Last weekend I attended two days of trading seminars at the OptionsXpress EXPO in Chicago. The event was simply excellent. Seminars were offered for all levels of traders from the pure neophyte to the seasoned futures trader. It caused me to pause and reflect how important basic education and continuing education are to the successful trader.

I often shake my head in dismay at the approach taken by many retail traders. It seems like a fairly large group enter and exit positions almost on whim with no planning and, at least at times, without knowing what they are doing or what they may be risking. Imagine if someone put out a shingle that said: "Ernest Physician, General Surgery" yet had no medical training or any anatomical knowledge. I don't suppose any of his patients would have much of a chance if Ernest actually went to work on them. The same is true of the trader without training. He has little chance of success.

What business would anyone enter without having some knowledge or training in the field? Doesn't it just make sense to prepare oneself before embarking on a career. What job doesn't require at least some modicum of training? Lawyers, doctors, burger flippers, car wash attendants, plumbers, electricians, you name it, all have to have some training and will undoubtedly undergo additional formal or on the job training as they progress in whatever field they work. Yet people trade every day with little or no clue what they are doing -- and they expect to succeed.

Unless a person is purely a gambler (in which event he may be better off going to Vegas) he should treat trading as a business. After all, the purpose of trading is to make money (and avoid losses) just as it would be in any other business. I don't know why so many retail traders fail to prepare themselves, but I believe there are several possible reasons. Some people are just too busy with other things in their lives to take the time to gain the necessary education. I wonder whether that class might be able and willing to rearrange a little time so they could gain the education if they realized that they might be able ultimately to enjoy more free time and a much higher quality of life. Some sacrifice now could lead to far greater rewards down the road. A teacher once said to me: "If you are willing to do for a year what others won't, you will be able to do for the rest of your life what others can't." In my case, that statement changed my whole life. The answer, however, will be different for each individual.

Another reason I suspect people make little effort to learn trading is the fear of failure. For most of our lives, brokers tended to make customers believe there was some mystique to trading; to believe it was a world only the few anointed could really understand. While that notion is pure poppycock, many people have nevertheless been reticent to try to learn. Those that do make the effort are initially faced with the challenge of learning a new vocabulary. What's a put or what's a call or how about an iron condor or a call ratio backspread? That new language can be pretty intimidating stuff and it puts a lot of people off. I've found, though, that once someone makes the relatively small effort needed to learn basic trading vocabulary, the rest becomes much easier. Again, if someone is going to make trading their business they have no choice but to make the effort necessary to learn the vocabulary.

Of course, there is also a group who simply don't want to be bothered and leave it to someone else. Obviously, that is the individual's choice. I am acutely aware, however, that no one cares as much about my money as I do so my vote is to learn at least as much as is necessary to understand what that someone else may be doing with their money.

Since you have read this far, I've probably been preaching to the choir, but I urge those who are serious about trading to educate and continue to educate themselves. Books, seminars, DVDs, discussions with successful traders, magazines, financial newspapers, educational sections of brokers' websites, conversations with brokers are all means readily available to each of us. Decide whether or not it is worth it to you to avail yourself of some of these resources. I've been trading full time for quite a while now, but I still set aside some time each day to study. In your own case, you may not be able to devote an hour each day to study, but I'd almost bet you could find 10 or 15 minutes 5 days a week where you could spend the time to add to your trading knowledge. In fact, I think you just did that today.

Good Trading!
Bill Kraft

November 3, 2007

Copyright 2007, Makin' Hay, Inc., All Rights Reserved

Back To Articles Home Page