Last weekend I wrote about some of the reasons why I trade and why others might also want to trade. This weekend I am going to explore some of the reasons on the flip side, discussing reasons not to trade. After all, there are usually a minimum of two sides to every story and before making an intelligent decision we might want to take a look at opposing points of view.
First and perhaps foremost it has often been said and written that most retail traders lose. A few years back, when studies of day traders were in vogue, that information became pretty compelling. Those daytrading brokerages filled with day traders at the computers have almost vanished and that is for a reason beyond the simple ability to trade from home. There simply are nowhere near as many day traders as there were in the roaring bull market of the late '90s coming into the 2000's. The clear fact is that it was a losing proposition for so many.
Risk, sometimes high risk, is a part of trading and that, alone, can be a reason for people not to trade. Whether it is perceived or actual, some folks just prefer to believe they are without risk placing their money in CDs or savings accounts. That used to be a belief about bonds as well until some bond holders (e.g. GM) learned that the safety was perceived only. Clearly there is risk in trading stock, options, futures, and/or forex and for that reason alone it is not for some. If the risk in your trades is keeping you awake at nights it seems to me that you either should refrain from trading or find some way to reduce the risk.
Reaction to risk, loss, and even gains can be quite emotional and reams have been written on the dangers of emotion to traders. I regularly see high emotion if I even dare suggest that politics might be involved in the trading equation and if that kind of emotion is raised over someone else's perceived beliefs, imagine how powerful it can be when a person's money is being lost or gained. Greed is powerful and it can and does have significant effects on people's trading. I have seen traders who were doing well get caught up in the emotions until they went "all in" on a single trade only to see their money evaporate. I also have seen traders so fearful that they held off and held off and held off entering what they believed to be a good trade as they awaited "confirmation" only to miss trade after trade or get in the trade only after the play had already run its course. Emotionalism can be a prime reason to avoid trading.
Another key reason not to trade is lack of knowledge. Trading is a business and it is a business that definitely is not for those who are unwilling to take the time to educate themselves. Some even refuse to undertake their trading education for reasons totally unrelated to trading and learning. Whatever their reason for refusing to educate themselves, be it lack of time, laziness, or pure stupidity, if they are unwilling to get the education, they have the perfect reason not to trade. Those who are uneducated going in are guaranteed an education but I can assure you that it will be a very costly education.
As part of the lack of education issue many are just too cheap to invest in their own learning. I often hear things like: "I can get all that for free on the internet." That probably is true but in my observations almost no one does it and some who try find that the reinvention of the wheel is extraordinarily time consuming and often the free education is much more expensive than the one that is purchased. I've had several coaching students come to me, for example, only after going the "free" route and losing very large amounts of money. Yes, there is a cost involved in education. However, many mentoring sessions and seminars that can be of great assistance cost less than the student might lose in a single trade. The education may well enable him to avoid that next loss or at least bring him to an understanding that can significantly reduce the loss.
In short there are many valid reasons not to trade. They might include lack of time, lack of interest, plain old laziness, emotionalism in the form of fear and greed, paranoia, ignorance, unwillingness to learn, or simple disinterest. I would urge the would-be trader to explore these reasons to avoid trading as well as the positive reasons to trade before making a decision whether or not to open his or her trading business. A trading business can be wonderful or it can be a nightmare. In either case, as is the situation in most of life, it is up to you.
by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
All Rights Reserved
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