I am fast approaching 10 years of having traded forex, stocks, bonds, options and everything in between.
This week I felt like I wanted to pen something together to mark this important milestone. I have lived and breathed trading in these years, routinely spending 8-10 hours on average each day on trading. That is a whopping 30, 000 hours dedicated to this pursuit that started simply as an exercise to get rich quick
More than anything else, this post is for my own reflection and inspiration. If you happen to read this, feel free to leave your perspective, If you are starting out on a trading journey as a retail trader, I hope you can gain some value from my post. Particularly for retail traders like you and I, the odds are stacked against us. There is no formal training that other traders who work for companies and banks receive. Therefore, we have to learn by trial and error. Successful trading in my mind is consistent trading, where you can get consistent amount of money out of the market, month after month for years. It is very hard, but it is not impossible.
My first trade EVER was in GBP/USD on eve of Lehman Brother’s bankruptcy on September 15, 2008. I think I actually made 80-85 bucks on that first trade before losing it all and then some more in next few weeks and months.
As any good newbie, I piled higher and deeper into charts and time frames and trading systems. Read every literature there is on traders and technical analysis. When all else failed to materialize meaningful and consistent profits, I started studying fundamental analysis – account deficits and GDPs, interest rate projections, CPIs and FOMC. I went in for services that track movement of rail freight and oil tankers via satellites to gain an insight into a country's economy.
I think it might be safe to say that I have dabbled in almost everything under the sun when it comes to trading in last 9 years, except perhaps astrology and planetary movements. I also learned coding to program Ninja trader systems and MT4 EAs.
From an emotional point of view, I experienced depths of despair and heights of ecstasy. As a trader, I realized you should never assume that you have made it in this business. A single limit up or limit down move against my position can ruin my account at any time.
After almost a decade long foray into trading, I arrive at some simple conclusions about nature of trading. It is so fundamental that it is almost hard to believe when you are starting out that it could be so simple:
This week I felt like I wanted to pen something together to mark this important milestone. I have lived and breathed trading in these years, routinely spending 8-10 hours on average each day on trading. That is a whopping 30, 000 hours dedicated to this pursuit that started simply as an exercise to get rich quick
More than anything else, this post is for my own reflection and inspiration. If you happen to read this, feel free to leave your perspective, If you are starting out on a trading journey as a retail trader, I hope you can gain some value from my post. Particularly for retail traders like you and I, the odds are stacked against us. There is no formal training that other traders who work for companies and banks receive. Therefore, we have to learn by trial and error. Successful trading in my mind is consistent trading, where you can get consistent amount of money out of the market, month after month for years. It is very hard, but it is not impossible.
My first trade EVER was in GBP/USD on eve of Lehman Brother’s bankruptcy on September 15, 2008. I think I actually made 80-85 bucks on that first trade before losing it all and then some more in next few weeks and months.
As any good newbie, I piled higher and deeper into charts and time frames and trading systems. Read every literature there is on traders and technical analysis. When all else failed to materialize meaningful and consistent profits, I started studying fundamental analysis – account deficits and GDPs, interest rate projections, CPIs and FOMC. I went in for services that track movement of rail freight and oil tankers via satellites to gain an insight into a country's economy.
I think it might be safe to say that I have dabbled in almost everything under the sun when it comes to trading in last 9 years, except perhaps astrology and planetary movements. I also learned coding to program Ninja trader systems and MT4 EAs.
From an emotional point of view, I experienced depths of despair and heights of ecstasy. As a trader, I realized you should never assume that you have made it in this business. A single limit up or limit down move against my position can ruin my account at any time.
After almost a decade long foray into trading, I arrive at some simple conclusions about nature of trading. It is so fundamental that it is almost hard to believe when you are starting out that it could be so simple:
- There is no holy grail. I turned profitable after I stopped looking for systems and indicators. Nothing works all of the time. When I realigned my mental focus to being consistent rather than accurate, amazing things started to happen in my PnL statements.
- You do not need an indicator or a system that works all the time to make money. You simply need an edge. Edge is the higher probability of one thing happening over another. My edge is that I can read order flow better than other traders trying to take my money away from me. With that edge, I am able to correctly predict price for next 6-8 ticks in the market that I trade, about 65 percent of times. When I am wrong, I lose 3-4 ticks. In FX terms, this is making 60-80 pips when you are right, and losing 30-40 pips when you are wrong. If you are right 6-7 times out of 10, and your commissions are low enough, this money adds up quick. There are traders who are right only 30-40 percent of times, but when they are right they make 3-4 times the money they lose when are wrong.
- Now that I have battle scars to show off I feel confident to say that successful trading has nothing to do with how good of a technical analyst you are. I use to doubt it but now I believe it. You might have the best charts in town, but if you feel crappy and start doubting your skills after 2-3 back-to-back losses, then you will never make it as a trader. A trader who makes it is the one who does not care about being wrong. On the other hand, being right either. Most successful traders feel the same after a series of losses or after a series of wins. They do not attach emotional meaning to a loss or win. This kind of emotional structure in a trader ensures they can trade thru a drawdown without losing their accounts.
- It is important to have a set of basic questions about nature of market you trade. I have these: 1- why does price goes up 2- why does price not go up 3- why does price go down 4- why does price not go down
- Once you have the questions listed, you want to assign some context to these questions. My context is this; 1: why does price go up after a bad news 2; why does price go down after a good news 3; why does price not go down when someone sells a 1000 lots at market 4; why does price not go up when someone bought 1000 lots at market
- Now you have your questions and now you have defined some context around those questions, you can start building themes around the market you trade. Since I am a scalper, and my time frame is in seconds to minutes, my context may not be same as someone who holds positions for days or weeks. However, same patterns repeat on all time frames. A strong market will ignore bad news and a weak market will ignore good news on all time frames as an example.
- I started out as a technical trader, then I became a techno-fundamental trader and now I consider myself a thematic trader. I don’t consider news while trading, but I consider the effect of news on price. I do not use any indicators but a bare-bones Bollinger band for all markets and all time frames. Price and volume is the best indicator. Everything else is just a derivative of those two. I cannot stress enough how important it is to have a context, to have a theme while trading. This trading is a continuous game of poker and if you don’t know who the patsy is within first hour of a poker game, then YOU ARE the patsy.
- Nowadays with algorithmic traders, the volume per bar is less and less relevant due to predator practices of algorithms. However, volume on horizontal levels, or market profile in other words is as valuable today as it was 20 years ago. Learn market profiling to gain a true edge over your competitors.
- The limiting belief that a broker or someone at a bank desk is out to get you. You and I are so small that we are not even small fish in this game. My 5-10 lot trade on SP500 is nothing against a guy who trades 800 lots at a clip. No one is out to get you, you are inconsequential. Just trade on developing your edge, and don’t cater to limiting beliefs.
- Last but not the least, If there is something I knew when I first started and if I could give one advice to the newbie: stop chasing the ghost of technical analysis and indicators. It does not lead to profits. Pick ANY one actively traded market. Let’s say EUR/USD and simply watch it on a 1 minute chart for 2-3 hours during an active session. London open or New York open. Remove all indicators, remove all squiggly lines. Just watch how bid and offers behave, tick by tick. Do not judge, do NOT force trades, just watch it for 2 hours a day, every day for 3 months. I promise if you follow this as a religion, you will gain an advantage, an edge so solid that no algo or no broker can take away from you. You will be on your path to a remarkable career as a trader.
Its all in the mind.
Refreshing Reading.... 
