So finally I made a career move, to be a currency analyst. I hope my background in data analysis and behavioral economics will come in handy. However, when I let in a few friends on my new venture I got surprising responses, “why do you want to gamble?”, “you are getting into a financial mess”, “do anything but not forex”. For a moment I thought I might be making a mistake, and then I set out to investigate why trading and by extension forex trading has a negative connotation and why on the flip-side there are numerous successful traders. For a start, 40 billionaires on the Forbes list are exclusive traders and on the other hand myriads of people have failed to launch careers as traders. Someone must be doing something right and someone else must be doing something absolutely wrong. What better place to probe this inquisition than my favorite author Nassim Nicolas Taleb who switched careers from a floor trader to a university don and absolutely hated it. This led to some of his brilliant works, ‘Black Swan: Impact of the Highly Improbable’, ‘Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets’ and ‘Anti-Fragile: Things That Gain from Disorder’. From his collective argument, misusing statistics leads to poor financial predictions.
Later on, watching BBC reality TV program ‘Million Dollar Traders’ got me invaluable lessons. Lex Van Dam, a millionaire and seasoned trader offered to recruit 8 novice traders, train them for two months and trust them to invest wisely a hedge fund of 1 million dollars of his own money. After two and a half months of trading, the hedge fund was at a loss with people quitting and one person fired. The three who remained up to the end were a former army major, a single mum and a university student, a simple observation shows that these are people who either have been through stressful situations or have very little to loose which brings me to my second point, stress management. At the onset of a loss, stress kicks in and all the financial forecasts lessons fly out of the window. The situation escalates to gambling as emotions come to play by wanting to recoup the losses even if the market conditions are not favorable for profit making.
Trading is a highly emotive career, if you can’t put your emotions in check its best not to venture into it. This particular aspect of the job came in light when I made my first trade and went according to plan; I was in a hysterical mood and opted to trade more until I got my account wiped out. The feeling was so devastating that I quit trading for a week and spent another month contemplating whether it is a viable career choice. It took a random event for me to make a comeback. A friend who had helped me understand the jargon of forex trading had made serious losses and we spent sometime sharing our experiences when we stumbled on an America TV series, ‘Wall Street Warriors’. To my astonishment professional traders are at best 46% correct, meaning more than half of the time they make losses but rely on money management skills to break even, their winning trades cover up the losses.
The TV series also brought into light the different categories of traders; the daily trader (the stressful lot), the swing trader and the long term trader. The daily trader relies on small profits on numerous trades made in a day. The swing trader makes a maximum of one trade in a day and relies on market reversal points and momentum to make a decision whether to trade or not. The third cadres of traders are the long term traders who spend most of their time researching and make trades that may make losses in the short term but profits in the long term.
With my background in data analytics I was best suited to be a swing trader, I also learnt other concepts such as hedging to mitigate possible losses and it finally dawned to me that I could make it in this field, so far so good. In this game, it is best to learn from the losers, you get to lean what not to do. If you are in it for easy and fast money you’re already at loss before you begin because there is a lot to learn, a lot of stress to withstand and a lot of money to loose. I suggest reading ‘Currency Wars: The Making of the Next Global Crisis’ by James Rickards