Ego.
This one word can simply define why many traders and for that matter gamblers (a self-proclaimed one) fail. When I say ego, I am not necessarily referring to someone who would be labelled as an ego-maniac but rather the need to feed our ego.
While I will not get into any life stories here, I learned a while ago in a world unrelated to training yet more relevant to discipline that ego was a person's worst enemy. The removal (or as much of) ego is the goal to success, to discipline, and the like.
I have incorporated this into my trading over the past couple of years and looking back, I don't know what took me so long.
As traders, we need to feed our ego, be it a fundamental or technical trader. It should be apparent how both styles of trading feeds into our ego. If you fail to see exactly how this can be the case, you have a much larger problem on your hands (such as self-awareness).
Trading is gambling. In gambling, just like trading, risk management exists. You, as "dumb" money, have zero edge on the markets. You don't have technological advancements to "beat" the market nor do you have the insight to either. You will get trades right, you will get trades wrong, you may make a little or lose a little, but the endgame for 99% is the same... it's fun to trade but it's not a living for you. You are gambling.
You can pour over charts, over news articles, over economic data, over balance sheets... take your pick but you, as the retail trader, are always behind the rest. To believe otherwise immediately puts you at even a greater disadvantage.
With that said, what is one to do? Simple.
Look for what I would deem "nearly free call options". This are the trades that sometimes are so obvious they are stupid but many would rather feed their ego and try to "play the game" where they have no edge rather than take what is given to them.
Let's take what the SNB is trying to do by holding the floor against the euro. It has been stated over and over by Thomas Jordan and crew that they will hold EUR/CHF at 1.20 no matter what it takes. Do I believe they will in the long run? Who cares. No where in FX is there a trade that can be put on with a "defined" bottom.
The SNB has essentially given you a free call option. If they cannot hold the floor then your losses are cut immediately with nearly little to lose, however the upside from here is tremendous. There is no other trade that offers you this in FX at the moment.
So why not take advantage? Why concern yourself if EUR/USD or EUR/JPY may be oversold or what fib retracement it will target next but instead take your bankroll and roll it on long EUR/CHF? Your risk is clearly defined and is clearly little to nothing, thus a near free call option.
For somewhat of a long(er) term horizon, why not acquire nickels? The US nickel is worth five cents however as copper and nickel prices rose in 2011, the nickel's metallic value reached nearly 7 cents. While this may seem silly to most, Gresham's law, which is consistently proven to be true throughout the centuries, would tell you that at some point, the US mint will change the metallic components of the nickel. Wouldn't you know, they are already in the works at looking for substitutes (i.e. 1982 pennies), but again, a "free call option".
There are more of these out there but to come full circle, I see many people overlook the simplest of trades and investments because they want to feed their ego even if they are unaware that this is occurring. When you get a trade right, it feels good. You know you can do it again. When you get it wrong, it was just bad timing or entry, etc. Both cases are the same ... Ego is present.
Step away from your ego. Look at all the opportunity out there to make money. Do not hedge. Take all your capital and deploy it into one area where a floor (long) or a ceiling (short) clearly exists.
To end this, I speak as a gambler - both a trader or markets and an avid poker player. In poker, your opponents are the most important piece of the game, not your cards and not your positions. If I can put my opponents on a hand each and every time, I will always make money. In this, I have a clear edge over them.
If you sit at a poker table and in first ten hands you cannot determine who the sucker is... then take a look in the mirror. In trading, we all need to look in mirror.
Good luck.
This one word can simply define why many traders and for that matter gamblers (a self-proclaimed one) fail. When I say ego, I am not necessarily referring to someone who would be labelled as an ego-maniac but rather the need to feed our ego.
While I will not get into any life stories here, I learned a while ago in a world unrelated to training yet more relevant to discipline that ego was a person's worst enemy. The removal (or as much of) ego is the goal to success, to discipline, and the like.
I have incorporated this into my trading over the past couple of years and looking back, I don't know what took me so long.
As traders, we need to feed our ego, be it a fundamental or technical trader. It should be apparent how both styles of trading feeds into our ego. If you fail to see exactly how this can be the case, you have a much larger problem on your hands (such as self-awareness).
Trading is gambling. In gambling, just like trading, risk management exists. You, as "dumb" money, have zero edge on the markets. You don't have technological advancements to "beat" the market nor do you have the insight to either. You will get trades right, you will get trades wrong, you may make a little or lose a little, but the endgame for 99% is the same... it's fun to trade but it's not a living for you. You are gambling.
You can pour over charts, over news articles, over economic data, over balance sheets... take your pick but you, as the retail trader, are always behind the rest. To believe otherwise immediately puts you at even a greater disadvantage.
With that said, what is one to do? Simple.
Look for what I would deem "nearly free call options". This are the trades that sometimes are so obvious they are stupid but many would rather feed their ego and try to "play the game" where they have no edge rather than take what is given to them.
Let's take what the SNB is trying to do by holding the floor against the euro. It has been stated over and over by Thomas Jordan and crew that they will hold EUR/CHF at 1.20 no matter what it takes. Do I believe they will in the long run? Who cares. No where in FX is there a trade that can be put on with a "defined" bottom.
The SNB has essentially given you a free call option. If they cannot hold the floor then your losses are cut immediately with nearly little to lose, however the upside from here is tremendous. There is no other trade that offers you this in FX at the moment.
So why not take advantage? Why concern yourself if EUR/USD or EUR/JPY may be oversold or what fib retracement it will target next but instead take your bankroll and roll it on long EUR/CHF? Your risk is clearly defined and is clearly little to nothing, thus a near free call option.
For somewhat of a long(er) term horizon, why not acquire nickels? The US nickel is worth five cents however as copper and nickel prices rose in 2011, the nickel's metallic value reached nearly 7 cents. While this may seem silly to most, Gresham's law, which is consistently proven to be true throughout the centuries, would tell you that at some point, the US mint will change the metallic components of the nickel. Wouldn't you know, they are already in the works at looking for substitutes (i.e. 1982 pennies), but again, a "free call option".
There are more of these out there but to come full circle, I see many people overlook the simplest of trades and investments because they want to feed their ego even if they are unaware that this is occurring. When you get a trade right, it feels good. You know you can do it again. When you get it wrong, it was just bad timing or entry, etc. Both cases are the same ... Ego is present.
Step away from your ego. Look at all the opportunity out there to make money. Do not hedge. Take all your capital and deploy it into one area where a floor (long) or a ceiling (short) clearly exists.
To end this, I speak as a gambler - both a trader or markets and an avid poker player. In poker, your opponents are the most important piece of the game, not your cards and not your positions. If I can put my opponents on a hand each and every time, I will always make money. In this, I have a clear edge over them.
If you sit at a poker table and in first ten hands you cannot determine who the sucker is... then take a look in the mirror. In trading, we all need to look in mirror.
Good luck.
