Trading: Let’s Start at the Beginning With No Hype
It’s not unusual for me to peruse prominent buy and sell e-mini trading education sites and see what’s being promoted and how it’s being promoted. Often times, I find the promises and guarantees espoused on these sites appalling. On the other hand, there are a handful of training educators who seem honest and realistic in the manner in which they portray e-mini trading. That being said, many of the sites promote e-mini trading as something akin to the California gold rush. It is not uncommon to see e-mini trading portrayed as a method to “get rich quick” with a minimal amount of effort.
For the record: E-mini trading is not a get rich quick scheme and takes a considerable amount of effort and time to become proficient and profitable. Further, if an individual believes he or she can read an e-book or two and then slay the markets they are hopelessly mistaken. In this article, I would like to present an accurate portrayal of what e-mini trading “is,” and what e-mini trading “is not.” Some may find my description of the path to e-mini trading success daunting and be terribly disappointed. That’s okay with me because every potential new trader should have a clear idea of this high competition arena they are considering for a career.
Let’s start with a clear idea of what e-mini trading is not:
E-mini trading is not a “get rich quick” profession. The stark truth is that the majority of people who embark on a career in trading lose some or all of their money.
There are very few individuals who are “natural” traders. The vast majority of new traders will find many of the concepts in e-mini trading unnatural and confusing. It takes time and experience to become a consistently profitable e-mini trader.
Most trading books or manuals present a specific system for a new trader to study. The system approach to trading is fraught with danger. These systems may work very well under certain market conditions, but the market is a creature of many moods and very few systems work well in all market situations. The vast majority of mechanical e-mini trading systems fail miserably in non-trending or consolidating markets.
Most consistently profitable traders are highly disciplined in their approach to the market and have developed their trading style and discipline through years of study and experience.
One common characteristic I see on many trading sites is a quote that suggests that you should be able to double your account value on a monthly basis. Some sites even suggest that you may earn even more than double your account value on a monthly basis. It’s not unusual to see headlines on these sites claim returns ranging from 300% to infinity.
It is highly improbable that you are going to double your account on a monthly basis. It’s improbable that I am going to double my account on a monthly basis. Granted, I have had some exceptional months in my trading career, but the notion that I can consistently double my account each month is preposterous.
Fact: In the first several months of your e-mini trading career you will be lucky to break even. Even more to the point, most new traders lose considerable sums of money during the early stages of their trading career. The statistics suggest that 50% of all new traders lose their entire trading account balance.
Many sites lay claim to have discovered a revolutionary new approach to trading that virtually assures profits. While the methodology of trading has evolved rapidly over the last several years, I am unaware of any revolutionary new approaches to trading that will ensure a new trader will stumble into a highly profitable trading career from day one of their trading experience. To be sure, rates of return for traders and investors have remained fairly consistent for the last 20 years despite billions of dollars of ongoing market research by large institutional trading organizations. In short, most of the “revolutionary” new techniques are recycled version of current oscillators of older trading techniques
Fact: Profitable trading still lies in the domain of highly skilled and experienced traders. I am unaware of any revolutionary new trading techniques that have dramatically improved the rate of success in trading, including the most recent wrinkle in trading marketing: the trading robot. The automated trading on Wall Street is generally performed by computers in the “Cray Supercomputer” class of computer. It takes very little analytical skill to reason that a trading robot that retails for $279 will fill your pockets with hundreds of thousands of dollars. Trading robots are just another example of the “next best” innovation. The algorithms that I have been able to analyze on several trading robots rely upon simple moving averages and well-known oscillators. This is hardly the stuff of any new revolutionary approach. They are quite profitable for the individuals who are selling these machines, but the empirical evidence has shown that they typically performed poorly.
Finally, many of the trading courses offered confine themselves to a strict systems approach to trading. I will spare the reader an extended discussion on the shortcomings of systems-based trading, but will comment that systems-based trading is generally effective during trending markets. Further, depending upon which source you care to quote, the market typically trends 30% to 40% of the time. During consolidation periods, commonly referred to as range bound trading, systems based trading often struggles mightily. Further, markets often undergo periods of very random trading and systems-based trading is poorly suited for this type of trading. In short, most system-based trading approaches work well under well-defined conditions. I would also point out that few traders require any special trading system to trade a trending market, as these markets are where the majority of trading profits occur and are relatively easy to spot and from which to profit.
Fact: It is my experience that successful and consistent traders learn to read and interpret charts, as opposed to confine their learning experience to the tight parameters of system trading. This is not a blanket indictment of all systems-based trading, but a generalization from my experience with systems based trading. Most profitable traders are proficient in a wide range of market conditions and to understand the trading style required to trade those market conditions ease efficiently. Further, learning to trade in a wide variety of trading conditions is generally accomplished through the experience gained by trading with another experienced and profitable trader, or through a mentorship program with a qualified and experience trader.
In summary, I have tried to emphasize that trading programs offered may not be a good choice for new traders. Specifically, I have warned against utilizing trading systems that offer inflated profit rates. Finally, I would encourage all traders to find an experienced trader who may be a friend, or hiring an experienced trader through a mentoring program. I have no doubt that there are trading courses that cover some of the deficiencies we have outlined in this article but as yet not been able to locate such a program. I encourage new traders to give some of the above points careful thought, because trading education is often an expensive proposition, but under the right conditions most individuals can learn to trade profitably and with consistency.