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Tuesday, December 25, 2012
THE FIRST STEP
Trading lures us with its promise of freedom. If you know how to trade, you can live and work anywhere in the world, be independent from the routine, and not answer to anybody. Trading attracts people of above-average intelligence who enjoy games and aren’t afraid of risks. Before you rush into this exciting venture, keep in mind that in addition to your enthusiasm you will need to bring a sober understanding of the realities of trading. Trading will stress your feelings. To survive and succeed, you will need to develop a sound trading psychology.
Trading will challenge your mind. To gain an edge in the markets, you will need to master good analytic methods. Trading will demand good mathematical skills. A math illiterate who can’t manage risks is guaranteed to bust out. Trading psychology, technical analysis, money management—if you learn all three, you can make it in trading. But first, let us look at the external obstacles to your success.
The markets are set up to separate the maximum number of people from their money. Stealing is not permitted, but markets are heavily slanted in favor of insiders and against outsiders. Let us explore the barriers that prevent many traders from succeeding and try to lower them.
THE EXTERNAL BARRIERS TO SUCCESS
An investor can start with practically nothing, buying a few thousand dollars worth of shares. If he buys and holds, his commissions and other expenses will be minor factors in his success or failure. Traders have a harder task. Seemingly trivial expenses can break them, and the smaller the account, the greater the danger. Transaction costs can raise an impassable barrier to winning.
Transaction costs?! Beginners hardly think of them, yet transaction costs are a leading cause of trader mortality. Adjusting your plans to reduce those costs gives you an advantage over the market crowd. I have a friend whose 12-year-old daughter recently came up with a brilliant idea for a new business, which she called The Guinea Pig Factory. She ran off promotional flyers on her mom’s copy machine and stuffed them into neighbors’ mailboxes. Guinea pigs, popular among kids in her neighborhood, cost $6, but she could buy them at the central market for only $4. The girl dreamed of profits when her mother, who is a trader, asked how she was going to get from the Sydney suburb where they lived to the central market and back.
Someone will give me a ride, answered the girl. A child may get a free ride, but the market will not give it to you. If you buy a stock at $4 and sell it at $6, you won’t make a $2 profit. A big chunk of it will go for transaction costs. Amateurs tend to ignore them, while professionals focus on them and do everything in their power to reduce them—unless they’re collecting them from you, in which case they try to blow them up. Beginners get into their Guinea Pig Factories and cannot understand why they keep buying at 4, selling at 6, and are still losing money.
A new trader is like a little lamb walking into a dark forest. He is likely to be killed, and his skin—his trading capital—divided three ways, between brokers, professional traders, and service providers. Each will try to grab a piece of that poor lamb’s skin. Don’t be that lamb—think of transaction costs. There are three kinds of them: commissions, slippage, and expenses.
Commissions
Commissions may appear to be a minuscule expense. Most traders neglect them, but if you add them up, you’re likely to find that your broker ends up with much of your profit. A brokerage firm may charge about $20 to buy or sell up to 5,000 shares. If you have a $20,000 account and buy 200 shares of a $100 stock, the commission of $20 comes to one-tenth of one percent. When you sell those shares and pay another commission, the cost of brokerage rises to approximately two-tenths of one percent of your equity. Trade like that once a week, and at the end of the month your broker will have earned one percent of your account, regardless of whether you made money. Keep going like that for a year, and your commission cost will rise to 12% of your equity. That’s a lot of money. Professional money managers are happy with 25% annual returns, year after year. They could not generate them if they had to pay 12% annually in commissions.
But wait, it gets worse. Look at a small trader who can afford only 100 shares of a $20 stock. His purchase price is $2,000, but he pays the same $20 commission, which eats up a whopping 1 percent of his equity. When he closes that trade and pays another commission, he is 2 percent behind the game. If he trades like that once a week, by the end of the month his commissions will come to 10% of his account, more than 100% on annualized basis. The great George Soros averages 29% annual gain. He could have never accomplished that if he had to jump over a 100% commission barrier.
The bigger your account, the smaller the percentage eaten by commissions and the lower your barrier to winning. Having a large account is a great advantage, but whatever your size, do not be hyperactive. Each trade and each seemingly cheap commission raise the barrier to your success. Design a system that doesn’t trade very often. I’ve met futures traders who paid $80 roundtrip commissions to fullservice brokers. That was the price of allegedly sage advice, but any disinterested professional will tell you that a futures trader who pays $80 roundtrip has no chance of winning. Why do people pay such exorbitant rates? Because the little lamb who ventures into a dark forest is so afraid of the big bad wolf, the professional trader, that he hires himself a protector to guide him, a full-service broker. Once you do the math, it becomes clear that you’re better off taking your chances on the wolf than signing up for a guaranteed skinning by your protector.
There are full-service brokers whose advice is worth the money. They bring good tips, get good fills, and their commissions are not exorbitant. The catch is that they only accept very large accounts that generate a high volume of business. Bring them a million-dollar account with a history of active trading, and you may get their attention. If you have an account in five or six figures and trade only a couple of times a week, do not waste your time and money looking for false security of an expensive broker. Get a cheap, reliable, no-frills broker that you can easily reach via the Internet or on the phone—and start looking for good trades.
Slippage
Slippage is the difference between the price at the time you placed your order and the price at which that order got filled. You may place an order to buy when a guinea pig is trading at $4, but your bill comes to $4.25. How come? Then the guinea pig goes up to $6 and you place an order to sell at the market, only to receive $5.75. Why? In our daily lives we are used to paying posted prices. Here, at the grown-up Guinea Pig Factory, they clip you for a quarter buying and another selling. It could get worse. Those quarters and halves can add up to a small fortune for a moderately active trader. Who gets that money? Slippage is one of the key sources of income for market professionals, which is why they tend to be very hush-hush about it.
No stock, future, or option has a set price, but it does have two rapidly changing prices—a bid and an ask. A bid is what a buyer is offering to pay, whereas an ask is what a seller is asking. A professional is happy to accommodate an eager buyer, selling to him instantly, on the spot—at a price slightly higher than the latest trade in that market. A greedy trader who’s afraid that the bullish train is leaving the station overpays a pro who lets him have his stock right away. That pro offers a similar service to sellers. If you want to sell without waiting, afraid that prices may collapse, a professional will buy from you on the spot—at a price slightly lower than the latest trade in that market. Anxious sellers accept ridiculously low prices. Slippage depends on the emotional state of market participants.
The professional who sells to buyers and buys from sellers is not a social worker. He is running a business, not a charitable operation. Slippage is the price he charges for rapid action. He has paid a high price for his spot at the crossroads of buy and sell orders, buying or leasing an exchange seat or installing expensive equipment. Some orders are slippage-proof, while others invite slippage. The three most popular types of orders are limit, market, and stop. A limit order specifies the price; that is, “Buy 100 shares of Guinea Pig Factory at $4.” If the market is quiet and you’re willing to wait, you’ll get that price. If GPF dips below $4 by the time your order hits the market, you may get it a little cheaper, but don’t count on it. If the market rises above $4, your limit order will not be filled. A limit order lets you control the price at which you buy or sell, but doesn’t guarantee you a fill.
A market order lets you buy or sell immediately, at whatever price you can get at the moment. The execution is guaranteed, but not the price. If you want to buy or sell right away, this very moment, you cannot expect to get the best price—you give up control and suffer slippage. Market orders placed by anxious traders are the bread and butter of the pros.
A stop order becomes a market order when the market touches that level. Suppose you buy 100 shares of Guinea Pig Factory at $4.25, expect it to rise to $7, but protect your position with a stop at $3.75. If the price slides to $3.75, your stop becomes a market order, executed as soon as possible. You’ll get out, but expect to suffer slippage in a fast-moving market. You can choose what you want to control when you place an order—the price or the time. A limit order lets you control the price, with no assurance of a fill. When you place a market order, a fill is assured, but not the price. A calm and patient trader prefers to use limit orders, since those who use market orders keep losing slivers of capital in slippage.
Slippage tends to be a much bigger expense than commissions. I estimated the size of both in Trading for a Living and thought this was one of the most explosive parts of the book, but very few noticed. People in the grip of greed or fear want to trade at any price, rather than focus on their long-term financial interests. So much for the efficient market theory. There are day-trading firms promising to teach traders to take advantage of slippage by trading inside the bid-ask spreads. Their technology does not guarantee success, while commissions from active trading negate any advantage. People pay a lot of money for Level 2 quotes, but I haven’t noticed any great increase in performance among those who use them.
Getting into a trade is like jumping into a fast-moving river. The opportunity as well as the danger is in the water. You are safe standing on the bank and can control where and when to jump, but getting out of the water can be more tricky. You may see a spot where you want to get out—a profit target, where you can place a limit order. You may want to let the river carry you as long as the current allows, protecting your position with a trailing stop. That may increase your profits, but it also will increase slippage. Limit orders work best for entering trades. You’ll miss a trade once in a while, but there will be many others. That river has been flowing for hundreds of years. A serious trader uses limit orders to get in and to take profits, and protects his positions with stops. Anything we can do to reduce slippage goes directly to our bottom line and improves our odds of long-term success.
Expenses
Some expenses are unavoidable, especially in the beginning—you’ll have to buy a few books, download trading software, sign up with a data service, and so on. It is important to keep your expenses as low as possible. Amateurs have a charming habit of paying for their trading-related expenses, such as computers, subscriptions, and advisory services, with credit cards, without taking money out of their trading accounts. That protects them from seeing the true rate at which they are going downhill. Good traders add to profitable positions and reduce the size of their trades during losing streaks. We can apply the same sound principle to expenditures. Losers like to throw money at problems, while winners invest a fraction of their profits in their operations. Successful traders treat themselves to a new computer or software package only after they have enough profit to pay for it.
Even the best tools can blow you out of the water. At a recent seminar in Frankfurt, a trader was excited about a powerful analytic package for which he was going to sign up the following week. It cost 2,000 marks a month (almost $1,000), but it was going to give him a tremendous analytic advantage. “How much money do you have in your trading account?” I asked. 50,000 marks. “Then you can’t afford it. This software will cost you 24,000 marks a year, and you’ll have to generate almost 50% profit simply to pay for your signals. No matter how good the software, at this rate you’ll lose money. Look for a cheaper package, something that’ll cost no more than 1,000 marks per year, or about 2% of your account.”
Institutional traders get support from their managers, peers, and staff, but private traders tend to feel lonely and isolated. Vendors prey on them by promising to help lead them out of the wilderness. The more overloaded you feel, the more likely you are to listen to vendors. Nine out of ten professionals in any field, be they lawyers, auto mechanics, or doctors, are not good enough. You don’t trust an average auto mechanic
or a doctor, but rather ask for referrals from friends you respect. Most private traders do not know who to ask and respond to advisors with the loudest advertisements, who are rarely the best trading experts.
An advisor I’ve known for years was recently indicted by the Feds for stealing hundreds of millions of dollars from Japanese clients. Prior to that, he cultivated a reputation as one of the most prominent market experts in the United States, constantly quoted by the media. We were introduced at a conference, where people paid thousands of dollars to listen to him. He asked me what I thought of his presentation, and I said it sounded amazingly interesting but I could not understand much of it. “That’s the point,” he beamed. “If my clients believe I know something they don’t, I’ve got them for life!” I knew right away the man was dishonest, and was surprised only by the size of his loot. Some trading advice can be amazingly good. A few dollars will buy you a book that holds the experience of a lifetime. A few hundred dollars will get you a subscription to a newsletter with original and helpful advice. But gems are few and far between, while legions of hucksters prey on insecure traders. I have two rules for filtering out the worst offenders: avoid services you don’t understand and avoid expensive services.
If you don’t understand an advisor, stay away from him. Trading attracts people of above-average intelligence, which probably applies to you. If you cannot understand something after an honest effort, it’s probably because the other guy is giving you double-talk. When it comes to books, I avoid those written in bad English. Language is a reflection of thought, and if a guy cannot write clearly, his thinking probably isn’t too clear either. I also avoid books with no bibliography. We all borrow from our predecessors, and an author who doesn’t acknowledge his debts is either arrogant, lazy, or both. Those are terrible traits in a trader, and if he writes like that, I don’t want his advice. And of course, I have zero respect for thieves. Book titles are not copyrighted, and in recent years a bunch of people have lifted the title of my first book, Trading for a Living, usually with slight variations. I am sure that some clown will steal the title of the book you’re now reading.
Will you want to learn from a poacher who cannot think for himself? My second rule is to avoid very expensive services, be they books, advisory letters, or seminars. A $200 newsletter is likely to be a better value than a $2,000 one, and a $500 seminar a better value than a $5,000 one. Merchants of super-expensive products sell an implicit promise of “the keys to the kingdom.” Their customers are usually desperate to dig out from under abysmal losses. Football players call this a “Hail Mary” play—when a losing team in the last seconds of the game desperately tosses the ball forward, hoping to score. They’ve already lost the game on skill, and now try to come back in a single desperate gamble. When a trader who lost more than half of his account buys a $3,000 trading system, he is doing the same thing.
Helpful advisors tend to be modest, and price their services accordingly. An obscene price is a marketing gimmick that conveys a subliminal message that the service is magic. There is no magic—no one can deliver on that promise. A relatively inexpensive service is a bargain when it’s good, and a cheap loss when it isn’t. Someone once asked Sigmund Freud what he thought the best attitude for a patient was. “Benign skepticism,” answered the great psychiatrist, and that’s good advice for financial traders. Maintain an attitude of healthy skepticism. If you find something you don’t understand, try it again, and if you still do not get it, it is probably not worth having. Run, do not walk, from those who offer to sell you the keys to the kingdom. Keep your expenses low and remember, any information you receive becomes valuable to you only after you’ve tested it on your data, making it your own.
Trading will challenge your mind. To gain an edge in the markets, you will need to master good analytic methods. Trading will demand good mathematical skills. A math illiterate who can’t manage risks is guaranteed to bust out. Trading psychology, technical analysis, money management—if you learn all three, you can make it in trading. But first, let us look at the external obstacles to your success.
The markets are set up to separate the maximum number of people from their money. Stealing is not permitted, but markets are heavily slanted in favor of insiders and against outsiders. Let us explore the barriers that prevent many traders from succeeding and try to lower them.
THE EXTERNAL BARRIERS TO SUCCESS
An investor can start with practically nothing, buying a few thousand dollars worth of shares. If he buys and holds, his commissions and other expenses will be minor factors in his success or failure. Traders have a harder task. Seemingly trivial expenses can break them, and the smaller the account, the greater the danger. Transaction costs can raise an impassable barrier to winning.
Transaction costs?! Beginners hardly think of them, yet transaction costs are a leading cause of trader mortality. Adjusting your plans to reduce those costs gives you an advantage over the market crowd. I have a friend whose 12-year-old daughter recently came up with a brilliant idea for a new business, which she called The Guinea Pig Factory. She ran off promotional flyers on her mom’s copy machine and stuffed them into neighbors’ mailboxes. Guinea pigs, popular among kids in her neighborhood, cost $6, but she could buy them at the central market for only $4. The girl dreamed of profits when her mother, who is a trader, asked how she was going to get from the Sydney suburb where they lived to the central market and back.
Someone will give me a ride, answered the girl. A child may get a free ride, but the market will not give it to you. If you buy a stock at $4 and sell it at $6, you won’t make a $2 profit. A big chunk of it will go for transaction costs. Amateurs tend to ignore them, while professionals focus on them and do everything in their power to reduce them—unless they’re collecting them from you, in which case they try to blow them up. Beginners get into their Guinea Pig Factories and cannot understand why they keep buying at 4, selling at 6, and are still losing money.
A new trader is like a little lamb walking into a dark forest. He is likely to be killed, and his skin—his trading capital—divided three ways, between brokers, professional traders, and service providers. Each will try to grab a piece of that poor lamb’s skin. Don’t be that lamb—think of transaction costs. There are three kinds of them: commissions, slippage, and expenses.
Commissions
Commissions |
But wait, it gets worse. Look at a small trader who can afford only 100 shares of a $20 stock. His purchase price is $2,000, but he pays the same $20 commission, which eats up a whopping 1 percent of his equity. When he closes that trade and pays another commission, he is 2 percent behind the game. If he trades like that once a week, by the end of the month his commissions will come to 10% of his account, more than 100% on annualized basis. The great George Soros averages 29% annual gain. He could have never accomplished that if he had to jump over a 100% commission barrier.
The bigger your account, the smaller the percentage eaten by commissions and the lower your barrier to winning. Having a large account is a great advantage, but whatever your size, do not be hyperactive. Each trade and each seemingly cheap commission raise the barrier to your success. Design a system that doesn’t trade very often. I’ve met futures traders who paid $80 roundtrip commissions to fullservice brokers. That was the price of allegedly sage advice, but any disinterested professional will tell you that a futures trader who pays $80 roundtrip has no chance of winning. Why do people pay such exorbitant rates? Because the little lamb who ventures into a dark forest is so afraid of the big bad wolf, the professional trader, that he hires himself a protector to guide him, a full-service broker. Once you do the math, it becomes clear that you’re better off taking your chances on the wolf than signing up for a guaranteed skinning by your protector.
There are full-service brokers whose advice is worth the money. They bring good tips, get good fills, and their commissions are not exorbitant. The catch is that they only accept very large accounts that generate a high volume of business. Bring them a million-dollar account with a history of active trading, and you may get their attention. If you have an account in five or six figures and trade only a couple of times a week, do not waste your time and money looking for false security of an expensive broker. Get a cheap, reliable, no-frills broker that you can easily reach via the Internet or on the phone—and start looking for good trades.
Slippage
Slippage is the difference between the price at the time you placed your order and the price at which that order got filled. You may place an order to buy when a guinea pig is trading at $4, but your bill comes to $4.25. How come? Then the guinea pig goes up to $6 and you place an order to sell at the market, only to receive $5.75. Why? In our daily lives we are used to paying posted prices. Here, at the grown-up Guinea Pig Factory, they clip you for a quarter buying and another selling. It could get worse. Those quarters and halves can add up to a small fortune for a moderately active trader. Who gets that money? Slippage is one of the key sources of income for market professionals, which is why they tend to be very hush-hush about it.
No stock, future, or option has a set price, but it does have two rapidly changing prices—a bid and an ask. A bid is what a buyer is offering to pay, whereas an ask is what a seller is asking. A professional is happy to accommodate an eager buyer, selling to him instantly, on the spot—at a price slightly higher than the latest trade in that market. A greedy trader who’s afraid that the bullish train is leaving the station overpays a pro who lets him have his stock right away. That pro offers a similar service to sellers. If you want to sell without waiting, afraid that prices may collapse, a professional will buy from you on the spot—at a price slightly lower than the latest trade in that market. Anxious sellers accept ridiculously low prices. Slippage depends on the emotional state of market participants.
The professional who sells to buyers and buys from sellers is not a social worker. He is running a business, not a charitable operation. Slippage is the price he charges for rapid action. He has paid a high price for his spot at the crossroads of buy and sell orders, buying or leasing an exchange seat or installing expensive equipment. Some orders are slippage-proof, while others invite slippage. The three most popular types of orders are limit, market, and stop. A limit order specifies the price; that is, “Buy 100 shares of Guinea Pig Factory at $4.” If the market is quiet and you’re willing to wait, you’ll get that price. If GPF dips below $4 by the time your order hits the market, you may get it a little cheaper, but don’t count on it. If the market rises above $4, your limit order will not be filled. A limit order lets you control the price at which you buy or sell, but doesn’t guarantee you a fill.
A market order lets you buy or sell immediately, at whatever price you can get at the moment. The execution is guaranteed, but not the price. If you want to buy or sell right away, this very moment, you cannot expect to get the best price—you give up control and suffer slippage. Market orders placed by anxious traders are the bread and butter of the pros.
A stop order becomes a market order when the market touches that level. Suppose you buy 100 shares of Guinea Pig Factory at $4.25, expect it to rise to $7, but protect your position with a stop at $3.75. If the price slides to $3.75, your stop becomes a market order, executed as soon as possible. You’ll get out, but expect to suffer slippage in a fast-moving market. You can choose what you want to control when you place an order—the price or the time. A limit order lets you control the price, with no assurance of a fill. When you place a market order, a fill is assured, but not the price. A calm and patient trader prefers to use limit orders, since those who use market orders keep losing slivers of capital in slippage.
Slippage tends to be a much bigger expense than commissions. I estimated the size of both in Trading for a Living and thought this was one of the most explosive parts of the book, but very few noticed. People in the grip of greed or fear want to trade at any price, rather than focus on their long-term financial interests. So much for the efficient market theory. There are day-trading firms promising to teach traders to take advantage of slippage by trading inside the bid-ask spreads. Their technology does not guarantee success, while commissions from active trading negate any advantage. People pay a lot of money for Level 2 quotes, but I haven’t noticed any great increase in performance among those who use them.
Getting into a trade is like jumping into a fast-moving river. The opportunity as well as the danger is in the water. You are safe standing on the bank and can control where and when to jump, but getting out of the water can be more tricky. You may see a spot where you want to get out—a profit target, where you can place a limit order. You may want to let the river carry you as long as the current allows, protecting your position with a trailing stop. That may increase your profits, but it also will increase slippage. Limit orders work best for entering trades. You’ll miss a trade once in a while, but there will be many others. That river has been flowing for hundreds of years. A serious trader uses limit orders to get in and to take profits, and protects his positions with stops. Anything we can do to reduce slippage goes directly to our bottom line and improves our odds of long-term success.
Expenses
Expenses |
Even the best tools can blow you out of the water. At a recent seminar in Frankfurt, a trader was excited about a powerful analytic package for which he was going to sign up the following week. It cost 2,000 marks a month (almost $1,000), but it was going to give him a tremendous analytic advantage. “How much money do you have in your trading account?” I asked. 50,000 marks. “Then you can’t afford it. This software will cost you 24,000 marks a year, and you’ll have to generate almost 50% profit simply to pay for your signals. No matter how good the software, at this rate you’ll lose money. Look for a cheaper package, something that’ll cost no more than 1,000 marks per year, or about 2% of your account.”
Institutional traders get support from their managers, peers, and staff, but private traders tend to feel lonely and isolated. Vendors prey on them by promising to help lead them out of the wilderness. The more overloaded you feel, the more likely you are to listen to vendors. Nine out of ten professionals in any field, be they lawyers, auto mechanics, or doctors, are not good enough. You don’t trust an average auto mechanic
or a doctor, but rather ask for referrals from friends you respect. Most private traders do not know who to ask and respond to advisors with the loudest advertisements, who are rarely the best trading experts.
An advisor I’ve known for years was recently indicted by the Feds for stealing hundreds of millions of dollars from Japanese clients. Prior to that, he cultivated a reputation as one of the most prominent market experts in the United States, constantly quoted by the media. We were introduced at a conference, where people paid thousands of dollars to listen to him. He asked me what I thought of his presentation, and I said it sounded amazingly interesting but I could not understand much of it. “That’s the point,” he beamed. “If my clients believe I know something they don’t, I’ve got them for life!” I knew right away the man was dishonest, and was surprised only by the size of his loot. Some trading advice can be amazingly good. A few dollars will buy you a book that holds the experience of a lifetime. A few hundred dollars will get you a subscription to a newsletter with original and helpful advice. But gems are few and far between, while legions of hucksters prey on insecure traders. I have two rules for filtering out the worst offenders: avoid services you don’t understand and avoid expensive services.
If you don’t understand an advisor, stay away from him. Trading attracts people of above-average intelligence, which probably applies to you. If you cannot understand something after an honest effort, it’s probably because the other guy is giving you double-talk. When it comes to books, I avoid those written in bad English. Language is a reflection of thought, and if a guy cannot write clearly, his thinking probably isn’t too clear either. I also avoid books with no bibliography. We all borrow from our predecessors, and an author who doesn’t acknowledge his debts is either arrogant, lazy, or both. Those are terrible traits in a trader, and if he writes like that, I don’t want his advice. And of course, I have zero respect for thieves. Book titles are not copyrighted, and in recent years a bunch of people have lifted the title of my first book, Trading for a Living, usually with slight variations. I am sure that some clown will steal the title of the book you’re now reading.
Will you want to learn from a poacher who cannot think for himself? My second rule is to avoid very expensive services, be they books, advisory letters, or seminars. A $200 newsletter is likely to be a better value than a $2,000 one, and a $500 seminar a better value than a $5,000 one. Merchants of super-expensive products sell an implicit promise of “the keys to the kingdom.” Their customers are usually desperate to dig out from under abysmal losses. Football players call this a “Hail Mary” play—when a losing team in the last seconds of the game desperately tosses the ball forward, hoping to score. They’ve already lost the game on skill, and now try to come back in a single desperate gamble. When a trader who lost more than half of his account buys a $3,000 trading system, he is doing the same thing.
Helpful advisors tend to be modest, and price their services accordingly. An obscene price is a marketing gimmick that conveys a subliminal message that the service is magic. There is no magic—no one can deliver on that promise. A relatively inexpensive service is a bargain when it’s good, and a cheap loss when it isn’t. Someone once asked Sigmund Freud what he thought the best attitude for a patient was. “Benign skepticism,” answered the great psychiatrist, and that’s good advice for financial traders. Maintain an attitude of healthy skepticism. If you find something you don’t understand, try it again, and if you still do not get it, it is probably not worth having. Run, do not walk, from those who offer to sell you the keys to the kingdom. Keep your expenses low and remember, any information you receive becomes valuable to you only after you’ve tested it on your data, making it your own.
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