“Everybody needs to be taught how to manage risks and stay away from high risks products when they cannot afford to lose. This is a Fact. Most experts can only manage a 4 against 10 odds at winning which means they will lose 6 times out of 10, it is how they manage to lower their risks at losing and increase their risks at winning that makes them overall winners, even I can only get an advantage of 6 out of 10, that is why I prefer the traditional way of making money.” – Contributed by Oogle
“If I am a Trader and my daily target profits is to make $200-$500, that is my 1%, I will need my Capital to be the balance 99% and the ability to cover my own trading commission, what will be my risks and my positions based on my time horizon to have a successful trade? Most of the time it will never be just one position but multiple, and how do you analyse everything especially risks without a computer and software?” – Contributed by Oogle.
Members of the public are being invited to attend a preview of a training course to trade in foreign currency, commodities, futures and other financial products.
They are told that they can learn trading techniques from professionals and will be able to earn a regular income from this trading activity. The presenters usually make exaggerated claims about the effectiveness of their techniques and, in some cases, offer verbal promises of guaranteed success.
During the hype, the public are asked to sign up for the training courses, which usually cost $3,000 to $5,000 for a three day course. Those who are undecided may see other people rushing to the signing tables. These initial signers could be agents working for the presenters, whose role is to create a false impression about how good the course is.
I wish to give some views about why these trading techniques will not work and the trainee stands to lose more than the fee paid for the course
Negative sum game
Trading is gambling. When you gamble or take a bet, you take the chance of winning or losing the bet. The amount won by one party is the same as the amount lost by the other party – this is called a zero-sum game.
Most trading activities are negative sum games, i.e. the total wins is less than the total losses of all the participants. The difference goes to pay for the commission and profit to the party operating the trading platform.
The trainers claim to be able to teach you the successful trading technique, based on their expertise and experience. They will show you chart formations and tell you of the profits that they had made by following these charts.
Remember this. When they make many bets, they are likely to have many wins and many losses. They will select the wins and tell a story of the profit they had made. The same technique could lead to losses for them, but they will not be telling you about these cases.
They are being selective in the stories that they tell.
If you follow the technique that was taught, you are like to have wins and losses. This is completely random, like twisting a coin. When you win, the trainer will claim success for the technique. When you lose, the trainer will say that you have not followed the technique correctly, and have acted too early or too late.
Some trainers claim to be able to teach you the techniques of spotting market inefficiencies, which is supposed to make you win over the long run.
Be careful. You are not the only one that is trained to spot the market inefficiencies. Many other traders are also taught the same techniques. So, it is a question of who act earlier, and have the information to act earlier.
Think about who you are betting against in the market. You are likely to be betting against other people who are better equipped than you, i.e. the professional traders employed by the big financial institutions. They are paid a handsome salary and have to deliver wins that cover their costs and profit. As a small retail trader, you are contributing to their costs and profits, when you trade against them.
These professional traders have more financial resources, time and information. When they act in a big way, they can move the market to their favor, and they also know when to get out. The individual traders who follow them by reading the charts could be going on a wild goose chase.
The experience of many individual traders is that they lose out. After a while, their capital is gone. After spending a few thousand dollars to attend the training course, they are likely to end up losing all of their capital. Instead of “making a living”, they lose out.
Be careful of the people who recommend that certain trading techniques are reliable. Some of them are part of the game and earn commission when you sign up. In some cases, they might honestly believe that the techniques work, but they are naïve or have not been burnt yet.
No easy way to make money. They are many ways to lose money, such as being misled or cheated.
Tan Kin Lian
14 May 2013