Remember the E*Trade Super Bowl ad that showed a baby buying stocks from his computer? The message was simple: trading is easy.
True, as long as you know how to type, few things are easier than entering an online trading order. What's difficult is winning on those trades.
"Ease of trading" does not equal "ease of winning," yet inexperienced traders confuse the two all the time. Is it any wonder, then, that statistically only about 5% of futures traders make money over the long haul? Another 5% break even. The rest -- 90%! -- lose. I believe that if you checked, you would also see similar numbers for other markets: currencies (forex), stocks, ETFs, options, etc.
Here at Elliott Wave International, it's not unusual for us to hear new traders ask which one of our market-forecasting services they can subscribe to and make -- oh, say, 10%-15% a month? That should be enough, for starters.
How naive, you may think. Yes, but not uncommon. Only with experience do you realize that for 10% a month, many traders would sell their soul to the devil. Heck, most professional mutual fund managers can't even match the S&P's measly 12% annual return, let alone beat it!
These may be sobering thoughts if you're thinking about trading for a living. Maybe you'll research this further and decide against the whole idea; probably a wise decision. But if you decide to go for it anyway, then I only have one word for you: mentor. Find a guy who is in those 5% of traders that actually make money and ask him to teach you how he does it.
Of course, that's easier said than done: yellow pages don't exactly have a "Successful Traders" listing. Me -- I got lucky: A few years ago, I got to attend a seminar with a friend of EWI, Dick Diamond, down in Florida. Dick's a living legend, and I don' say this lightly. He started trading for his personal account in 1965. In the 1960s, he said, market conditions were similar to the 1990s mania: everything was going up. He “rode the wave,” as he puts it, and in 1968, made $900,000. The next year, the bull market ended and he lost 70% of his capital.
Despite being emotionally devastated, Dick said he learned a huge lesson: He realized that for a real trader, the trick to making money consistently was to play both the long and short sides of the market.
And it wasn't just theory: For two days at the seminar, I actually watched him trade live and "play the long and short sides" of the S&P on a big screen right in front of our small class. Two things struck me the most about Dick's technique:
- He only takes what he calls "80/20 trades" – that is, only those where his odds of winning are at least 80%. (He shows you how to select them.)
- He is very defensive. Super-tight stops, super-short duration trades, often only for a fraction of a single point. He likes to take small gains and "come back for seconds."
Is that how all successful traders win? I don't know; probably not. But here's one who's done it his way for over 40 years. Dick's seminar in June is already sold out, but there are still seats left for the next 4-day trading course on September 13-16.