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How to be a professional trader Print
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How to be a professional trader

The world we inhabit is dominated by the 80-20 principle.

Vilfredo Pareto changed the way we looked at many things, specifically micro-economics which he linked to social factors which went on to become popularised in recent years. Pareto observed the "law of the vital few". Approximately 80% of the effects come from 20% of the causes.

Nowhere is this more apparent than a glance at the small print at the bottom of every spreading betting website. They are now required to publish how many clients lose - you guessed it, around 80% of their customers lose money.

So, what of the remaining 20% or so?

There are is no shortage of horror stories from the 80%. Many have been there. This article describes the spiral into despair which results from marketing hype and personal hubris, the Superman effect, following modest successes. 

Reality? A recent research report from Psyquation indicated that fewer than 20% become profitable after two years and only 1.2% are successful enough to make trading their career. Sobering stuff for those new to the game, but is it gambling? Thanks go to long term investor Gary Scott for the article below:

Trading and Investing is gambling.

Until we admit this, we cannot invest like the pros. However, once we recognize that every investment is a bet, can we become a professional investor instead of a stock and bond gambler?
The fact is professional gamblers are not really gamblers. They are investing pros who cash in on the imbalances of gamblers. They invest in bets instead of stocks and bonds.

Professional gamblers, just like stock market pros, are unlike compulsive gamblers and investors. They approach betting as a job and do not take the results personally. They are mathematicians and calculators rather than addicts of chance and compulsion.
”Professional gamblers never go over the line,” says Kevin O’Neill, the deputy director of the Council on Compulsive Gambling of New Jersey, an affiliate of the National Council on Problem Gambling that has a prominent role because of Atlantic City’s casino industry. ”They take carefully calculated risks and know exactly when they have an edge.”
”There are only a few games you can make money on in the long run,’ You can’t beat the casinos. In sports betting you just have to beat the spread,” the expected point difference between the favoured team and the underdog.
Professional gambling, just like trading and investing, requires precision money management and meticulous record-keeping — practices in which most gamblers do not engage.
Professional gamblers know that a gambler must win 53% percent of the time to break even and 55% to 58% to earn a living.
Professional gamblers know how to diversify and how to cut their losses!
”People need to understand that the payoff is in the long term,” one professional gambler said, recalling that in one week of the 1985 professional football season, he lost all 13 of his bets. ”Along the way you’re going to take a thunderous beating, and if you don’t allocate your money, you’re going to be waiting tables. It’s like quicksand,” he said. ”I wouldn’t recommend this line of work to anyone. I’ve seen too many sad stories, too many people leaving this town broke.”
Rick Benson, who now runs a rehabilitation clinic for recovering gambling addicts said,”I spent five years in Las Vegas as a professional gambler,” Mr. Benson said. ”I suffered devastating financial repercussions, and I lost a 10-year romantic relationship.”
However, Mr. Benson acknowledges that he was not truly a professional.
”I was unable to gamble under control. I was chasing that feeling of winning rather than treating it like a business.”
This is the first step in becoming an investing pro. Know that investing is gambling. Then invest for profit, not for the feeling of winning.

 

From the blog

Why do we do it....

Why do we do it,

letting small losses become big ones?

Warren Buffet was known to answer the question: What are the most important trading rules?

His standard answer was: Rule one - don't lose money. Rule two: Never forget rule one.

It's all in the interpretation. Did he mean 'Don't lose money on trades' which some may translate as

(A); 'I may have a losing trade on but I'll hold it because it may bounce back into profit and then I've followed rule one'.

Or, (B) perhaps it was just an off the cuff quip, meaning that to survive as a trader or investor we need to make more overall then we lose?

Letting winners run and cut losses short

This is the self evident rule we need to achieve to ensure we can make profits overall. The only problem is that the

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