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The 7 Brutal Truths: Why You Should Not Be a Trader

#1
From loser to trader, I'm sharing everything on how to be consistently profitable.

article by : Rayner

Let me ask you…

Why do you want to be a trader?

You want financial freedom.

You don’t want to answer to anybody.

You want to be your own boss.

You want to make money.

You want a passive source of income.

Now you’re probably wondering:

“Is it possible to achieve all these from trading?”

Good question.

Then you’ll want to read every single word in this post because you’ll discover the myths, the possibilities, and most importantly… the truth about trading.

You may be surprised at what I’m about to share with you.

So if you’re ready… then let’s begin.

#1 You’re trading for passive income

Passive income means receiving an income without doing “anything”. In reality, you either require a large capital upfront, or you work your butt off in the early stages and reap the benefits later.

So, can trading be a passive source of income?

Well, let’s see…

Year 1 – you’d probably blow up multiple trading accounts as you’ve no idea what the heck you’re doing.

Year 2 – you learn everything you can get your hands on

Year 3 – you throw out 90% of what you’ve learned and focus on the stuff that really matters.

Year 4 – you have a concrete plan on what it takes to succeed in this business.

Year 5 – you see some consistency in your trading.

Year 6 onwards – after being through the ups and downs, highs and lows, you come to the realisation that the only thing passive is paying your brokerage fee on every trade.

If you really want something passive, you’re much better off investing in an index fund.

#2 You need to repay your debt

If you’re in debt and looking for a quick fix, maybe trading is a solution?

The answer is NO and it’s not even for the experienced traders. Here’s why…

Trading requires emotional control. But when you’re in debt, whatever control you have is clearly out of the window. Because you only have one thought in mind… which is to quickly make back the money you owe.

So what happens? Well, you start taking larger risk because you want to make money fast. You’re unwilling to cut your losses because you don’t want to lose. You have such immense pressure on yourself and things eventually spiral out of control.

Eventually, you blew up your trading account and you’re still in debt.

So, never trade to repay your debt because you are only digging a bigger hole.

Instead, get a job (pizza delivery or something) and pay off your debts. It may be a slow process, but at least you’re climbing out of the hole.

#3 You hate your job
Your job has no career progression. Your colleagues talk behind your back. Your work isn’t recognised by your boss.

You honestly hate your job and you want to find a way out of it.

So you think to yourself:

“Why not trade for a living?”

There’s no boss to answer to, no politics, and no restrictions. All of it sounds good till you find out what it takes to trade for a living. So let me explain…

First, you must be a consistently profitable trader to start with. Else, it’s like saying you want to be a professional Golfer when you’ve never played gold in your life.

Next, you need sufficient capital. Having a $1000 account and trying to trade for a living is ridiculous, (unless you can survive with $30 a month). In my opinion, you’d need at least $100,000.

Lastly, you should have your living expenses covered for the next 12 months, which isn’t from your trading account. This is to ensure your survival even if you didn’t make money this month.

Now…

If you meet these requirements, then you can consider trading for a living. If you can’t, then you’re better off staying at your job. At least you get paid no matter how f***ed up things are.

#4 You want to make money

I know this sounds ironic…

…who doesn’t want to make money, right?

But here’s the thing:

If you trade just for the money, YOU WILL NEVER MAKE IT.

Why?

The reason is simple.

You will not persevere through the tough times to reap the rewards. Especially when you blow up multiple trading accounts, when you suffer from analysis paralysis, when your fear is holding you back… what will you do?

As you’ve seen earlier, you can easily take 5 years or more to become consistently profitable.

Don’t believe me?

Check out Marty Schwartz, a stock “Market Wizard”, who took 10 years to become profitable in trading.

Marty Schwartz isn’t the exception. Think about Bill Gate, Steve Jobs, and Warren Buffet. They each took years before they had their breakthrough, and the thing that propels them forward is their passion, not the money.

So…

If you just want to make money, go drive an Uber, give tuition, or take part-time jobs. These are easier methods to make money than trading. But, if you’re passionate about trading, then you can consider walking down this path.

You have to have a lot of passion for what you are doing because it is so hard… if you don’t any rational person would give up — Steve
Jobs


#5 You want financial freedom

Financial freedom means you have enough wealth to meet your daily necessities even without working. It’s probably because you have assets that generate a consistent income (like owning dividend stocks, collecting rental from properties and etc.)

So, does trading give you financial freedom?

It’s a yes and no. Let me explain…

Yes, trading can provide financial freedom if you use it to generate wealth over the long-term.

For example: Trend Following hedge funds generate an average of 10 – 20% a year. This means if you have a $1m account and you adopt a Trend Following approach, the returns should be enough to cover your expenses (albeit you don’t require $50,000 a month to live on).

However, the catch is…

You need a large capital to start with. If your fund is small, it’s not possible to achieve a state of financial freedom. Remember, you need money to make money in this business and there are no two ways about it.

#6 You’re looking to make it big in a few short years

You should realise by now… trading takes time, patience, emotion control, frustrations, grit, and the ability to endure PAIN.

And that’s not all. You still need capital, the life blood of your trading business. Without it, you’re like a car without an engine. It’s not going to work.

Now… let’s say you took 5 years to see consistency in your trading results, and you make an average return of 20% a year.

With a $10,000 account, you can expect to make $2000 per year.

With a $100,000 account, you can expect to make $20,000 per year.

With a $1m account, you can expect to make $200,000 per year.

And It’s obvious the larger your account, the more money you can make. So, if you want to make it BIG as a trader…

Get consistent in your trading
Find ways to raise capital and trade larger
So…

Forget all the marketing gimmicks. Forget the get rich quick scheme. Forget about the fancy systems and that promise high win rates.

That’s not a path you want to walk unless you want to continue losing your hard earned money.

#7 You want to buy a new car, watch, or toys

Repeat after me…

Your trading account is not an ATM.

Your trading account is not an ATM.

Your trading account is not an ATM.


Your ATM will always spit out money when you put in the correct pin. But trading not only spits out money, it also EATS UP your money. A big difference.

So, if you think you can use your trading account to fund your latest gadgets, “toys”, or whatever… you are sorely mistaken.

Doing so is a recipe for disaster because you put expectations on the market. You expect the market to give in to you. You expect the market to give you profits. And this is when you break your rules by trying to bend the markets to your will.

So…

You shift your stop loss to prevent a loss. You average into losers hoping you can make it back quickly. You revenge trade and hope to make back your losses. In other words, you break your trading rules that were meant to protect you.

The outcome?

You destroy your trading because you treat the market like your ATM.

The bottom line is this…

If you want to make a purchase, don’t rely on your trading profits. It’s wiser to save your money and buy on a separate account.

Conclusion

1. There’s no such thing as passive income when it comes to trading. If you want something passive, you’re better off investing in an index fund.

2. Don’t trade to repay your debt because you’ll only make matters worse. Get a job, save money every month, and repay your debt.

3. If you want to quit your job and trade for a living, make sure you have sufficient capital and expenses covered for the next 12 months. That is the bare minimum.

4. Don’t trade just because you want to make money. If you just want to make money, there are far easier ways like driving Uber, giving tuition and etc.

5. Trading itself won’t give you financial freedom. You need sufficient capital, the skill to generate a positive, and your expense must be lesser than your return.

6. Trading is not a get rich quick scheme. If you’re looking to make it big in a few years, look elsewhere.

7. Your trading account is not an ATM machine. It can spit out money, but it also EATS UP your money.
Mark Boucher: 70% of a market's moves occurs 20% of the time
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Insider Trading: Hayek, Virtual Markets, and the Dog that Did Not Bark

#2
This Article briefly reexamines the great debates on the role of insider trading in the corporate system from the perspectives of efficiency of capital markets, harm to individual investors, and executive compensation. The focus is on the mystery of why trading by all kinds of insiders as well as knowledgeable outsiders was studiously ignored by the business and investment communities before the advent of insider trading regulation. It is hardly conceivable that officers, directors, and controlling shareholders would have remained totally silent in the face of widespread insider trading if they had seen the practice as being harmful to the company, to themselves, or to investors. By analogy with the famous article by Friedrich Hayek, The Use of Knowledge in Society, this Article considers the problem of obtaining necessary information for managers of large corporate enterprises. The suggested analytical framework views the share price, sensitively impacted by informed trading, as a mechanism for timely transmission of valuable information to top managers and large shareholders. Informed trading in the stock market is also compared to prediction or virtual markets currently used by corporations and policymakers.
Attachments
Insider Trading - Hayek, Virtual Markets, and the Dog that Did Not Bark.pdf
(268.61 KiB) Downloaded 60 times

Insider Trading: An Overview

#3
Insider trading is one of the most controversial aspects of securities regulation, even among the law and economics community. One set of scholars favors deregulation of insider trading, allowing corporations to set their own insider trading policies by contract. Another set of law and economics scholars, in contrast, contends that the property right to inside information should be assigned to the corporation and not subject to contractual reassignment. Deregulatory arguments are typically premised on the claims that insider trading promotes market efficiency or that assigning the property right to inside information to managers is an efficient compensation scheme. Public choice analysis is also a staple of the deregulatory literature, arguing that the insider trading prohibition benefits market professionals and managers rather than investors. The argument in favor of regulating insider trading traditionally was based on fairness issues, which predictably have had little traction in the law and economics community. Instead, the economic argument in favor of mandatory insider trading prohibitions has typically rested on some variant of the economics of property rights in information. A comprehensive bibliography is included.
Attachments
Insider Trading - An Overview.pdf
(142.56 KiB) Downloaded 48 times

Sec Rule 10b5-1 and Insiders' Strategic Trade

#4
The SEC enacted Rule 10b5-1 to deter insiders from trading with private information, yet also protect insiders' preplanned, non-information-based trades from litigation. Despite its requirement that insiders plan trades when not privately informed, the Rule appears to enable strategic trade. Participating insiders' sales systematically follow positive and precede negative firm performance, generating abnormal forward-looking returns larger than those earned by non-participating colleagues. The observed association does not appear to be explained by market transaction disclosure response, "predictable" reversion following positive performance, or general periodic price declines. There is evidence, however, that a substantive proportion of randomly drawn plan initiations are associated with pending adverse news disclosures. There is also evidence that early sales plan terminations are associated with pending positive performance shifts, reducing the likelihood that insiders' sales execute at low prices. Collectively, this suggests that, on average, trading within the Rule does not solely reflect uninformed diversification.
Attachments
Sec Rule 10b5-1 and Insiders' Strategic Trade.pdf
(348.53 KiB) Downloaded 158 times

What Insiders Know About Future Earnings and How They Use It: Evidence From Insider Trades

#5
This paper provides evidence that insiders possess, and trade upon, knowledge of specific and economically-significant forthcoming accounting disclosures as long as two years prior to the disclosure. Stock sales by insiders increase three to nine quarters prior to a break in a string of consecutive increases in quarterly earnings. Insider stock sales are greater for growth firms, before a longer period of declining earnings, and when the earnings decline at the break is greater. Consistent with avoiding an established legal jeopardy, there is little abnormal selling in the two quarters immediately prior to the break.
Attachments
What Insiders Know About Future Earnings and How They Use It - Evidence From Insider Trades.pdf
(315.58 KiB) Downloaded 49 times


Dynamical Decomposition of Political Time-Series: An Application of Wavelet Analysis to Electoral Cycles in the United S

#6
The cyclical components of time series data have been typically examined with the use of spectral analysis or ARMA models. While spectral analysis allows direct estimation of which frequencies play relevant roles in explaining time series variance, ARMA models are a time domain approach that also allows the indirect detection of those cycles. What they also share, however, is both an assumption of stationarity and of the time invariance of the cycles they uncover. Unfortunately, many economic and political time-series are, in fact, noisy, complex and strongly non-stationary. And most importantly, it is probably unwise to assume, especially over prolonged periods of time, that the underlying processes generating the time series data we observe are themselves time invariant. Wavelet analysis helps overcoming these problems in the analysis of the cyclical components of a time series and of the frequencies that explain its variance. It performs the estimation of the spectral characteristics of a time-series as a function of time, revealing how the different periodic components of the time-series change over time. In this paper, we present three tools that, to our knowledge, have not yet been used by political scientists - the wavelet power spectrum, the cross-wavelet coherency and the phase difference - as well as a metric to compare different wavelet spectra. We apply these tools to the study of presidential election cycles in the United States.
Attachments
Dynamical Decomposition of Political Time-Series - An Application of Wavelet Analysis to Electoral Cycles in the United States Presidential Elections.pdf
(1.92 MiB) Downloaded 73 times

Re: The 7 Brutal Truths: Why You Should Not Be a Trader

#7
bilbao wrote:
Tue May 02, 2017 7:18 am
From loser to trader, I'm sharing everything on how to be consistently profitable.
These are some very good points. For sure it’s important to determine what really motivates you to start trading and what about the markets really attracts you to it before jumping into this business. The comprehension of the markets, the strategy and the profile that suits you best will help to maximize your profitability. Without thoughtful consideration there won´t be many people who could survive, the non-serious traders are just thrown away by the market without mercy

We Call Bull...t On The 'Bots Again!

#8
Before hitting the hay we need to call a big B.S. on the bastard ‘bots from Rip (Off) City. They screwed us again yesterday (June 14) in crude oil futures.

First, before we get into the trade, a little background.

We have posted about our experiences of being ripped off by these “so-called” trading ‘bots, who prey and stalk the markets, looking to pick-off traders through blatant market manipulation. Flash crash, my arse.

We put on a short position in nattie Thursday night before driving back from Sacramento to the Bay Area. We checked the market at dinner and see its down about 1 percent, we feel happy and give high fives. Then we look at the position and we have none!

It was taken out (buy stop) as a Seek and Destroy Bot came in around around 9 pm, guns the market to the upside to take out all the buy stops of the short sellers, then turns around and guns it to the downside to destroy all sell stops of longs. Finally, moves the market back to where it was before all the nonsense began. Not a bad day’s work for the robot. – GMM, January 2017

But, this is the doozy:

Remember the AP Twitter hack in April 2013, where,

“Wall Street collided with social media on Tuesday, when a false tweet from a trusted news organization sent the US stock market into free fall.

The 143-point fall in the Dow Jones industrial average came after hackers sent a message from the Twitter feed of the Associated Press, saying the White House had been hit by two explosions and that Barack Obama was injured. The fake tweet, which was immediately corrected by Associated Press employees, caused a sensation on Twitter and in the stock market.” – The Guardian

That one cost us big as our long stops were hit.

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