The way kids approach an amusement park is very similar to the way some adults approach trading. All they want to do is get their tickets, run in, and explore. They have no plan or strategy, don’t listen to the rules, and can think only of joining the other kids in the excitement. Traders usually learn about forex from a friend, at a trading conference, or on the Internet. When they first hear about it, they are excited and will spend a little bit of time getting up to speed on how the market works and maybe even open a practice trading account. However, as they see how active the forex markets can be and the swings in profit and loss that the moves can provide, overly excited traders will quickly abandon their practice accounts and dive right into the market with real money.
Oftentimes they do not even have a concrete plan other than to make money. What ends up happening to new traders is the same thing that happens to kids in a funhouse, which is that they will move a few steps forward, run into a few dead-ends that turn into losses, and walk around in a daze until they find the exit. The difference between a funhouse and trading is that the kids will always find the exit some take longer than others but eventually everyone comes out a happy camper. However, in trading, new traders can exhaust their capital long before they are able to muddle through and find an effective trading strategy.
What separates professionals from amateurs is preparation. Professionals such as hedge fund managers or bank traders usually do hours of research and analysis before placing a trade. This includes knowing exactly how much they are willing to risk on any one trade and when they plan to take a profit. Most individuals don’t strive to become hedge fund managers but in many ways, this type of discipline is even more important to individual traders. Hedge fund managers may be managing millions or billions of dollars—but most of it is other people’s money. Individual traders, on the other hand, may only be trading $10,000 or $100,000, but each dollar is their own hard-earned money