Trading Basics: Is it worth it to make money you cannot keep?

As I have discussed in previous articles there is a real existing possibility to create massive amounts of profit in the markets with the use of leverage and tremendous levels of risk. Using undoubtedly much more luck than skill a trader can take a handful of dollars to millions within a relatively short amount of time. However one thing that is seldom discussed is how worth it it really is to pursue such endeavors. Is it worth it to take high risks in the market with the idea to increase capital quickly rather than doing it slowly? Is there any advantage to trading using mechanisms that are guaranteed to eventually wipe trading accounts? Today I want to dedicate a blog post to discussing this issue. Is it worth it to make money you cannot keep?


There is a very good reason why most retail traders choose to do very high risk trading. If you start trading with only a few thousands dollars in your pocket with the hope to be able to live from that within a reasonable amount of time it is simply impossible to do so without high risk trading. To be able to achieve either enough personal capital to sustain yourself from reasonable risk trading or to be able to move to other less risky investments that can pay your salary you need to take that huge risk, that leap of faith. In this case you’re trading something that is a relatively low amount, at most a few thousand US dollars, in the hopes to greatly increase this amount so that you can “live from trading”. Losing it is not going to affect you greatly while “hitting the jackpot” can change your life. I get this mentality, it’s very common at the beginning of most retail trading experiences.

What most people don’t understand well is where this path takes them. By the simple probability of achieving the high return these traders are looking for they will tend to take losses most of the time which means wiping that “small investment” many times. They will get into a lot of snake-oil in order to get where they want to and they will certainly fall prey to trading tactics such as martingales and grids which are excellent at simply delaying the inevitable. In the end every profit taken is bound to be returned to the market, continuing down this road always ends up in success being wiped out. The fact of the matter is that people who trade in this manner – very high uncapped risk – will never be successful traders, they will at most gain money with often worst probabilities as someone playing a regular state lottery. High risk trades are as successful traders as lottery buyers are successful winning number pickers. 


In the same manner as most lottery winners tend to go bankrupt, most traders who make money using high risk end up where they started. Where there is a natural lack of risk control there is a natural inability to keep the money made because there is simply no knowledge about how to properly manage risk. People still believe they can be profitable with high risk tactics if they just “withdraw profits” or such schemes, where it is well known by any person with a good understanding of risk management that such approaches will in the long term always end up with net losses. Traders who make some money in this manner tend to increase risk with time – rather than decrease it – because they take any money making as a sign that this is the correct path, which tends to compound losses in the long term as losses are even worse than if they had simply not invested any additional amounts of money. In the end they get fooled by randomness and by a lack of understanding of the underlying risks they’re taking.

The key point I have found makes the difference is why a person gets involved in trading. If a person starts trading because they want to make lots of money fast then the result is most probably going to be long term failure while people who get into trading to start a trading career often meet success in their endeavor with enough dedication. The trading career goal is obviously much slower, it involves a lot of studying, a lot of understanding of the markets, understanding risk control, and does not involve so much growing your own capital from pennies to millions but it involves building trading strategies based on strong historical inefficiencies that can yield a solid trading edge with adequate risk control. Of course the goal of doing this is simply to attract assets under management to be able to grow your own personal nest egg from managing other people’s money. This is the way to go if you want to achieve success with solid trading techniques that can last for a life time. Just show three years with 20% returns with a less than 20% drawdown and you will already have lots of people willing to throw their money at you.


So I would say that high risk trading is as worth it as it is to buy lottery tickets. If you play you might get lucky and make some money but if you keep playing you will certainly always end up back in square one. The longer you play the more you will be likely to give back what you have made. If you’re however looking to become a trader then you should realize that you should be able to stay in the game forever. For a real trader the longer term simply brings out the positive edge characteristics of their trading while for a high risk trader it only spells disaster as it brings out the fatal flaws in their trading methodologies.  Of course if you would like to learn more about finding historical edges and how you too can learn to build and trade strategies with controlled risk please consider joining, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach towards automated trading.strategies

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