Wednesday, September 16, 2009
If you are a new trader, you will find all kinds of equity picking software and "trading experts" online. The same exists for options and ETF's. What is your trader type? It depends on your trading personality, your financial situation, and why you are trading in the first place. Let's look at the three trading "color" systems:
Black box:
These software programs or "experts" will simply tell you which equity to invest in and at what price. You might also be told how much profit you can expect to make and when to get out. Any black box system will offer no explanation, but expects you to blindly follow its instructions. There is always some kind of "proprietary" algorithm that the software authors use. You will usually pay a monthly subscription fee for unlimited use of the software. You might also have a so-called expert who will send you his picks by email. Again, no explanation given, just entry and exit points. It is up to you to follow the instructions to the letter.
If you are a black box trader, you don't have to think about anything, do any research, or read long explanations. You want to be told what to invest in and when, but don't care about why. You just want to make money.
Do you really want to trade this way? In my opinion, you are flying blind. You are putting your complete trust in possibly flawed software or a so-called expert who may be no more expert than you! You will probably do no better than break even.
Gray box:
These software programs and "experts" also make market predictions, but at least they will give you an explanation of why they are recommending a particular equity or option trade. Their justification for eachtrade can run from one sentence to three or four paragraphs. They will also give you entry and exit points. If you can at least understand the author's explanations, and do not have the time or expertise to do the research yourself, this can be an adequate way to trade. Again, you will pay some sort of monthly fee.
If you consider yourself a gray box trader, you will read the trade justification and hopefully understand it. Then if you trust the software and/or expert, you either make the trade or you don't. You go by "gut" feeling, which is inadequate at best.
Unfortunately, you are flying with one eye closed. You have to trust that your expert has correct information on which to base his trade recommendations. How would you know? You don't. Gray box trading isjust a bit better than black box trading. You may make some money, but certainly not enough to make a living.
Most well-off investors with a high income will simply trust their investment advisor to invest their money for them. This is a big mistake. No one cares more about your investments than you do. Make the time to do your own investing!
White box:
If you are a white box trader, you use equity analysis websites like Morningstar to do your own research. You make your own trading decisions based on expert and unbiased advice. You will usually pay a yearly fee for equity analysis sites. I pay $129 per year for Morningstar and it is well worth it. It's about all I use now.
If you are a white box investor, you need to be in total control of your own destiny. You are an experienced trader and like to do your own research and make your own decisions based on expert advice. No one recommends a trade to you, you make that decision yourself.
You are flying with both eyes open. You trust no one but unbiased equity evaluation sites. You realize that no one can truly predict what the equity markets will do next. You recognize that most "experts" simply want to make money by charging you monthly fees. You would rather pay for unbiased advice that you can test yourself. You do your own research and make your own decisions. You trust yourself to make logical, emotionless decisions. You most likely trade for a living and do well at it. You would not even consider telling other traders what they should trade and when.
Conclusions:
I've tried all three types. I had no success at all until I started to do my own research and make my own decisions. I am a white box trader all the way.
I now trade for a living. If you are a serious investor, it is the only way to go in my opinion. It may take years for you to actually make enough monthly profit, but you can keep your present job until you are indeed making a living trading. Using myself as an example, it will take me a total of six years to make a living trading. Can you wait that long?
In order to trade for a living, you need patience, a good plan, and the ability to stick to your plan. You must do your own research and make your own decisions. Anyone who trades for a living is a white box trader.
John J. Soares
Investigate That "Expert" Stock Picker
Evaluate My Trading System
Black box:
These software programs or "experts" will simply tell you which equity to invest in and at what price. You might also be told how much profit you can expect to make and when to get out. Any black box system will offer no explanation, but expects you to blindly follow its instructions. There is always some kind of "proprietary" algorithm that the software authors use. You will usually pay a monthly subscription fee for unlimited use of the software. You might also have a so-called expert who will send you his picks by email. Again, no explanation given, just entry and exit points. It is up to you to follow the instructions to the letter.
If you are a black box trader, you don't have to think about anything, do any research, or read long explanations. You want to be told what to invest in and when, but don't care about why. You just want to make money.
Do you really want to trade this way? In my opinion, you are flying blind. You are putting your complete trust in possibly flawed software or a so-called expert who may be no more expert than you! You will probably do no better than break even.
Gray box:
These software programs and "experts" also make market predictions, but at least they will give you an explanation of why they are recommending a particular equity or option trade. Their justification for eachtrade can run from one sentence to three or four paragraphs. They will also give you entry and exit points. If you can at least understand the author's explanations, and do not have the time or expertise to do the research yourself, this can be an adequate way to trade. Again, you will pay some sort of monthly fee.
If you consider yourself a gray box trader, you will read the trade justification and hopefully understand it. Then if you trust the software and/or expert, you either make the trade or you don't. You go by "gut" feeling, which is inadequate at best.
Unfortunately, you are flying with one eye closed. You have to trust that your expert has correct information on which to base his trade recommendations. How would you know? You don't. Gray box trading isjust a bit better than black box trading. You may make some money, but certainly not enough to make a living.
Most well-off investors with a high income will simply trust their investment advisor to invest their money for them. This is a big mistake. No one cares more about your investments than you do. Make the time to do your own investing!
White box:
If you are a white box trader, you use equity analysis websites like Morningstar to do your own research. You make your own trading decisions based on expert and unbiased advice. You will usually pay a yearly fee for equity analysis sites. I pay $129 per year for Morningstar and it is well worth it. It's about all I use now.
If you are a white box investor, you need to be in total control of your own destiny. You are an experienced trader and like to do your own research and make your own decisions based on expert advice. No one recommends a trade to you, you make that decision yourself.
You are flying with both eyes open. You trust no one but unbiased equity evaluation sites. You realize that no one can truly predict what the equity markets will do next. You recognize that most "experts" simply want to make money by charging you monthly fees. You would rather pay for unbiased advice that you can test yourself. You do your own research and make your own decisions. You trust yourself to make logical, emotionless decisions. You most likely trade for a living and do well at it. You would not even consider telling other traders what they should trade and when.
Conclusions:
I've tried all three types. I had no success at all until I started to do my own research and make my own decisions. I am a white box trader all the way.
I now trade for a living. If you are a serious investor, it is the only way to go in my opinion. It may take years for you to actually make enough monthly profit, but you can keep your present job until you are indeed making a living trading. Using myself as an example, it will take me a total of six years to make a living trading. Can you wait that long?
In order to trade for a living, you need patience, a good plan, and the ability to stick to your plan. You must do your own research and make your own decisions. Anyone who trades for a living is a white box trader.
John J. Soares
Investigate That "Expert" Stock Picker
Evaluate My Trading System
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