Let us make some observations of ability from a trader’s point of view.
We all know that the market is unpredictable - no one knows exactly where the price will go. We can get help from technical analysis and fundamental analysis to analyze the movement of the market. The nature of the market gives birth to three types of traders – “Casino Traders“, “Bookworm Traders“, and “Educated Traders“. We will take a closer look at the difference between these three types of traders.
1. “Casino Traders”
“Casino Traders” are traders making decisions based on instinct alone. Such traders always have two scenarios to expect – 1) the price is going to go down, or 2) the price is going to go up. This way of approaching the market is very similar to gambling, but the trader may still adapt and even win – for a price. Based on his/her experience, they might choose to enter, or watch the market for a hint of movement before taking an action - unfortunately the direction of the market is very unpredictable and can be misleading.
“Casino Traders” will do their best to follow the trend, but without understanding how a trend works, they will only have past price history to judge by, so they will learn the characteristics of a pair by observing the historical movement. “Casino Traders” may also employ some type of oscillating indicator to indicate when the instrument is overbought or oversold, to help them decide whether to buy or sell, without any clear idea of the entry, exit, and stop loss levels. They will ether if they feel the time is right to open a position, and exit when they feel the price will no longer move in the right direction. As you may expect, most “Casino Traders” do not last long on the market.
Another kind of trader, the “Bookworm Trader”, has gained forex knowledge from researching free resources available across the web, participating on forex forums, reading free e-books, and other materials. They will spend time creating, testing, and revising trading systems and strategies, and reading other traders’ ideas, but in the end, such traders still typically learn by trial and error - and it may be a very long time before they are ready to trade confidently. Some of them use their live accounts to test whether their system works or not – and many get their account burnt away. The better, luckier “Bookworm Traders” will see a profit and can grow to be successful traders, but the cost of reaching that point is high.
As we know, 90% of all traders end up losing, and only 10% survive as successful traders. Lets discuss how an “Educated Trader” - a trader with a formal forex education - will make their trade. Before investing money in a live account, they invest in themselves by paying tuition for professional forex education. For a few weeks they learn from the experiences of their educators and mentors, trade on their demo accounts, and absorb many important lessons that “Casino Traders” and “Bookworm Traders” learn through expensive and painful losses.
When “Educated Traders” start trading their live accounts, many continue being mentored by their educators (quality forex education often includes mentoring services and live trading rooms), letting their trading ability improve day to day, and moving down the path towards becoming a successful trader. They get a return on their initial investment in a relatively shortly time, when they begin collecting a profit from trading. By investing in themselves, they prepare themselves for many market situations that other traders are not prepared for.
Originally written by Hendra Wijaya