What the Rich Have in Common : Improving Your Long Term Perspective in Trading

A study done a few years ago by Stanford University – if I remember correctly – attempted to correlate different variables with the level of wealth attained by people all around the globe (excluding people who had inherited wealth or made it by chance, like winning the lottery). The question the researchers asked was actually quite simple : What do all rich people have in common ? Many of the researchers thought that IQ or other similar variables – such as the level of academic achievement – would correlate highly with wealth but they found out that reality was actually very surprising. People’s intelligence correlated well with their wage per hour in paying jobs – higher IQ, better job – but the wealthiest people seemed to have nothing in common regarding IQ with examples of both highly intelligent and under average intelligent people achieving billion dollar fortunes.

What do all the wealthiest people in the world have in common ? The answer was simple and extremely explanatory. The wealthiest people tend to know where their money will be across the largest time frames. What the rich have in common seems to be their ability to know where capital will be in the future, the longer the time a person could project their money’s role, the larger their ability to amass fortune. So for example if you look at all the money you have, what percentage of that money’s location can you pin-point in 5, 10 or even 20 years ? The answer to this question will likely determine your wealth-gaining potential since this determines your ability to invest, evaluate your results and compound your returns.

In trading we have that the situation of the profitable and unprofitable traders is quite similar. Traders who are profitable know exactly where their money will be in the longer term, what percentage of that money may be temporarily lost within draw down periods and what the expected compounded yearly profits are. On the other hand, unprofitable traders are overly focused on short term results and they have no idea about the long term destiny of the money they use to trade. Generally new traders will use strategies they do not fully understand with draw down and profit characteristics they ignore in the hopes that practice will bring them profitability in the long term without having to do any rigorous analysis of their trading strategies.

It is interesting to see how this correlates very well with the wealth-gaining potential of people regarding the accumulation of fortunes. In trading a very small percentage of people ever make a living out of the forex market and in the general population only a very few ever achieve a fortune of more than 10 million dollars.  The fact that only a small group makes it in both cases is definitely not a coincidence but correlated with the inherent abilities different people have to gain long term perspective about the destiny of their capital. In forex – as in any other type of business – having the best possible idea about the future outcome of returns and business expenses (temporary losses) is a key to achieve long term profitability.

For the new traders out there this is an extremely hard to achieve goal since the hype around the forex market has made people go for the “spring” instead of the “marathon” when attempting to become profitable in trading. Most people believe that extremely high returns are possible and readily achievable and they will use any possible available tool that promises this reward with the least possible effort while the future of their capital remains – essentially – completely uncertain. If you are a new trader and you are reading this article then my advice to you is to stop looking for short term solutions and develop a long term realistic goal about forex trading. This involves the use of systems for which you have the best possible idea of what your returns might be and what draw down periods might look like in the long term.

In the end,  even though there are many characteristics that make up a profitable forex trader, being able to have a long term view about your investments and their profitability is a must if you want to succeed in this field. Focusing on every trade and failing to have realistic and adequate expectations for long term results is a very important reason why new traders fail and doing the opposite is perhaps one of the most – if not the most – important characteristic of long term profitable traders.

So from now on think about your investments in the long term and use systems that provide you with adequate and realistic projections with accurate simulations , adequate evaluation and sound trading tactics. Doing this will most likely be a milestone achievement in your success as a forex trader. If you would like to learn more about mechanical trading systems and the development of systems with sound trading tactics and realistic expectations  please consider joining Asirikuy.com, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach automated trading in general . I hope you enjoyed this article ! :o)

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4 Responses to “What the Rich Have in Common : Improving Your Long Term Perspective in Trading”

  1. Maxim says:

    Daniel,

    I’ve already read about this in the “7 habbits of highly effective people book”. It is important to mention that increasing risk when undercaptilized is very dangerous.

    Thanks for a great post,
    Maxim

    • admin says:

      Hello Maxim,

      Thank you very much for your comment :o) Certainly increasing risk when under-capitalized is also terribly dangerous and I will certainly develop that topic deeply in a future post. Thanks again for being a frequent visitor !

      Best Regards,

      Daniel

  2. James C. Chidolue says:

    You just nailed it again.I am a first timer.I just discovered your website from currency trader magazine.
    Traders earlly dont know what they are missing by not visiting your website.
    If they are not on your website,they are really trading blindly.
    They are “birds watching in a lion’s country”.

    • admin says:

      Hello James,

      Thank you for your comment and kind words :o) Well, I try to empower new traders so that they can learn from their mistakes and faults and become profitable traders. I surely would like as many traders as possible to visit my website and benefit from the posts I write. I hope you have liked my Currency Trader Magazine articles :o) I will publish three more this year in October, November and December. Thanks again for your comment,

      Best Regards,

      Daniel

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