We Are Traders

The following is a recent commercial for OpenTrader…pretty slick actually (and check out the book selection at 0:30).

Sounds great, doesn’t it? Sitting around in shorts and t-shirt, making million dollar deals with from the comfort of your desk chair.

If only it were that easy. Not only do individual traders have to deal with a lack of information (compared to traders on the trading floors), we have almost no clue when it comes to the “grey areas” of the market. Don’t believe it? There’s no way? Check out this little gem from The Street:

And even if we did have perfect knowledge, think about this: The average volume of Ford shares traded over the past 50 days is 59 million. In dollar terms (with Ford shares between $16 and $12 per share), that is the equivalent of $708 million dollars traded EVERY DAY! I don’t know about you, but that isn’t exactly pocket change. With the increased use of techniques such as high frequency trading (basically executing huge trades in the span of a few milliseconds for a few tenths of a cent), “trading” for a living has become that much more difficult for the individual investor.

Hard work and dedication are usually concepts that people don’t associate with investing. The common misconception is that you can easily trade your way into vast wealth. Barry Ritholtz shares a similar opinion on his blog (The Big Picture), in a post entitled “How Hard is it to Become the Michael Jordan of Trading?

the true criticism of trading [is]…that the odds are very much stacked against you. The truth is it is really, really hard to do professionally.

Some people associate trading with gambling. And in one sense, there are some similarities, such as the statement, “the house always wins”. In investing, the house is your investment broker. A broker will always get commissions from you, win or lose. But gambling is not an investing strategy…it isn’t even speculation. It is an activity that someone does for entertainment. Back to Mr. Ritholtz:

…for newbie traders, a better analogy than a casino is the possibility becoming a professional athlete. Both require a combination of natural skills, discipline, and very hard work.

So what can you do? Get real.

If you truly want to trade for a living, find someone else who has been doing it for a long time and emulate them. Odds are very good that they will have a system or set of rules that they follow without fail. Your level of commitment, understanding, capital, and luck will ultimately determine your success.

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