If you learn nothing else

This was sent to me by my mentor. It's invaluable, but you really need to internalize it. One thing all good teachers know is that just because I show you something it doesn't mean you're going to learn it, nor does it mean you're going to learn it now. In my journey as a trader, a lot of things have taken quite some time for me to truly learn them. This is one of them.

If you learn nothing else, learn this:

Good Trade – A trade taken in accordance with your rules.

Winning Trade – A trade that makes money.

Bad Trade – A trade taken that is not in accordance with your rules.

Losing Trade – A trade that loses money.


The trading methodology that Richard Dennis taught his Turtles is arguably one of the most difficult trading methods for a typical trader to execute. Not only does it require the trader to hold on to winning positions for extraordinary lengths of time and profit, but also it requires continually adding to that position if the market moves in the direction of the trade. Since adding to positions raises the average price, the Turtles will often give back substantial profits on retracements and often be stopped out of a trade that rode a significant trend with no profit to show for it. While all trend traders play for the outlier, Turtles play for the outlier of the outliers—typically just one trend a year. How is it that they have the discipline to hold on to positions for so long, continually adding all the way? How is it that they can maintain this discipline after having watched so many profitable trades go bust? And how is that such a large percentage of the people Dennis taught were able to do this successfully when these qualities seem so rare?

The answer is that the Turtles learned very early the difference between a Good Trade and a Winning Trade and the difference between a Bad Trade and a Losing Trade. During the two-week training course, Dennis told the Turtles that he wasn’t evaluating them on whether they made money, but whether or not they stuck to the methodology. Since traders could lose money for long periods of time trading his method, it was especially important that they understand that as long as they took Good Trades, they would ultimately make money. Whether or not the trade was a Winning Trade was of no consequence. If these traders evaluated their performance in the short/medium term on profitability, they would have folded a long time ago.

For another example, let’s look at Mark Weinstein (also profiled in Market Wizards). Weinstein has an extraordinary win/loss ratio and has achieved this by being ultra-selective with his trades. As a result, Mark must necessarily pass on an enormous number of trades that subsequently go his way. What would happen to his trading if he lamented every missed opportunity and or lowered his standards every time he “missed” a trade so that it would meet his criteria next time? What would happen if he treated the next trade with a view to “not missing it this time?” I would imagine he’d be like the majority of the people—a losing trader.

Mark isn’t superhuman. He would probably lament the missed trade like anyone else if he actually saw it as a missed trade. But he doesn’t. Mark knows that his job is to take Good Trades. A trade not taken that ultimately “wins” doesn’t bother him because his final decision was that it wasn’t a Good Trade. Many rookie traders would beat themselves up about “missing a trade” and their trading would be negatively affected for the next series of trades, often disastrously.


Knowing the difference between a good trade and a winning trade, and a bad trade and a losing trade will be one of the most profitable, stabilizing, productive distinctions you will ever make in your career as a trader. For the rookie trader, “missing” a winning trade is more demoralizing than taking a losing trade. But by far the worst trade for a developing trader would be the Bad Winning trade. All it serves to do is reinforce behaviors that will ultimately ruin him/her. Many of the traders in Market Wizards made their greatest reforms after taking a disastrous Bad Losing trade. I really hope that all your Bad trades will be losers (though I don’t hope they’re as disastrous). Taking a Good/Bad trade is within your control, taking a Winning/Losing trade isn’t.

How do we best use this information?

1. Create a set of objective rules for determining what constitutes a Good Trade. If there is a discretionary range within the rules, and you were within the discretionary range, the trade is still Good.

2. By default, know that any trade that has yet to be classified as Good is Bad. If you’re still evaluating whether a trade is Good, it is still Bad. All trades are Bad until proven Good.

3. When you take a Good trade that loses, Stand Proud knowing you had the guts to take a small loss.

4. When you don’t take a trade that you had been considering that ultimately wins, Stand Proud and marvel at your ability to recognize the difference between a Good Trade and a Winning trade and act like the professional that you’ve obviously become.

5. Set a time limit within which you will not modify your rules for determining if a trade is Good. You must periodically evaluate your methodology but only at prescribed intervals. Proper risk management rules will prevent you from losing much money if your methodology has ceased working for you.

Thanks man will print this and read it every day. This has to be the most valuable peice of info on trading there is.

It's correct me and keep me on track, thank for sharing

insightful post thanks

Great post!


Psychology is 90% of trading profitably, controlling emotions and trading your plan.

If all it took to become a profitable trader was to find a good method we would all be rich but we know that you can give the same method of trading to two different traders and one will win while the other will lose. The winning trader will most likely be in tune with his or her emotions.

is ur mentor one of the turtles ?

Inspiring.
Ran across this article, which reminds me of your words on Mr. Weinstein's approach.

Amen !

This is a very profound post, I wish I'd read this when I started, although - in all honesty - I probably would have ignored it.

The biggest step I've made as a trader has been to define my entry and exit criteria, and then judge each trade against that criteria, it's been hugely significant for me.

What surprised me was how difficult it was to stick to the rules.

I would definitely advise new traders to adopt a similar method to help speed up their progress.

No doubt they will ignore this advice, as it's very tempting to shoot from the hip rather than getting bogged down in the boring stuff. The trouble with this approach is that it takes longer to work out what is and isn't working as your results are to a degree random.

This post contains a lot more wisdom than a new trader can comprehend. Good stuff

I agree. It took me a few years to understand most of what he tried to teach me.

Here's one of the best rules he taught.

"Don't make any changes to your trading system on a weekday. If you absolutely feel you must do so, then stop trading and wait for Saturday to make the change."

I sure lots of folks, myself included, wish they had followed this rule at least once during their trading, lol.

Yeah definitely, as opposed to mid trade, ha.

It's amazing what nonsense your mind comes up with to get you in/out of a trade!!

Great post Dopey! I think as traders mature, they become more concerned with staying in balance (mentally and emotionally), as well as staying in tune with the market via the manner in which they feel most comfortable trading, i.e. their system...while making money, and not just doing "things" only for the sake of making money. The "how" they do it takes precedence over the "how much". I really hope traders get the point of your post.



FX4...

Great post!

Your mentor wasn't Michael Martin by any chance? Or even better: his mentor, Ed.

While the OP is absolutely correct, I think it is a bit simplistic.

Let's face it, the most perfect discipline is achieved by EAs. You can be sure that an EA will stick 100% to the rules. So what ? Will that make every EA system profitable ? Of course not.

So the solution to the above would be either to "apply discretion" (which makes the rules less rigid) and/or find a system with a proven edge (which you can THEN try to follow 100% by the rules).

So, a trader may not have the skill to successfully apply discretion or may have not yet found his "edge". So how can he stick to the rules ? Which rules exactly ? They end up jumping from one system to another and they are unable to decide on a well-defined set of rules within a certain system.

So, BEFORE sticking to the rules, you have to be certain that your system will be profitable IF you stick to the rules (even if that requires some discretion).

It's not simplistic, it only seems that way.

Any system has latitudes of freedom. Even something as fluid as trading like FTI, there are still defined levels of skew known and calculated beforehand, even if discretion will be used when to deploy them.

Just look at trade explorers. Full of people breaking all their own rules, not slowly bleeding to death.

Discretion is taking advantage of the fact you know before you know that you know.

I don't disagree with the above, what I'm saying is that a major reason why people don't stick to their own rules is because they don't have the necessary confidence in their system. And most times, not unjustifiably. Most systems don't work (unless "discretion" is applied). So if a guy sticks to the rules but keeps slowly bleeding, it is only natural for him to change the rules instead of waiting to bleed to death.

So FIRST we have to get a system we are very confident with, and THEN stick to its rules.

All good but changing your method half way through a trade is desperation. Changing them off the back of further testing/thinking/trading is sensible.

On the crumbly system threads you see it all the time. This trade I did it like X because of <<insert spurious reason here>>. That's like picking up a football when someone comes to tackle you (think soccer not american)

Thanks to share such good info with us. It is very useful for new traders who are on the path of learning, just like me.

No, it wasn't, but his first name is Mike. He was a young guy who traded currencies for Tudor's fund in NYC. According to him, he was the youngest ever full-time trader for PTJ. I met him online, very unexpected, but it required me taking advantage of something I had seen and understanding the implications of it. To wit, he had posted a 3-sentence post on MoneyTec saying he wanted to mentor 2-3 people.

I contacted him and he sent me a questionnaire that initially I found off-putting. It was detailed and designed to see what I knew about markets and basic financial math. He also wanted me to take a Myers-Briggs test. Fortunately, I had taken one about 6 months earlier when my wife and I were in marriage counseling (yes, 8 years later we’re still married).

About a week later, I figured what the hell, I’ll answer it. I sent it to him, along with Myers-Briggs results and he contacted me a couple of days later.

After talking to him a couple of times about ourselves and what he wanted to do, I told him I needed to verify his bona fides. He said he'd be very disappointed in me if I didn't. He then told me to call the fund’s office in Greenwich and ask for Mr. X. This was a man who he had worked with and was still trading for PTJ. Two days later I got the number from the net and called the office at their lunchtime. I got reception and asked for Mr. X. He answered the phone and I told him that Mike had given me his name. I explained what was going on with us and that I needed to verify his story. We talked for 15 minutes and this man seemed genuinely interested in talking to me and didn’t rush me off the phone.

He verified everything that Mike had told me, about working in the NYC office, being the youngest trader, pushing a $50 million account, and consistently making his targets for 5 years. And then abruptly leaving.

Unfortunately, things didn’t go so well for him. He said he walked away from PTJ with about $12 million. But he was like the stereotype of what I think, and I’m sure others, is the typical Wall Street trader. . .young, brash, brilliant, well-educated, over-confident and arrogant to a degree. Coming into so much money so quickly and at such a young age, many like him don’t know what to do with it, so they blow a lot of it. Women, drugs and booze is a familiar refrain simply because they’re the best things to spend lots of money on for many folks. He told me the story of how after one particularly stupefied day and night, he received a call from his broker to inform him he had lost over $1 million dollars on a trade on either the Hang Seng or the Nikkei. He still has no recollection of putting on the trade, but he lost that money. He’s a cautionary tale, to be sure.

Mike was, and still is, one of the smartest and sharpest people I’ve ever known. He’s an astute reader of people. He had me pegged in no time and he consistently amazed me by being able to determine what I was thinking and going to do at any given time. Given my background, I’ve met lots of smart people, but he’s one of best.

As I’ve said before, it has taken me some time to fully understand what he tried to teach me. I remember waiting for the hammer to drop, for the “Big Secret or Technique” that would explain trading. But he told me in the very beginning that he could not make me into a successful trader, but only show me how I could make myself into one. Of course, the hammer never dropped, because there is no “Big Secret”. But there is a way to go about becoming a successful trader. It’s there for everyone to see if they want to, and I’ve seen some guys here on these forums do so. It’s called desire, consistency, self-knowledge and a fucking huge work ethic. That’s the Big Secret.

I’ve worked with 6-7 people over the years trying to teach them. Only 2 of them showed what was needed.

Anyway, enough of this. I’m sure some will understand what I’ve tried to get across, others won’t, some will later on, and some will scoff. None of it matters to me, really, as not a single person on these forums has any impact on my life or my trading. And that’s a big part of the Big Secret.

Brilliant Article thanks