Forex Talking

The Brain Myth

Losers who suffer from the "brain myth" will tell you, "I lost because I didn't know trading secrets." Many losers have a fantasy that successful traders have some secret knowledge. This fantasy helps support a lively market in advisory services and ready-made trading systems. A demoralized trader often whips out his checkbook and goes shopping for "trading secrets." He may send money to a charlatan for a $3000 "can't miss," backtested, computerized trading system. When that self-destructs, he sends another check for a "scientific manual" that explains how he can stop being a loser and become a true insider and a winner by contetnplating the Moon, Saturn, or even Uranus.
The losers do not know that trading is intellectually fairly simple. It is less demanding than taking out an appendix, building a bridge, or trying a case in court. Good traders are often shrewd, but few of them are intellectuals. Many have not been to college, and some have even dropped out of high school.

Intelligent and hardworking people who have succeeded in their careers often feel drawn to trading. The average client of a brokerage firm is 50 years old, is married, and has a college education. Many have postgraduate degrees or own their businesses. The two largest professional groups among
traders are engineers and farmers. Why do these intelligent and hardworking people fail in trading? What separates winners from losers is neither intelligence nor secrets, and certainly not education.

The Undercapitalization Myth

Many losers think that they would be successful if they could trade a bigger account. All losers get knocked out of the game by a string of losses or a single abysmally bad trade. Often, after the amateur is sold out, the market reverses and moves in the direction he expected. The loser is ready to kick
either himself or his broker: Had he survived another week, he might have made a small fortune!

Losers take this reversal as a confirmation of their methods. They earn, save, or borrow enough money to open another small account. The story repeats: The loser gets wiped out, the market reverses and "proves" the loser right, but only too late - he has been sold out again. That's when the fantasy
is born: "If only I had a bigger account, I could have stayed in the market a little longer and won."

Some losers raise money from relatives and friends by showing them a paper track record. It seems to prove that they would have won big, if only they had had more money to work with. But if they raise more money, they lose that, too - it is as if the market were laughing at them! A loser is not undercapitalized - his mind is underdeveloped. A loser can destroy a big account almost as quickly as a small one. He overtrades, and his money management is sloppy. He takes risks that are too big, whatever the size of his account. No matter how good his system is, a streak of bad trades is sure to put him out of business.
A trader who wants to survive and prosper must control his losses. You do that by risking only a tiny fraction of your equity on any single trade

Tip

Give yourself several years to learn how to trade. Do not start with an account bigger than $20,000, and do not lose more than 2 percent of your equity on any single trade. Learn from cheap mistakes in a small account.

The Autopilot Myth

Imagine that a stranger walks into your driveway and tries to sell you an automatic system for driving your car. Just pay a few hundred dollars for a computer chip, install it in your car, and stop wasting energy on driving, he says. You can take a nap in the driver's seat while the "Easy Swing System"
whisks you to work. You would probably laugh the salesman out of your driveway. But would you laugh if he tried to sell you an automatic trading system? Traders who believe in the autopilot myth think that the pursuit of wealth can be automated. Some try to develop an automatic trading system, while others buy one from the experts. Men who have spent years honing their skills as lawyers, doctors, or businessmen plunk down thousands of dollars for canned competence. They are driven by greed, laziness, and mathematical illiteracy.