The Trading Education Paradox

If there's one topic that’s guaranteed to cause a heated debate in the trading world, it’s Trading Education. Usually, the discussion revolves not so much about which education products are best but about the motivations of the seller. The most common arguments together, create a paradox, which indicates anyone who teaches can't trade. 

In this article, we'll look at the arguments and offer a flip side to them. Not a counter-argument specifically but a look at how this works in other industries. 

As we sell trading education, we are not going to talk about ourselves in this article or it'll just be seen as a sales pitch.

Let's consider another industry full of charlatans. The diet industry. I think we all know someone whose overweight and has 'tried everything' to lose it. Lured to the false promises of - it's easy or doesn't require much effort. It's this hope, which outweighs the doubts. But when they put the program into action, it's tough. It feels much harder than the promise. It's stressful. In reaction to this stress, their subconscious offers them a way out. It brings back the doubts, they become convinced they were sold bad goods and stop. It isn't a sign of anything bad, this is how we are wired. It's the little mental monkey on your back whispering doubts into your ear.

So - it is of utmost importance that you do not have any doubts when you buy education because they will re-surface when the going gets tough. We are not saying all education is good - most isn't. We are simply saying that if you have doubts, they will come back to haunt you. We are just giving you a few tools to buy with fewer doubts.

Most of the arguments against trading educators do have merit. Yet they create the paradox.  I am not here to sell you anything BUT - if you hold these views and you buy education anyway - you will bail when it gets tough because you will be able to point the finger at the vendor and not yourself. This happens a lot when people buy diet programs too.

Trading is an industry and like many industries, it has an education sector. Education is a business and it exists because there is demand for it and people will pay for it.  That's why businesses exist - it is an exchange of value for money. That does not make all services legitimate. Some deliver zero value. We can presume that with no demand, there would be almost no education. There will always be altruistic people that help others for free but it is rare in any industry to have an education sector that is run as a charity. In fact, legitimate education should fetch a decent price as it offers you a way to a new source of income. Onto our first argument:

Those that can do, those that can’t teach

It’s hard to argue with this one. The argument goes that if you can trade and want to earn more money – you can just trade more size. So those that make money from education obviously can’t trade because any additional money they need can just be made trading more size. With this belief set, the only education that can exist is from those that cannot trade.

Game. Set. Match.

So why would someone that can trade, want to teach?

Prop trading is stressful. People are competitive, they see a high bar set amongst their peers and want to get there. There is encouragement/pressure from the firm to increase your size too. That's stress. Also - imagine being $300k offside in a position for 4 hours until it comes good and you make $2 million on it. That is very stressful and is considered one of the leading causes of trader 'burnout'. Some firms are working on approaches to handle these stresses so that the trader doesn’t burn out or at least burns out later. But trading and really pushing it to extremes, does have a finite lifespan for everyone. Those learning to trade see trading profitably as a magical thing and can't imagine getting bored of it.

They could trade before but now they can’t anymore, so they teach

Another fair comment. But one with assumptions. The assumption is that the market changed and this trader didn't keep up. Because why else would someone doing this magical thing for 20 years ever want to stop. Every day in the office must be like a dream. When someone with a prop background enters education, they presume the trader lost the skill or the market changed and the trader didn't.  To me, this is a bit more tenuous. It is true that some techniques have become obsolete but trading has always been an evolving art, where the best continually evolve their skills and identify new patterns in the markets. The idea of a trading technique going the way of the dinosaurs is reasonable but you should also be able to identify the cause. Like discretionary rebate trading being taken over by HFT. 

It's just hard to find parallels in other industries. My pre-trading background is mostly Service Management and Manufacturing systems. Most of the management and consultants were people that came up through the ranks, from the factory floor - to running the factory. In that case, you are experienced on the floor but you make more money from a move to management. 

Most industries have ex-field consultants whose expertise helps those still in the field. It's only in trading where that is considered a step back...

Do traders that move to education make more money than they did trading?

I think this will vary. It's normal for a professional trader's performance to drop when they are allocated more risk capital. Take a young trader with a max clip of 5 contracts and move him to 25 and the norm is for their performance to go down in response to additional risk. Some traders top out at a certain level. That doesn't mean they have less knowledge than a trader with more risk. It just means they couldn't adjust to the new level of risk. So they can trade - they just can't trade more size. That doesn't mean they can't transfer you their knowledge.

Now - if it sounds like I am making up excuses at this point - let's be clear - I AM giving you excuses, I'm just not making them up.

Depending on the mode of delivery, education can make more than even the biggest traders. Education can be sold and delivered automatically. Once created, there may be little work for the trader, especially if they partner with a 3rd party that silently does the marketing.  Generally speaking, anything that requires your butt on a chair, also needs your presence in order to make money. Making money when you are not around is a good thing.

But - if you sell something that has no value - you should not last

And we all know this is not the case. In fact, here's a case to consider. I can't wrap my head around companies that have such amazing marketing skills. They can generate hundreds of millions in sales revenues BUT can't tap into the knowledge of some real traders to produce a legit product. 

This brings us to another argument against...

They are marketing it hard - so that means they aren't legit

This one is also understandable. But only to someone that hasn't run a business. Let's say you are a legit trader, you create a trading product that has value, the delivery is automated.  You have a product that makes you money and is of value to the trader. The more you sell, the more you make and the more people benefit. I've had this discussion with legit people in the industry who are so legit they say things like "we don't want to push too hard" or "we don't want to sell too many" and my reply is usually "if you don't sing your own praises, what will people end up buying instead?". We all know the answer to that. 

I wouldn't see an effort to market a product as a sign it's deficient. Once you decide to put hours into a business selling true value - why would you not want to maximize the return on your time? If it's legit in a marketplace full of useless crap, marketing it hard is doing the customers a favor.

The end game

The way I see it - our industry did this to itself. I can't give people a guaranteed way to find legitimate trading education. What I can say is that you do have to accept that it is a for-profit business. That it would not exist without it being an exchange of value for money. I guess it could be a public service like the DMV in the US - but then the quality wouldn't be any good then either.

Spotting a Trader

If you do contact a vendor, there are a few red flags that will tell you the person is not a trader. Generally speaking, traders are a little bit boring than you would expect. They aren't very "Wolf of Wall Street". They aren't prone to knee-jerk reactions. If you do question their experience, the reaction you'll get is that, they will consider your question carefully and give you their opinion. They won't get angry with you, go on a rant or shout "how dare you" down the phone. The art of trading is one of weighing up facts and making good judgment calls. Instant and extreme reactions if you question their experience, is a red flag. What you will find is that, if you do question their experience politely, they will respect you for asking the question.

The other warning sign and this is tough - is the vendor telling you what you want to hear. So extremely high win rates should put you off unless there is a clear explanation as to why this technique is an outlier from a win-rate perspective. Short learning curves should put you off - you won't be profitable next week, regardless of the technique. Finally, if you are being told you don't have to make any decisions or judgment calls yourself, walk away - trading is about reading the market and making decisions but new traders are looking to avoid that.

I'm not saying you should look for something you don't like but whatever you adopt, it'll take a while to get it working and to optimize your personal win rate with that technique.

There is legitimate education out there, hopefully, you have a little more food for thought in terms of why someone would go that route. With any trading technique, you will have to practice to get to the point you maximize the returns from it. You will start out with poor results because you are new to it. At that point, if you had doubts at the start - they will enter your head and haunt you. The likely outcome is you will bail and that's not good for anyone. If you aren't completely confident at the time of purchase, then that is very likely to be a problem later on.

As for the paradox that a real trader couldn't teach. That only non-traders would provide education. You have to make up your own mind.

Feel free to change my mind in the comments!


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