Great Expectations – Part 1 of 4

With apologies to Charles to Dickens, here is my 4 part series “Great Expectations” about why we are unprepared for the market environment and why it is so difficult for us to make the necessary changes to adapt to it.

Great Expecations Part 1 – Delusions of Trading Grandeur

“When we pick up the newspaper at breakfast, we expect – we even demand – that it brings us momentous events since the night before…We expect our two-week vacations to be romantic, exotic, cheap, and effortless. We expect anything and everything. We expect the contradictory and the impossible. We expect compact cars which are spacious; luxurious cars which are economical. We expect to be rich and charitable, powerful and merciful, active and reflective, kind and competitive. We expect to be inspired by mediocre appeals for excellence, to be made literate by illiterate appeals for literacy…to go to ‘a church of our choice’ and yet feel its guiding power over us, to revere God and to be God. Never have people been more the masters of their environment. Yet never have a people felt more deceived and disappointed. For never have a people expected so much more than the world could offer.” Daniel J. Boorstin

In my limited exposure to trade rooms, forums and chat rooms, one reoccurring theme is ever-present. It is the idea that somehow one can learn enough to be a consistently successful trader from those same trade rooms, forums and chat rooms. I will be the first to admit that there are some pretty good traders and perhaps even some pros in these groups, but based on the content of the posts and the redundant dialogue, it’s often more like the blind leading the blind. I was fortunate in that I discovered trading from some institutional traders that provided access to the professional realm early on. Even though it had its shortcomings, I believed it was better than “discovering” trading online. In reality, it was not better because I made the same common mistakes that plague most online newbies. Why? Partly because it was early in the development of retail Forex trading, but mostly because I had unrealistic expectations about what it would take to become a successful trader. This is one common thread that unites the 95% that are unsuccessful.

Think about it. Regardless of your age, we typically have a very linear view of how to attain a level of professionalism – become proficient at the basics, introduce and practice the intermediate, and then expand to an area of expertise. This is the model for our entire educational system. Grades 1- 12 are for learning the basics, college for the intermediate (declaring a major) and enter the workforce to develop a specialty. Even if college was not part of your education, this model can be applied to any vocation where you become a journeyman or intend to make your primary income. This learning progression model can be applied universally.

Yet, with surprising regularity, most folks entering the trading arena believe that somehow this model does not apply. What is the difference in perception? The first variable is that there are really no barriers to entry. Unlike the required certifications or degrees or experience required of most professions, literally anyone of age can open a trading account. I guess the thinking here is that if you are only risking your own assets or damaging your own financial well-being, you are entitled to do so. The perception then becomes “if this is all it takes to open an account, trading must be easy.”

The next big difference is that free information abounds. Search “trading” on the internet and be flooded with systems, robots and literature – totally overwhelming. Compare this to the information available or required to be an engineer. There is equally enough online information about engineering, but the fact remains one must take a certification exam or be degreed from an accredited institution to be titled “Engineer.” To be called a “Trader,” one can decide at any moment to apply the title because the perception is that the simple act of trading anything makes one a trader. With a certification or degree, a minimum level of success or expertise is required. In retail trading, there is no such requirement (This articles assumes you are not trading or investing on behalf of others where a license or certification is required.) The perception is reinforced by this glut of information leads to the common idea that one can become a trading professional for “free.” Although this may happen, those are the rare exception. If trading wasn’t this easy, why would so many people giving this information away (or selling it for such a low price?)

Another misconception about trading is the length of time required to become consistently profitable. Using our linear model again, let’s think about the time involved to become an expert in any field or profession. We can estimate that after a basic education, it will take minimum of a few years because to master any skill we know that to become an expert requires training, experience and application. The majority of trading advertising would lead one to believe that learning to trade can be achieved in a “few easy steps” and you can “earn a fortune while you sleep.” These unregulated marketers rely on greed and laziness to seduce folks into believing that you need minimal education or participation to be successful. Would these claims apply to any other “real” profession? Absolutely not! But, for some reason, we are willing to believe that somehow they can be applied to retail trading.

We have become a society of doing the least possible for the most gain. We are living with a demand for instant gratification and a false sense of entitlement – that we deserve something for nothing. It drives our media, our personal interaction and the way perceive the world. This desire fuels all the get-rich-quick schemes and short-cuts to wealth that bombard us on a daily basis. It is no mystery that we thrive on this idea and there are so many people willing to buy and sell the “smoke and mirrors.” Trading product marketers rely on this belief to keep you in the vicious cycle. They know trading is difficult and that human nature is to take short-cuts. They know you don’t have the patience to actually test the products, are over anxious to become a zillionaire, and want a magic bullet to do it all for you. That’s why even though you may have previously purchased the end-all be-all system, robot or indicator, you will still open email after email advertising the latest and greatest. (I did too!)

We have to come to grips with the fact that trading is like any other skill. It takes an understanding and mastery of the basics, practice and proficiency with intermediate concepts, and a commitment to achieve a level of expertise. There is really nothing free about a trading education. It follows the same model we have been taught since our earliest days of education, so is it imperative that you begin to think about trading using the same progression model. It will save you many moments of frustration and perhaps a few lost dollars in the market and on worthless products. If you do get the privilege to hang out with some generous professionals (like here!) you will almost always find they use minimal tools to trade. Ultimately we all discover that less is more. Until, then we will continue to add crutches to our charts and systems in the form of more indicators and/or robots – anything that will absolve us from the two most important additions that are the most required and most often omitted – responsibility and accountability.

In Great Expectations Part 2, we will discuss the “Big Surprise” and why we are not prepared for the market environment based on our expectations from past experiences.

Rick

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