....slowly trading a bit more as my account grew. Slowly bit by bit my account grew, compounding is powerful i'm sure you know. By the end of my first year i paid back all my debts, withdrew enough to see me through my second year, i was trading 5 - 10 lots a shot by the time i finished my first year.

Start small, small as possible, take your time -- the money will come faster than you can imagine, but you have to be patient and consistent. Anyone can get lucky and make money in these markets, but if you really want to see your wealth grow over time, and keep it -- its all about the consistency. With lost of fear and/or greed you won't be emotionally consistent, and without emotional consistency there's no way your trading will be consistent.
  • #20
  • Last Post: Mar 21, 2010 3:21am Mar 21, 2010 3:21am
Quoting moneyman85
Thanks for your reply pipmutt.

A question regarding leverage. 5000 € may not be enough to trade forex. Would you recommend trading mini contracts that some brokers offer?

Also, how many trades do you guys do per week? I'm just trying to gather as much information as I can.

Mi amigo, save yourself a lot of time, money, and aggravation....find a regular job with a future or go back to school/college, that's the best advice you're going to get.

Trading isn't for everyone, if you look around these forums you'll see the harsh reality is probably less than 1% are making any money at trading, despite what they tell you.
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