Why trade?

My New Years resolution is to cook more. I’m not a great cook – I’m one of those people who sees food as fuel, and just can’t get that excited about it. But I can see the pleasure in making stuff for my family, and when my kids complained recently that “Dad can’t even cook fish fingers right” – I knew it was time for action.

So, when I came across this video the other day, I thought it might help to motivate me. Which it did … but it also got me to thinking about the many other things we can do a hell of a lot better without some mass-market “expert” telling us “the best way” … like trading …

People often question the wisdom of us ‘retail traders’ who try to beat the markets in our spare time …

We’re often portrayed as naive fools who blindly follow the latest get-rich-quick merchant. I find this image quite offensive.

What’s wrong with putting your money into the hands of an expert, and leaving them to do the job for you?

Surely they’ll know how to do it better …? They’ll have all the clever algorithms and the leverage of big money …

You can’t honestly believe that you can do better than some highly qualified fund manager?

Well, one look at a mass-produced, pre-prepared meal as the microwave door swings open tells us all we need to know – ‘yes’ I can do it better than a so-called ‘professional’.

Put your money into the hands of an ‘expert’ and you’ll get a mediocre result, at best.

Do it yourself, and you can get the satisfaction of creating something really substantial and worthwhile for yourself and your family …

Of course, there’s a downside to doing-it-yourself – the time and effort involved, and the risk that your financial soufflé could explode leaving egg on your face! These are the two factors that home traders are constantly butting up against – effort and risk.

But as long as we can keep effort and risk levels under control … there’s no doubt that trading your own capital can be worthwhile.

What makes it worthwhile?

So, what drives us to trade?

The money?

Of course, a primary goal in trading is to get better returns on our investment.

Here it’s important to be realistic – if your bank is offering you 3% … and hedge funds averaged 7.4% in 2013 … don’t expect to have turned £300 into £300,000 over the space of a year …

Plus, if you tie up all your attention on making money, it can lead to problems …

First off, if all you focus on is how much money you can make, the first thing that usually goes out of the window is sensible risk management – because keeping a handle on risk seriously affects your potential profit curve!

Throw risk management out of the window, take a hefty measure of good luck, and you can make some staggering returns … you will also blow up spectacularly – maybe not today, or next week, but it’ll happen sooner rather than later.

The other problem with focusing too tightly on money is how this will affect you when you’re going through a drawdown – and ALL strategies go through periods of drawdown. If making money is your entire motivation, then a natural drawdown will be a serious threat to your self-worth. It’s likely to affect your trading, and even cause you to give up entirely.

In most jobs, we provide a service or create a product … and making money is a consequence of that. As a trader, however, if your whole motivation is making money … it’s hard not to lose sight of that motivation if you’re stuck in a losing run.

The point that I’m trying to make is that this is about more than just money.

In same way that Dad’s homemade ravioli is about more than just providing fuel for my family … it’s about making it myself, knowing exactly what’s gone into it, and it tasting a hell of a lot better than anything you can buy (even if they do look a funny shape and sometimes explode in the pan!)

Related posts:

The most important question a trader can ask … Is trading worth it?