The cold, hard truth about trading on the financial markets is that things you are told are important are often not as important as you think. Most of the time, the most important parts of trading aren’t talked about in detail and just seem to “blend” into the background of the conversation.
Remember that this is a business where 5 to 10% of people who try to trade with real money actually make money at the end of a good year. Most of that money goes to professional traders, who are also your competition. So, they won’t go out of their way to make sure everyone knows the truth about trading and the most important skills and issues to pay attention to if you want to advance your trading career.
The truth about trading on the markets is that almost everything about it is misleading and goes against what you might think. I think trading is like the best game of chess ever made. You are in competition with every other trader, including yourself, which can be the hardest opponent of all.
In this lesson, I’ll talk about some of the most deceptive parts of trading. Most retail traders don’t find out about these things until it’s too late after they’ve already lost a lot of money and left the business for good, broken both mentally and financially.
How I can help you not let the market fool you…
When you first start trading, you probably won’t give much thought to the things we’ll talk about below. Most people don’t find out about them until they have been trading with real money for a year or two and have lost more money than they want to admit.
So, in today’s lesson, I’m just speeding up your learning by a few years by filling in the blanks and giving you some missing puzzle pieces you may not even know you’re missing yet. I want to warn you about these problems and teach you how to solve them so that they don’t end your trading career.
I’ve learned a lot from the more than 18 years I’ve spent trading real money on the world’s financial markets. I don’t have all the answers, and there’s no silver-bullet way to make money in trading. But over the course of my trading career, I’ve learned some very important lessons. As a new trader, one of the most important things to be aware of and master is how trading and the industry around it can be deceiving.
Some of the most misleading things about trading are listed below, along with ways to avoid falling for them and speed up your trading journey.
It’s simple to get in, but hard to get out.
Many traders, not just beginners, tend to put too much emphasis on trade entries and try to find a “magic” trading system or software that will let them make money on autopilot. Not all of this is your fault, either. The trading industry definitely emphasizes trade entries and “systems” over trade exits, money management, and psychology, which are the more important parts of trading. This is because trade exits are what sells and gets people to trade. The truth is that it’s much harder to get out of a trade correctly than to get into it, so that’s where you should put most of your attention.
Keep in mind that when I say “trade exit,” I mean everything that goes along with it. The average true range, stop loss, position size, risk-reward, support and resistance levels, etc. When planning trade exits, there are many things to think about, but most traders don’t seem to give it much thought.
How do not let this fool you
One reason traders are so easily fooled by the entry/exit problem is that all that is really talked about and sold online and elsewhere are trade entry systems that don’t emphasize how important it is to get out.
As I wrote in my article “A Case Study of Random Entry and Risk Reward,” a trader can make money even with a completely random entry system if he or she manages their money well and knows when to get out of trades. Now, that doesn’t mean that the entry isn’t important, because you can improve your trading performance much more than with a random entry method if you combine a high-probability entry method with the right way to get out of a trade. The point is that the way you leave is much more important than how you get in. So, just keep this in mind as you look around the Internet and read lots of trading blogs. Money management, risk-reward, and knowing when to get out of a trade are all covered in different parts of my advanced trading course.
After reading this, hopefully, you’ll start to think as much, if not more, about the trade’s exit than its entry. This is because, contrary to popular belief, money is made or lost at the trade’s exit, not at its entry.
It’s easy to put money into an account, but hard to build it up and even harder to get your money out.
Brokers in the trading industry make it easy to put money into a trading account, but they don’t talk much about how to make money and how often you should take out some of your earnings. You have to remember that making money as a trader is only important to you (and me).
As a trader, your goal is always to make money so that you can take it out and use it (or save it). Trading isn’t just about losing money over and over and giving it to your broker. When you go to a broker’s website, you will hear about the good things and the money that could be made, but you will rarely read about the bad things and risks, unless it’s in a very small print disclaimer at the bottom.
Brokers and market makers know that the market is like a casino for a trader. The same kinds of temptations and feelings apply. So, it’s not in their best interest to show you how things really are. Instead, they want to show you how to make quick money. The news, prices flashing on the screen, and charts going up and down are like a trader’s constant “fix” of dopamine. In other words, if you let it fool you, trading can quickly become a dangerous addiction. This is very, very good for the trading business as a whole, don’t you think? Not really.
Even though it’s rare, some bad brokers (often ones that are based overseas and aren’t regulated) might be working against you by giving you bad prices and execution or making it hard to get your money out. I don’t mean market makers, who aren’t all bad as some people think. Instead, I’m talking about bad people who run bad brokerage firms and have no ethics or responsibility. So, pick a good broker who is well-regulated and whose work other people can vouch for. If you’re curious, I trade with this broker platform here.
How to avoid being tricked
You should be more defensive than offensive when you trade. Your goal shouldn’t be to trade as much as possible, but to keep your money (and lose it). Even if they don’t say it, most traders start out with a very offensive way of thinking.
You have a much better chance of making money in the long run if your goal when trading is to build your account slowly and keep your trading capital.
Always remember that no one cares more about your money than YOU do. Don’t believe the hype; trading isn’t all “sunshine and rainbows.” I’m not trying to be negative at all; I’m just trying to be honest so you can learn from the truth.
Once you start making money trading, you should plan to take out a certain amount every month, say 50% of your profits. You need to do this for a number of reasons, including keeping your money safe so you don’t lose it to the market. Also, when you withdraw it, it stops being just numbers on a screen and becomes more real to you.
There is no easy way to be successful in trading.
The trading industry misleading people about “shortcuts” to trading success and “fast money” is probably the most perverse and common problem that this article talks about.
The popular financial media and most online trading education sources paint a very different picture of trading than what it really is. Hey, don’t kill the messenger! I’m just trying to get the word out so you don’t end up like 90% of traders who lose money in the long run.
Many new traders think of slick Wall Street traders who drive around in Lamborghinis and live in New York penthouses when they are first lured into trading by the “powers that be.” It’s good to have goals, even if they’re big, but you have to stay grounded in what it takes to reach them. Trading is at best a slow-and-steady way to make money, and the more you try to make “fast money,” the harder it will be and the more likely you are to lose. I won’t go into all of the reasons “why” in this lesson because I’ve written a lot about this in other lessons. But keep in mind that there are no short cuts to trading success. This is a long-game, and if you want to have a chance at consistent success, you have to be in it for the right reasons and stick to good trading practices.
The one piece of advice I always give my students that is the most important is to keep your charts clean and keep everything simple. The other most important thing you could do that is as close to a shortcut as you can get is to get more education and learn more quickly. Mentors can speed up your progress, whether you get them from this blog and my courses or from someone else. However, they won’t ever give you a franchise to go and print money, and anyone who says they can is lying and only wants your money. Find mentors you can trust and who aren’t afraid to tell you the truth about trading. Use common sense when doing this.
Conclusion…
Trading scams are unfortunately very real, and if you don’t know about them, they can hurt your trading a lot. Whether it’s direct or indirect, the trading business and the act of trading itself are both very dishonest. What you think is the right thing to do is often the wrong thing, and what you think you should be focusing on is often the least important thing. It’s a combination of the way the industry works and the fact that trading is a hard thing to master.
So, I wrote today’s lesson to help you understand how trading can be deceptive and give you some ideas on how to deal with it. Aside from the things we’ve talked about so far, the most important thing for a retail trader to remember is that slow and steady wins the “race.” Trading is more like a marathon than a sprint to the finish line, so you need to be ready for it. Just like a long-distance runner, you will have to pace yourself. If you spend all your money right away, you won’t be able to stay long enough to reach the “finish line.”
I’ve been trading on live financial markets for 18 years, so I’d like to think I’ve picked up a few tips along the way. I feel it’s my duty to share my thoughts and experiences with you to help you succeed. My trading course is all about getting you ready for the “battle” of the markets, so that when you start trading live, you are more like a well-armed soldier with a solid strategy and effective “weapons” instead of going into the “war” of trading unprepared and unaware of how it can trick you, like most traders do.
“If you don't find a way to make money while you sleep, you will work until you die.”
- Warren Buffett
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