I thought to write this article with a general misconception about forex trading people have in humorous way while comparing unrelated businesses Cab driving and Financial Investments . It is reference to normal people who want to invest their money and want to hire traders to grow their account exponentially. Although it is directed towards investors but other traders can also take some hint from it.

Traders are entrepreneurs and they will need investors. And it is often said Entrepreneurs are from Mars and Investors are from Venus. But in case of trading I found it even worst and it can only sorted if both the parties are in right mindset about each other expectations and expectancy(returns) of traders systems.

All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis. – Jesse Livermore

I think the least understood of the above statement is about ignorance. Newbie Investors have almost zero knowledge in financial markets. Trading is specialized knowledge based profession. I believe experienced traders understand: My focus is on doing good trades; money is secondary, and this should be well understood by investors.

So I will now come over to misconceptions.

1. Forex trading is open 24 hours. So hire people who can work in 12-12 hours shift on one account.

The above kind of statement comes from ignorance about financial market and should be sorted out as soon as possible.
For a trader, trading is 24 by 7 job and he maybe in action for 8-10 hours for a day to open/close and monitor his trades. Rest of the time he is always looking and analyzing what is happening in market. Yet there are ideal times when market is giving us chance to make profits.

Driving on the other hand is physical activity and not knowledge based. A driver can be good driver after one year of practice and a trader takes almost 10 years of consistent honing of his art and can still be work in progress. Investor should be able to understand that trading is dynamic game where traders have to react on new information, relying on experience.

Yet at times it too difficult to explain and this Dilbert comic strip helps.

2. One driver needs one car to drive. Why one trader need 4 monitors

To trade one lower ends laptop is enough if you are good trader. After all you are not doing any animation work.

Investor thinks there is money to be made easily in financial markets. So common line of thinking is - You just have to have a laptop, fund the account with $1000 and voila you have money making machine (Trader) to take care of rest. How easy. One Car itself cost $10000 and monthly can earn $1000 to $2000. So it is better to hire a trader and get exorbitant profits with minimal investments.

Traders need good CPU power to handle real time quotes so as to not have slippage on quote displayed and quote filled. Further traders need most powerful processor to analytics, chart drawing, trading algorithms (real time and testing), trading rooms, news rooms and multitasking. After all traders don’t want to miss any real time data (that’s the reason for more monitors so can see data on many time frames).

3. Okay you have a business plan which I agree to fund but I have my own way

One of the main difference trading has with Car rental business is easiness and freedom to how much you should invest. Trading can be done with $2000 (or even 100 is enough). And you know Car business daily profit is fixed but with trading sky is the limit. Okay so you want equity $10000 US Dollars and with your trading you said you will make it double in 3 months. So you have $2000 now and work hard and make it to $10000 in a month and you have what you need. After all trader plans are just plans.

On a serious note, Plan your trade and trade your plan, is key to be successful in trading. And on business plan should be sorted out with investor so that you can just focus on your trades and nothing else. Trading is all about discipline and any confusion kills trading results.

4. Car rental business has expected results month over month

But in trading business money should be treated as money kept on holiday and should not be used to pay or expected to generate your month on month bills and expenses. This will psychologically prepare a trader to take small losses and manage the risk better. Also trading will be more successful if equity is not counted on day to day basis.

So here the difference with daily wage job such as Car rental is quite apparent. For trading a trader should certainly need at least 6 months of your expenses in hand and should not be expected to get it from trading profits month over month.

“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages. “ – Jesse Livermore

5. Car driver can teach me how to drive but why a trader cannot tell how he trades

The reason Car driving is skill based and Trading is more of art which is honed by years of experience and still work in progress. A painter can not explain how he has made beautiful painting in 10 minutes or a football player can not explain how he scored goals. It is years of experience. Same way is the trading and there is no holy grail for trading. Talent, experience and passion for trading do matter a lot in the long run.

“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.” – Jesse Livermore

6. Car can be driven by robot but why robots cannot do trading.

With everything getting automated and so is trading but with limited success. Trading is too complex a job to be handled by automated systems and yet best programmers (read cost, nothing comes for free) needed to code. Yet they fail in black swan events. According to Bloomberg article recent GBP/USD flat crash was attributed to junior staff(in bank) panicked and misjudged the automated systems. The overall reason for the loss to the bank was cost cutting in terms of firing high cost experienced traders and instead hiring vice presidents, who are paid $150,000 a year, just a fraction of what these top traders make, to manage junior traders.

The below statement by Mr Jesse Livermore has already passed the test of time and 100 years from now also will be true. So it is better to be in right mindset as a trader and as investor too be in financial markets.

There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure. - Jesse Livermore

Overall it is better to be away from dreamland and have a solid rules in terms of business plans and to the trading plans. Trading has to be taken as a business seriously and not as a game to play leisurely at any level.
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