From time to time, people contact me and ask me how to get into the trading business. They have taken a class in college, or they have talked to someone, or even seen video of traders on television. It gets them excited. The trading industry is sexy.
Really, all you have to do is buy low, sell high and do it enough times and the money is easy. Stocks or futures move all over the place every day. Zinging higher and lower. All you have to do is catch a teensy tiny percentage of that move and you can be making a few thousand a day in no time.
However, we all know it’s not that easy. If it were, everyone would be doing it.
My advice to almost everyone that comes to me is don’t go into trading. It’s highly risky. 90% of the people fail. In the old days when we had trading pits and trading floors, 90% failed because they either couldn’t break into the pit culture, couldn’t handle the physical nature of the business, or just simply couldn’t wrap their heads around what it took to be successful.
People ask, what was your advantage? In the pit trading days, I had physical size. That helped because I could see a lot of things going on at once, and when I wanted to do something it was easier to get someone’s attention. But, my mind also worked pretty fast. I was able to synthesize a lot of disparate, different and sometimes contradictory information and distill it into a profitable (hopefully) trading decision in seconds based on some internal probabilities that I had constructed in my head. I was my own algorithm.
The physical nature of the space also allowed me an advantage. In the close proximity of the pit, I competed with my fellow traders. But, we also competed with the outside customers. However, the customers had to go through at least two levels of distribution before they got to the real action. I was already standing there. Co-location before there was such a thing as co-location, but I payed a hefty price to get that advantage.