Forex

Some expenses are unavoidable, especially in the beginning—you’ll have
to buy a few books, download trading software, sign up with a data service,
and so on. It is important to keep your expenses as low as possible.
Amateurs have a charming habit of paying for their trading-related
expenses, such as computers, subscriptions, and advisory services, with
credit cards, without taking money out of their trading accounts. That
protects them from seeing the true rate at which they are going downhill.
Good traders add to profitable positions and reduce the size of their
trades during losing streaks. We can apply the same sound principle
to expenditures. Losers like to throw money at problems, while winners
invest a fraction of their profits in their operations. Successful traders
treat themselves to a new computer or software package only after
they have enough profit to pay for it.
Even the best tools can blow you out of the water. At a recent seminar
in Frankfurt, a trader was excited about a powerful analytic package
for which he was going to sign up the following week. It cost 2,000
marks a month (almost $1,000), but it was going to give him a tremendous
analytic advantage. “How much money do you have in your
trading account?” I asked. 50,000 marks. “Then you can’t afford it. This
software will cost you 24,000 marks a year, and you’ll have to generate
almost 50% profit simply to pay for your signals. No matter how
good the software, at this rate you’ll lose money. Look for a cheaper
package, something that’ll cost no more than 1,000 marks per year, or
about 2% of your account.”
Institutional traders get support from their managers, peers, and staff,
but private traders tend to feel lonely and isolated. Vendors prey on them
by promising to help lead them out of the wilderness. The more overloaded
you feel, the more likely you are to listen to vendors. Nine out
of ten professionals in any field, be they lawyers, auto mechanics, or
doctors, are not good enough. You don’t trust an average auto mechanic

or a doctor, but rather ask for referrals from friends you respect. Most
private traders do not know who to ask and respond to advisors with
the loudest advertisements, who are rarely the best trading experts.
An advisor I’ve known for years was recently indicted by the Feds
for stealing hundreds of millions of dollars from Japanese clients. Prior
to that, he cultivated a reputation as one of the most prominent market
experts in the United States, constantly quoted by the media. We
were introduced at a conference, where people paid thousands of dollars
to listen to him. He asked me what I thought of his presentation,
and I said it sounded amazingly interesting but I could not understand
much of it. “That’s the point,” he beamed. “If my clients believe I know
something they don’t, I’ve got them for life!” I knew right away the
man was dishonest, and was surprised only by the size of his loot.
Some trading advice can be amazingly good. A few dollars will buy you
a book that holds the experience of a lifetime. A few hundred dollars will
get you a subscription to a newsletter with original and helpful advice. But
gems are few and far between, while legions of hucksters prey on insecure
traders. I have two rules for filtering out the worst offenders: avoid
services you don’t understand and avoid expensive services.
If you don’t understand an advisor, stay away from him. Trading
attracts people of above-average intelligence, which probably applies
to you. If you cannot understand something after an honest effort, it’s
probably because the other guy is giving you double-talk. When it
comes to books, I avoid those written in bad English. Language is a
reflection of thought, and if a guy cannot write clearly, his thinking
probably isn’t too clear either. I also avoid books with no bibliography.
We all borrow from our predecessors, and an author who doesn’t
acknowledge his debts is either arrogant, lazy, or both. Those are terrible
traits in a trader, and if he writes like that, I don’t want his advice.
And of course, I have zero respect for thieves. Book titles are not copyrighted,
and in recent years a bunch of people have lifted the title of
my first book, Trading for a Living, usually with slight variations. I am
sure that some clown will steal the title of the book you’re now reading.
Will you want to learn from a poacher who cannot think for himself?
My second rule is to avoid very expensive services, be they books,
advisory letters, or seminars. A $200 newsletter is likely to be a better
value than a $2,000 one, and a $500 seminar a better value than a
$5,000 one. Merchants of super-expensive products sell an implicit
promise of “the keys to the kingdom.” Their customers are usually

desperate to dig out from under abysmal losses. Football players call
this a “Hail Mary” play—when a losing team in the last seconds of the
game desperately tosses the ball forward, hoping to score. They’ve
already lost the game on skill, and now try to come back in a single
desperate gamble. When a trader who lost more than half of his
account buys a $3,000 trading system, he is doing the same thing.
Helpful advisors tend to be modest, and price their services accordingly.
An obscene price is a marketing gimmick that conveys a subliminal
message that the service is magic. There is no magic—no one
can deliver on that promise. A relatively inexpensive service is a bargain
when it’s good, and a cheap loss when it isn’t.
Someone once asked Sigmund Freud what he thought the best attitude
for a patient was. “Benign skepticism,” answered the great psychiatrist,
and that’s good advice for financial traders. Maintain an attitude of healthy
skepticism. If you find something you don’t understand, try it again, and
if you still do not get it, it is probably not worth having. Run, do not walk,
from those who offer to sell you the keys to the kingdom. Keep your
expenses low and remember, any information you receive becomes valuable
to you only after you’ve tested it on your data, making it your own.