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Sunday, 11 March 2018

Risk is subjective


When it comes to Trading risks, many bei kambing traders just think of risk/reward setups that are parroted a lot in books and workshops.

That's the black and white, 2 dimensional way of - either you are with me or against me - type of thinking.

Very mancho. Very left-brained. Very quantifiable.


Let me share my perspective from a retail trader who has transitioned from part-time to full-time trading.

You know what?

The biggest risk factor you haven't considered is YOU!

Let's start from outside in.



Your personal situation 

2 part-time traders with identical trading account size of $50K. And both have stable day jobs (stable is euphemism for career has hit the glass ceiling; hentak kaki).

One can earn and save $50K per year; the other $25K per year.

So if both blew out their trading accounts, one just need to lick his wounds for one year and he'll be back! The other has to wait 2 years; or return with a smaller and not so optimised trading account...

In case you didn't know, just like any new startup businesses, the no.1 reason for most business and trading failures is due to under-capitalisation...


Now what if I tell you that part-time trader who can earn and save $50K per year is married with full-time homemaker wife, has 2 school going kids, with housing mortgage, and is "blessed" with 2 sets of parents and parent-in-laws?

And that guy who earn and save $25K per year is single and staying with parents with no debts whatsoever?

How? Did your perspective just changed?


Now imgaine they both did well in trading part-time. Let's say their trading accounts are now $250K. So they decided to quit their day jobs and switch to trading full-time.

The family guy needs to make 20% a year from trading EVERY year just to maintain the same lifestyle as before.

That meant his trading will only compound and grow provided he makes more than 20% a year!!! 

One does not trade full-time just to hentak-kai...

The single guy just need 10% a year and anything more, his trading account will have chance to grow to a million.

Isn't that's why we traded in the first place? 

Who do you think is taking on too much risks by trading full-time?


What if I now say one of them got 1 year sabbatical from his day job?

If trading full-time does not work out got a ready job to return to, will that bring calmer peace of mind to our trading?

Or will burn all our bridges (破釜沉舟) incentivised us more?


Do you know what's reality? 

Full-time retail traders often depend on their wives for income support. That's why marry "right" is so important.

No, wife cannot be homemaker. (Unless the couple are parasites on their parents)

Not every woman so understanding like Taiwan film director Lee Ang's wife; she supported him in his 20s and 30s as a stay-at-home "bum" while Lee perfected his craft...  

That's why we need to make a clear distinction between institutional and retail traders - even if both are trading full-time. One got monthly salary; the other no kill no meat... 

Hence you find many full-time retail traders have "training" businesses on the side to help sustain themselves when they have drawdowns or to make their trading accounts whole again when they blew up. (Some of these retail traders are also known as remisiers)

Use common sense. If you never lose money trading, why on earth do you want to burn your evenings and weekends to teach others how to trade?

Is that your idea of financial freedom? Working more hours than your previous day job?



You - Or the Mind part

We can have 2 traders, with same trading account size, similar personal situation, trading the same vehicle - yet one is consistently profitable; the other struggling.

This is the - I not you; you not me - part.

Only we ourselves know oursevles best. 

It also depends on how "honest" we are to ourselves.

This is the grey, fuzzy, philosophical, and psychological part. You have to know why you get up in the mornings.

Trading is hard. The odds of success is no different from starting your own business. So why do it?

Because you heard from others it's simple? 

You were sold on the - If I can do it, so can you - spin?

Do you verify things for yourself? 

Can you think for yourself?



Risk is subjective

Now you know why I am not quick to pass judgement when I see others drink atas coffee.

Wink.







18 comments:

  1. Wah! You scare off some retail's dream exchanging day trading for their full time job which doesn't fit them

    ReplyDelete
    Replies
    1. CW,

      That's how we separate those who trade to achieve from those who trade to escape.

      Those who trade to achieve won't be frighten off my what others say ;)

      Even if everyone says the odds of success is one in a million, they will still trade. Its their craft; their chosen poison; their ikigai.

      Those who trade to escape at the first sign of "setback" will just crumble and give up.

      Well, there's always Toto! Or passive index investing anyone? I heard its a no brainer?

      Delete
  2. Maybe the trader trainer wants to distract himself/herself in case he / she itchy finger change trade coz they stare at the screen all day.

    ReplyDelete
    Replies
    1. Hmm .. that is good excuse. Btw weekends got trading meh. Lol!

      Delete
    2. Lady You Can Be Free,

      An important trait of a good trader is discipline - especially self-discipline.

      I wonder who will take lessons from a guru or trainer who lacks self-discipline and have a tendency to "over trade"?


      You are right on one thing though. A trader who over trades and lacks self-discipline definitely needs a day job or other side income!


      Delete
    3. CW,

      When police arrest and close down those ponzi scams in Singapore, frequently you'll hear very strident protests from some of the "victims" who are in denial...

      They'll blame big daddy or the police for their losses; not the scam artists!?

      I guess its not easy to accept the "shepherd" you trusted and emotionally invested all this time were just interested in your fleece, milk, and meat...


      Delete
  3. Got. Bitcoin. It's in fashion now :-)

    ReplyDelete
    Replies
    1. Lady You Can Be Free,

      Its good you are not taking what I wrote and the comments here too seriously.

      We just "talk make-chikcen" only. We definitely welcome your voice to add to the diversity here!


      I just learnt something new today ;)

      Forex is the closest to 24 hour trading. Even there's a 2 day rest over the weekends...

      Hmm, all the more I shouldn't touch Bitcoin. That would meant I cannot even take a break from my trading over the weekend!?

      And I thought forex was already more taxing than trading stocks due to the long trading hours :(


      Youth is great. Unlimited energy. I can't compete.

      I uncle oredi :(

      No more that energizer bunny I once were.

      OK, need to sing "Memories" under a lamp post tonight...


      Delete
  4. Oops hard truth ... there is no free lunch or easy money :-). Hey SMOL, you spoil the snakeoil market leh. But you brutally honest, I like.

    ReplyDelete
    Replies
    1. Yaruzi,

      We are all in the business of selling dreams.

      Everyone knows the "science" of losing weight or having a toned body - exercise more; eat more healthy portions.

      But what we do?

      Most people prefer all those pills, new fancy gadgets, and treatments that "promise" us we can get the body we want without lifting a finger or changing our diets. Just lie down will do at the weight-loss spas!


      Those who enjoy the process of sculpting their bodies will not join the anyone and everyone crowd ;)

      Delete
  5. Hi SMOL,

    You hit the right spot. Only one knows himself or herself well and make the appropriate decision.

    Ben

    ReplyDelete
    Replies
    1. Ben,

      Copying, mimicry, and benchmarking will only take us so far...

      There will come a time where to move further ahead, we may need to look within more for guidance ;)



      Delete
    2. Smol,

      Everyone is unique. There is always brilliant idea on the verge. It"s the matter of thinking out of the box.

      Ben

      Delete
  6. SMOL,

    Haha ppl often underestimate size of capital required for "proper" trading... ;)

    How to have unemotional execution of trading signals & trading plan, and/or allowing room for thesis to play out ... when bills are dependant on daily or weekly trading results? ¯\_(ツ)_/¯

    To paraphrase you ... Good for youngsters to try out wat they don't know cannot be done ... If crash got sound, better to do the crashing while young LOL!

    Anyway we need more of them as catalysts in bubbles & crashes! Hohoho! :)

    Spur😁

    ReplyDelete
    Replies
    1. Spur,

      I'm often bemused when I see youths right off the bat opt for the safest and most "easy" route - voluntary contributions to CPF???

      I would thought the CPF route is like the "lender of the last resort" thing.

      Go forth and experiment with all sorts of risky adventures. That's the power of youth! Crash got sound!

      And if you failed in everything, well, there's always the voluntary CPF contribution "save more" route waiting for you.

      At least you have tried. No regrets later in life.

      I'm more impressed with youths dabbling in Bitcoins even though I wouldn't dare touch them ;)

      Is that why girls prefer bad boys?


      Big daddy is now trying hard to reverse this "study hard, work hard for others" mindset that worked so well for us when we were attracting MNCs to come to Singapore.

      You can't breed creativity and entrepreneurship in our schools and workforce when youths opt for voluntary CPF contributions as their first choice!?

      LOL!


      Left hand and right hand not co-ordinating today. I'm sure one day they will realise it and promote more risk taking in the hearts of our youths ;)



      Delete
  7. SMOL,

    I opine that we cannot depend on Big Daddy in shaping our future. Each of us should charter our journey. That's the way to success!

    Ben

    ReplyDelete
    Replies
    1. Ben,

      Our own karma; our own path.


      But I can empathise not everyone is a cat; some just like to be told what to do.

      No responsibility mah!


      Delete

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