The purpose of this post is to give developing traders a heads-up about the some critical elements of trading profitably, consistently and in a sustainable manner - naturally the discussion of my own learning also helps me too. I am a 'relatively experienced' (8 yrs) and consistently profitable full time index futures trader, now gently adding in some forex set-ups to my existing method.
If you want a prescriptive step by step guide on how to be a successful trader, then this thread will disappoint you. If you want to see some of my "set-ups" and be guided through trades, then you will be disappointed even more. If you want to see some selected highlights about what matters, and what doesn't, based on the practical experiences of one trader, and his observations of several other successful and unsuccessful traders, then perhaps this thread will be of interest to you.
THIS IS A THREAD ABOUT PROCESS, METHOD, LEARNING, AND PITFALLS - IT IS NOT ABOUT A "SYSTEM"
I don't pretend for a minute to speak from some 'enlightened' perspective, nor do I believe my method is perfect or better than anyone else's - but I do trade for a living - it is my job, my livelihood, and I take it very seriously. I am not a trading educator, and never will be - just a humble person who makes a good living from the markets and enjoys his lifestyle in the process.
So these are my realities; it is what works for me - you might do it differently or think about it differently, and that's ok - so let's respect each other's differences. I do not wish to gain a following through this thread, and am not in need of any reassurances about what I am doing, but feel free to ask a question or make a contribution if you feel so inclined. No cliches here; just learning from the real world. The list will probably not be exhaustive so will add more when I have time. If you find something useful here, before this thread eventually dies a slow and painful death, then well and good - if not, then hopefully you will find what you are looking for somewhere else.
Reality #1 - If you want to become a life long, profitable trader, you need to "learn how to learn." (See everything below)
Reality #2 - Consistent, profitable, and sustainable trading is achieved through years of hard work, and is not realised after a few "good months" when the market favours your method of the day. The effort and learning required to becoming a full time trader is akin to the completion of a bachelors or masters degree, or even PHD. If you are not prepared for the implications of this "reality" then for the sake of your bank account, don't try trading - stick to your day job.
Reality #3 - You will NOT realise consitent profitability (month after month, year after year) through purchasing someone else's system, copying someone else's system from this website, attending a seminar, or worse still buying a 'trading robot' on the internet - there are no shortcuts in this business, and if you think otherwise you are deluding yourself! There is nothing wrong with paying for good trading education (hard to find!) but months and years of adaptation will need to follow.
Reality #4 - It is highly unlikely that you will become a consistently profitable trader (for years to come) solely through the use of technical indicators such as moving averages, RSI's, stochastics, etc. No "indicator" available on retail platforms is better than the human brain, and I challenge anyone to prove to me othewise. If you have found yourself system hopping, trying this indicator, that indicator, trying to copy the set-ups in the "trading systems" area of this website but still living in a world of frustration then this "reality" should make sense to you.
Reality #5 - Consistent profitability is nothing more than an outcome from a total trading methodology, and is unlikely to come from the acquistion of a "system" (see realities #1-11)
Reality #6 - If you don't understand the "capability" of your method, there is a good probability that you will loose money. By "capability" I mean how your method will perform under various and differing market conditions, including the mechanics of contract sizing, entries, exits, scaling in/out etc, etc. People who don't understand the true capability of their method, do things like use trailing stops (just in case it's a big one!), or ask questions on this website about things like "what is the best stop loss." People who do understand the capability of their method think, analyse, are flexible, adaptable and constantly testing new rules or theories - this process never ends. They know when they place a trade what the probability of success will be and how much they are putting at risk. They also know with a reasonable degree of probability what their expected rate of monthly returns should be. There are few, if any, "unknowns" when you understand the true capability of your method, and you can trade with confidence and sleep well at night.
Reality #7 - Managing risk is everything, and it is very simple. The first question before placing a trade should be "how much money can I loose if this trade does not succeed?" Almost all struggling traders usually ask the opposite question first.
Reality #8 - The unknown or untested assumptions in your trading method will bite you on the arse one day. Good traders know what the assumptions are in their trading plans, and these known assumptions are either managed as "acceptable risks" by impacting things like contract sizing, or are mitigated to the greatest extent possible by alternate plans. (Untested) assumptions in your trading plan might be things like. "MACD and RSI set at XYZ has made 2,000 pips in the last 3 months on the EUR/USD, and therefore it should continue to do so in the future.." Or "GBP/JPY is volatile and EUR/CHF is not volaitle." Or "My broker will honour a guaranteed stop loss." What are the assumptions in your trading plans, what are the risks attached to those assumptions, and what are you going to do about it? If you don't know the answer to these questions and/or fail to take the neccessary action then there is a reasonable chance that sooner or later you will suffer a big loss.. and be left wondering why.
Reality #9 -The concept of Trading Psychology, as it is most commonly understood, is completely over-rated, and in some cases might actually do more harm than good. "Trading Psychology" sells books, seminars and training courses - to the profit of "experts" who are usually not very good traders themselves - but in reality the psychology of trading should be quite simple. Sadly, it usually exists as the "grand answer to all problems" for people who have failed to understand the basic and practical implications of reality #2 (see above), and/or for people whose capabilities are ill-matched to the realities of the business of trading (though perhaps the latter can be overcome?). If you run a successful business, is that likely to be achieved through buying a course in the internet and hoping someone else has done all the hard work for you, and that it can be copied to achieve almost immediate success - or is a successful, robust and sustainable business achieved through months and years of hard work, staying focussed and disciplined, learning from your mistakes, being realistic and being adaptable? Is there something mysterious and magical about the psychology of this situation, or is it just about understanding reality? If your business is not producing the profit you expect that it should, and you feel emotional strain, anxiety and a lack of confidence in what you are doing, do you try to manage your 'business psychology' symptoms as the principle means to improve the output of your business, or do you try to get down to the root cause(s), and carefully examine the way your business is operating, in a methodical, systematic and detailed manner? Trading is a serious business and should be treated as such.
Reality #10 - If managing risk is "everything," then PATIENCE is "everything, the sequel." I like to think of it as a basic and tangible human discipline - please let's not complicate it and dilute it with the vagaries of "Trading Psychology." Between 17-24 February, on days when the market was open, I sat and watched my charts for 2.5 hours every day, and did nothing - that's around 15 hours of watching charts across 6 days with no trades - because for me, there was nothing there. Today, after waiting for 6 days, I entered a trade based on a set-up that emerged, with a probability of success of greater than 80% and a potential loss of around 0.5% of my capital. This waiting time was longer than usual but I didn't mind, and the result was a modest, pleasing, and slightly better than expected 3% return on capital. The set-up for this trade was, of course, very straightforward, and comparitively stress-free - just see realities #1 to #9. AND exercising patience for a few hours each day lets you feel good about doing other stuff with a clear mind for the rest of the day. If my next trade results in a loss, that's ok. Waiting for 15 hours across 6 days for the right set-up to enter a single (high probability) trade is my version of full time trading, and no doubt there are an infinite number of other 'versions' out there too.
Reality #11 - Most good traders have become so, through learning from their costly mistakes. I definitely fall into this category, as does every other good trader I know. I hope it can be done otherwise, but frankly I don't know.
Reality #12 - It would be nice to have another one, but could only think of 11 just now - and it's time for a coffee.
UPDATE: If you can 'code the above system' I'll happily sell all my assets, you can have half, and let's give the rest to a charitable cause - you can then live of the profits of a 'holy grail' EA, and when my wife finds out I've sold everything I will then be headed for the grave having been proven wrong.
Happy trading!
If you want a prescriptive step by step guide on how to be a successful trader, then this thread will disappoint you. If you want to see some of my "set-ups" and be guided through trades, then you will be disappointed even more. If you want to see some selected highlights about what matters, and what doesn't, based on the practical experiences of one trader, and his observations of several other successful and unsuccessful traders, then perhaps this thread will be of interest to you.
THIS IS A THREAD ABOUT PROCESS, METHOD, LEARNING, AND PITFALLS - IT IS NOT ABOUT A "SYSTEM"
I don't pretend for a minute to speak from some 'enlightened' perspective, nor do I believe my method is perfect or better than anyone else's - but I do trade for a living - it is my job, my livelihood, and I take it very seriously. I am not a trading educator, and never will be - just a humble person who makes a good living from the markets and enjoys his lifestyle in the process.
So these are my realities; it is what works for me - you might do it differently or think about it differently, and that's ok - so let's respect each other's differences. I do not wish to gain a following through this thread, and am not in need of any reassurances about what I am doing, but feel free to ask a question or make a contribution if you feel so inclined. No cliches here; just learning from the real world. The list will probably not be exhaustive so will add more when I have time. If you find something useful here, before this thread eventually dies a slow and painful death, then well and good - if not, then hopefully you will find what you are looking for somewhere else.
Reality #1 - If you want to become a life long, profitable trader, you need to "learn how to learn." (See everything below)
Reality #2 - Consistent, profitable, and sustainable trading is achieved through years of hard work, and is not realised after a few "good months" when the market favours your method of the day. The effort and learning required to becoming a full time trader is akin to the completion of a bachelors or masters degree, or even PHD. If you are not prepared for the implications of this "reality" then for the sake of your bank account, don't try trading - stick to your day job.
Reality #3 - You will NOT realise consitent profitability (month after month, year after year) through purchasing someone else's system, copying someone else's system from this website, attending a seminar, or worse still buying a 'trading robot' on the internet - there are no shortcuts in this business, and if you think otherwise you are deluding yourself! There is nothing wrong with paying for good trading education (hard to find!) but months and years of adaptation will need to follow.
Reality #4 - It is highly unlikely that you will become a consistently profitable trader (for years to come) solely through the use of technical indicators such as moving averages, RSI's, stochastics, etc. No "indicator" available on retail platforms is better than the human brain, and I challenge anyone to prove to me othewise. If you have found yourself system hopping, trying this indicator, that indicator, trying to copy the set-ups in the "trading systems" area of this website but still living in a world of frustration then this "reality" should make sense to you.
Reality #5 - Consistent profitability is nothing more than an outcome from a total trading methodology, and is unlikely to come from the acquistion of a "system" (see realities #1-11)
Reality #6 - If you don't understand the "capability" of your method, there is a good probability that you will loose money. By "capability" I mean how your method will perform under various and differing market conditions, including the mechanics of contract sizing, entries, exits, scaling in/out etc, etc. People who don't understand the true capability of their method, do things like use trailing stops (just in case it's a big one!), or ask questions on this website about things like "what is the best stop loss." People who do understand the capability of their method think, analyse, are flexible, adaptable and constantly testing new rules or theories - this process never ends. They know when they place a trade what the probability of success will be and how much they are putting at risk. They also know with a reasonable degree of probability what their expected rate of monthly returns should be. There are few, if any, "unknowns" when you understand the true capability of your method, and you can trade with confidence and sleep well at night.
Reality #7 - Managing risk is everything, and it is very simple. The first question before placing a trade should be "how much money can I loose if this trade does not succeed?" Almost all struggling traders usually ask the opposite question first.
Reality #8 - The unknown or untested assumptions in your trading method will bite you on the arse one day. Good traders know what the assumptions are in their trading plans, and these known assumptions are either managed as "acceptable risks" by impacting things like contract sizing, or are mitigated to the greatest extent possible by alternate plans. (Untested) assumptions in your trading plan might be things like. "MACD and RSI set at XYZ has made 2,000 pips in the last 3 months on the EUR/USD, and therefore it should continue to do so in the future.." Or "GBP/JPY is volatile and EUR/CHF is not volaitle." Or "My broker will honour a guaranteed stop loss." What are the assumptions in your trading plans, what are the risks attached to those assumptions, and what are you going to do about it? If you don't know the answer to these questions and/or fail to take the neccessary action then there is a reasonable chance that sooner or later you will suffer a big loss.. and be left wondering why.
Reality #9 -The concept of Trading Psychology, as it is most commonly understood, is completely over-rated, and in some cases might actually do more harm than good. "Trading Psychology" sells books, seminars and training courses - to the profit of "experts" who are usually not very good traders themselves - but in reality the psychology of trading should be quite simple. Sadly, it usually exists as the "grand answer to all problems" for people who have failed to understand the basic and practical implications of reality #2 (see above), and/or for people whose capabilities are ill-matched to the realities of the business of trading (though perhaps the latter can be overcome?). If you run a successful business, is that likely to be achieved through buying a course in the internet and hoping someone else has done all the hard work for you, and that it can be copied to achieve almost immediate success - or is a successful, robust and sustainable business achieved through months and years of hard work, staying focussed and disciplined, learning from your mistakes, being realistic and being adaptable? Is there something mysterious and magical about the psychology of this situation, or is it just about understanding reality? If your business is not producing the profit you expect that it should, and you feel emotional strain, anxiety and a lack of confidence in what you are doing, do you try to manage your 'business psychology' symptoms as the principle means to improve the output of your business, or do you try to get down to the root cause(s), and carefully examine the way your business is operating, in a methodical, systematic and detailed manner? Trading is a serious business and should be treated as such.
Reality #10 - If managing risk is "everything," then PATIENCE is "everything, the sequel." I like to think of it as a basic and tangible human discipline - please let's not complicate it and dilute it with the vagaries of "Trading Psychology." Between 17-24 February, on days when the market was open, I sat and watched my charts for 2.5 hours every day, and did nothing - that's around 15 hours of watching charts across 6 days with no trades - because for me, there was nothing there. Today, after waiting for 6 days, I entered a trade based on a set-up that emerged, with a probability of success of greater than 80% and a potential loss of around 0.5% of my capital. This waiting time was longer than usual but I didn't mind, and the result was a modest, pleasing, and slightly better than expected 3% return on capital. The set-up for this trade was, of course, very straightforward, and comparitively stress-free - just see realities #1 to #9. AND exercising patience for a few hours each day lets you feel good about doing other stuff with a clear mind for the rest of the day. If my next trade results in a loss, that's ok. Waiting for 15 hours across 6 days for the right set-up to enter a single (high probability) trade is my version of full time trading, and no doubt there are an infinite number of other 'versions' out there too.
Reality #11 - Most good traders have become so, through learning from their costly mistakes. I definitely fall into this category, as does every other good trader I know. I hope it can be done otherwise, but frankly I don't know.
Reality #12 - It would be nice to have another one, but could only think of 11 just now - and it's time for a coffee.
UPDATE: If you can 'code the above system' I'll happily sell all my assets, you can have half, and let's give the rest to a charitable cause - you can then live of the profits of a 'holy grail' EA, and when my wife finds out I've sold everything I will then be headed for the grave having been proven wrong.
Happy trading!
What i find amazing is that there isn't a definitive guide as to what works in this business. I suppose trying every indicator and combination of indicators is something everyone must go through- part of the learning process. Although i wish i hadn't wasted quite as much time with my naive stochastic system that i started out with, which inccidently would be fine if the market ranged for ever
