The Darker Side of Trading

The Darker Side of Trading

Too often the negative aspects of trading are shielded from those entering the industry.

There’s a lot of disingenuous marketing going on from those selling the next hot trading course. People are getting lured into the industry under false pretenses of riches, glory and easy lifestyles. Hopefully this article will act as a counter balance to some of the false information out there.

If you’re considering becoming a trader you should understand the true reality of trading. You should understand the markets as they really are and not as you want them to be. You should understand the risks involved and the sacrifices that must be made in order to compete at a basic level.

Trading is not all sunshine and rainbows. You don’t make it rain every day, buy Lamborghini’s and trade from an island in Bali. If someone is marketing a trading course to you this way they’re a fucking charlatan.

1. High Failure Rate

Trading has a very high failure rate. There are very few traders that can stay profitable over a long time horizon. Successful trading requires characteristics that don’t come naturally to a lot of people, namely: a high level of discipline, emotional control and patience. There are a very small group of experienced traders that make the lion’s share of the profits in the markets thus making the majority of market participants net losers year over year.

For most traders early failure is more the rule than the exception. The average trader ends up losing money in their first year of trading. You must know from the outset that you won’t immediately become consistently profitable straight away and you must be able to sustain your lifestyle while you give yourself time to learn. However, early trading failure is more indicative that you are doing something wrong than an ultimate predictor of success or failure in the markets.

2. It Takes a Long Time to Learn

Learning to trade is akin to starting an apprenticeship, it takes a long time to learn the skills necessary to make money. Doctors and Lawyers take years to develop the necessary skills to operate within their profession and the same is true with trading.

Please don’t underestimate the work required to compete at a basic level, you will need to work very, very hard. Trading takes a really long time to be competent at and an even longer time to master. The learning curve has never been so steep.

Anyone who promises that their new trading course provides a path to quick riches is lying. There are no get rich quick schemes in the markets. The markets are a very efficient place and if there was easy money to be made then it has probably already been exploited.

3. Relationships and Health Can Suffer

A lot of people (not all) that succeed in the markets do so to the detriment of their personal relationships and health. They are literally “all-in”. They live and breath the markets. Trading can be very all consuming to a type-A personality such that they ignore everything in their life including their family in their pursuit of success in the markets. The world passes them by as they stay up to date on every bit of news.

Every trader experiences varying degrees of stress. Even consistently profitable traders experience elevated stress levels for extended periods. Uncertainty can be extremely taxing on the body. Modern medicine is only now fully understanding the detrimental health effects of stress over a long enough time scale. Burnout can easily occur if you don’t stay on top of managing your stress levels and health.

The nature of trading means it can be a very emotionally negative game. You will have to weather some hard times and not let them affect you emotionally. The emotions you experience will almost always be asymmetric with the losing trades hurting more than the winners feel good. You are biologically programmed to feel the losers more than you feel the winners.

4. You’ll See Friends and Colleagues Come and Go

I’ve seen my fair share of traders come and go as the markets eventually wear them down. You’ll form strong bonds with your colleagues as you experience the highs and lows together. It can be difficult seeing the stress and strains they get put under as they approach the end game.

5. Market Conditions Determine How Much You Make

Market conditions ultimately dictate how much money a trader makes. Even the best of traders require a certain level of volatility in order to make money. Some market conditions simply aren’t that conducive to making money and markets can stay quiet for long periods of time. As a trader you can only trade what’s in front of you and when volatility is lower then so are the opportunities.

Top traders understand that they are simply making themselves available to take advantage of the opportunities the market provides. It is up to them whether or not they are prepared for when the opportunity arises.

6. No Level Playing Field

The markets have never been nor will they ever be a level playing field. There will be plenty of other market participants with significant advantages over you.

There are those with informational advantages. Information has never traveled openly and freely and chances are you won’t be the first person to act on a market moving piece of information.

There are those with technological advantages. Other traders can execute their trades much faster than you. It might be through colocated servers or the latest microwave tower. Unless you work for citadel you won’t be the fastest.

There those with better research. Hedge funds and investment banks spend millions every year just to have the best research.

There are those that can trade with a cheaper cost of trading than you can. The cost of trading gets cheaper the more volume you execute as a firm. This means the big players have a much cheaper cost of trading than you do.

Despite all of this I still believe trading can be a fantastic career. If you manage yourself well you could achieve a level of financial freedom not attainable in 99% of other jobs.

However I think its important to understand that the odds are stacked against you from the outset and you will need to learn to make money despite of everything I have outlined.

It isn’t sexy but it’s the truth.

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