E-Mini Trading: Let's Start at the Beginning With No Hype (part 2)
Fact: In the first several months of your e-mini trading career you will be lucky to break even. Even more to the point, most new traders lose considerable sums of money during the early stages of their trading career. The statistics suggest that 50% of all new traders lose their entire trading account balance.
Many sites lay claim to have discovered a revolutionary new approach to trading that virtually assures profits. While the methodology of trading has evolved rapidly over the last several years, I am unaware of any revolutionary new approaches to trading that will ensure a new trader will stumble into a highly profitable trading career from day one of their trading experience.
To be sure, rates of return for traders and investors have remained fairly consistent for the last 20 years despite billions of dollars of ongoing market research by large institutional trading organizations. In short, most of the "revolutionary" new techniques are recycled version of current oscillators of older trading techniques
Fact: Profitable trading still lies in the domain of highly skilled and experienced traders. I am unaware of any revolutionary new trading techniques that have dramatically improved the rate of success in trading, including the most recent wrinkle in trading marketing: the trading robot. The automated trading on Wall Street is generally performed by computers in the "Cray Supercomputer" class of computer.
It takes very little analytical skill to reason that a trading robot that retails for $279 will fill your pockets with hundreds of thousands of dollars. Trading robots are just another example of the "next best" innovation. The algorithms that I have been able to analyze on several trading robots rely upon simple moving averages and well-known oscillators.
This is hardly the stuff of any new revolutionary approach. They are quite profitable for the individuals who are selling these machines, but the empirical evidence has shown that they typically performed poorly.
Finally, many of the trading courses offered confine themselves to a strict systems approach to trading. I will spare the reader an extended discussion on the shortcomings of systems-based trading, but will comment that systems-based trading is generally effective during trending markets. Further, depending upon which source you care to quote, the market typically trends 30% to 40% of the time.
During consolidation periods, commonly referred to as range bound trading, systems based trading often struggles mightily. Further, markets often undergo periods of very random trading and systems-based trading is poorly suited for this type of trading. In short, most system-based trading approaches work well under well-defined conditions.
I would also point out that few traders require any special trading system to trade a trending market, as these markets are where the majority of trading profits occur and are relatively easy to spot and from which to profit.
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Fact: It is my experience that successful and consistent traders learn to read and interpret charts, as opposed to confine their learning experience to the tight parameters of system trading. This is not a blanket indictment of all systems-based trading, but a generalization from my experience with systems based trading.
Most profitable traders are proficient in a wide range of market conditions and to understand the trading style required to trade those market conditions ease efficiently. Further, learning to trade in a wide variety of trading conditions is generally accomplished through the experience gained by trading with another experienced and profitable trader, or through a mentorship program with a qualified and experience trader.
In summary, I have tried to emphasize that trading programs offered may not be a good choice for new traders. Specifically, I have warned against utilizing trading systems that offer inflated profit rates. Finally, I would encourage all traders to find an experienced trader who may be a friend, or hiring an experienced trader through a mentoring program.
I have no doubt that there are trading courses that cover some of the deficiencies we have outlined in this article but as yet not been able to locate such a program. I encourage new traders to give some of the above points careful thought, because trading education is often an expensive proposition, but under the right conditions most individuals can learn to trade profitably and with consistency.
Would you like to start earning?
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