Saturday, January 23, 2010

The Road To Financial Freedom... Part No.2...Is this Right for You ?

It is not uncommon for people to persue the dream of "financial freedom" thinking only about the fact that they are tired of a 9 to 5 job and want to have an easy way to earn a living in which work is hardly ever present. On today's post of the road to financial freedom series I will try to give you a good insight into what I think the goals and mindset of a person who wants financial freedom should be and which people should not seek financial freedom because they are either doing it for the wrong reasons or with the wrong perspective in mind.

In what I have seen, there are mainly two types of people looking for financial freedom (trading wise at least). The first are people who are willing to do whatever it takes, work as long as they can, do whatever effort they have to in order to arrive to the dream of profitable trading -manual or automated- and then there are those who simply just don't want to do anything and think of trading as a way in which an income can be achieved without lifting a finger.

Things evolve differently for those two kinds of people. The first kind often struggles a lot in the beginning and have to work about 10 times what they thought they would have to, many with obssesive personalities end up with broken families, health problems, etc, due to the sometimes long hours and inevitable amount of hard work that must go in either manual or automated trading. The fact that they also put a financial burden on their families and take money to trade - almost certainly losing all of it at first- makes things harder for the people around them, specially spouses who sometimes fail to understand the goal to be achieved (mainly because the non-trading partner is usually more rational at this point).

The second kind works almost as hard as the first but in a different area. Their work is not centered on actually learning what they are doing but it is centered in the finding of the "system" that will make them rich without signficant effort. These people often give trading a try for a while and after 1 or 2 years they give up because of the fact that everything they have tried has eventually failed them (or has not achieved the income level they wanted), eventually they find out that their is no "free lunch" and that trading is not the bottomless "gold mine" they read on the sales newspages. These people either quit, or become part of the first group.

Now, there is also a problem associated with the intented amount of money people want to make in trading. Often I hear people talking about a 5-10% consistent monthly profit in forex being a "rational" thing to expect (these people NEVER know someone who has actually been making that kind of money consistently -for a few years-, it is just a dream created by the sales pages). Oh boy, 5% every month would turn 50 USD into one trillion dollars in less than 60 years. The profitable traders I know are often happy with a 1-3% average profit per month, which is very good for most purposes. Take into account that in financial markets, doing better than the S&P 500 is considered to be "beating the market" in the sense that you outperform buy and hold strategies. That is something that very few people in the world are able to do.

Novice trader minds are often "contaminated" with the unrational notion that the forex market is able to give very high profits, thinking that 10-20% per month or more is a rational expectation. The worst thing is that people get into their minds that it is something they can achieve if they work hard. The people who are hard working but believe they can achieve a profit level which is simply unprecedented are the ones who get the worst out of it. They lose and lose money and they struggle and struggle trying to achieve something which is simply not within realistic expectations (taking into account what most profitable traders I know do achieve ). They often get beat up, chewed and spit by the market and in the end they are beaten and defeated. These people usually quit at this point when they realize that they will not get to that million dollars from that 1000 USD account.

My objective with this post is to speak to all of you and tell you that you should give this a very HARD and long look and think about if trading is really what you want to do. Trading is a very intense, time consuming, work intensive way of life. Starting to trade with realistic expectations for success requires good capitalization (at least 2 to 5 times your expected yearly salary if you expect to live from this) and a commitment to work through all the emotions and frustration that will arise from attempting it. Trading is also not your 9 to 5 job so you may have long periods of loses with no paycheck at your door and there will be no one there to pat you in the back and tell you that everything will be ok. As I said on the last post, it is entirely up to you. Your possibilities are limited by your efforts.

For most people out there, forex is not a good opportunity for "financial freedom". Most people are simply undercapitalized, unfamiliar with the whole concept of trading and unaware of how their emotions respond to the trading world. Most people are also unable to deal with the stress of having no paycheck in the mailbox, no "fixed" income and no guarantee of future profits. The extremely large amount of hype and useless things out there don't make it easier for them either. The fact that 90% of new traders fail speaks for itself. If you think forex is not the way to go, then it does not mean you cannot achieve financial freedom, you can always look at a brick and mortar business or an online business which aligns better with your knowledge and personality.

However, if you are truly interested in trading after all that I have said, then you will enjoy the rest of the road to financial freedom series in which I will explain to you the steps I took and all the things I have done (and what I would have liked to do) in order to achieve financial freedom with forex trading. My first step was simple. I wrote in a piece of paper : "I am going to be a profitable forex trader". If you are also interested in my work and would like to know about how profitable trading can be achieved with realistic profit and drawdown expectations on the forex market please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !

1 comment:

Zander said...

Yes. it is very hard to achieve financial freedom. Many people crave for financial freedom. You make some very good points for novice traders. Forex market has created hundreds of opportunities for individuals to create full-time incomes online.

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