By Sam Evans, Co-Founder and Lead Coach
There are many misconceptions about trading and investing in the financial markets. While speculation has its merits, most people do not want to talk about the potential downside to it as well. It can be very risky without the right education and your journey in the markets can end as fast as it begins if you do not learn how to protect yourself and embrace low-risk tactics. On top of this, you also meet people from different backgrounds who, as expected, have plenty of questions when you tell them you trade.
A conversation I had with one gentleman on a recent vacation is what prompted me to write this article in fact. When we got talking about what I do and what I teach, he revealed to me that he also liked to speculate in the currency markets from time to time. As the chat went on, he revealed that he had been trading FOREX for about five years. He was open with me and we discussed how he had made some decent money out of it but in the end, he was still in the negative since he had started. Asking him how he felt about that, he replied by saying that he was close to giving up because he felt that all financial markets are rigged and manipulated and that quote “the big boys are all out to get you”. My response was to ask him why he didn’t just quit trading then if he felt like that, to which his response was that he just needed to find the “big secret” to it all and that maybe I was the guy to help him. Recognizing his frustration and hope, I felt it was time to reveal to him the big secret to the markets. He held his breath in anticipation.
“The big secret is that there really is no secret”, I said to him. Money is made and money is lost by every single person and institution that speculates. We all win, and we all lose but what truly separates the profitable from the unprofitable is how you win and how you lose. Lose small and win big and you won’t need to be right that often. Nobody gets it right all the time and if they did, the markets would eventually cease to exist as it would no longer be a zero-sum game, after all, there must be a winner for every loser, right?
This all seemed to make sense to him, but he still asked me what he was missing, as the idea that the markets were manipulated on a daily basis was dogging him and he could not get away from this. Next, he asked, “What do the pros and the hedge funds know that I don’t?”. My response was simple, as I explained to him that they probably have access to resources the public will never be able to see or afford, yet even after all of that, they still cannot guarantee the markets will work in their favor.
Nobody ever knows what is going to happen next after all. I explained to him that the one thing we can all do is try to get the absolute best price we can, by buying as low as possible and selling as high as possible to minimize risk and maximize reward. This is how money is best made in any sense. The key is to wait for the price to come to you and prepared to pull the trigger when the opportunity presents itself. If you can spot the real market value on a price chart and see where the major buying and selling takes place, there is no reason why you can’t attempt to buy and sell at the same time too.
In my humble opinion, anyone can learn to trade but only if they model a successful approach, avoid the mistakes that novice traders make, and are prepared to follow the rules of trading, without letting their emotions get the better of them. If you want the secret to trading then here it is: Accept that you must keep loses small, wins big, and focus on risk management first and foremost. Then be patient enough to wait for the opportunity to buy and sell when your rewards are high, and your losses are small. You will have wins and you will have losses. Just do not make a big deal of it either way and waste your time trying to avoid losing. That’s a sure-fire way to break your flow. Finally, take your setups when they present themselves to you and then allow your plan to do the work without getting in the way of it. A pretty simple secret, isn’t it?
After this explanation, my new friend almost looked relieved and decided to explore some real trading and investing education after finally learning the big secret wasn’t really that big after all. I hope you found my big revelation as helpful too. Be safe and stick to the plan.
See you next time,