Transcript
THE ONE T HING
Anand ‘Lucci’ Sanghvi Options tape reader
•
Head Trader & Founder of Sang Lucci
“Don’t focus on the money.” There have been two points in my life where I’ve focused entirely too much on the money, and that has tremendously impacted my bottom line and ability to pull out prots consistently from the markets. Once when I was just starting out I focused too much on paying my bills and making a certain amount of cash ow every month when unfortunately, Mother Market doesn’t care at all about that. Constantly focusing on my nancial woes led me towards making bad decisions in the market, and subsequently worsening my situation and even extending my learning curve. The second point was after I had made signicant money within a short period of time to the tune of about $2 million inside of a year. The desire for material possessions, second & third businesses, expanding operations and biting o more than you can chew becomes a driving force, and you become greedy with prots, often electing to hold on to positions for bigger gains because the prots aren’t enough. Again, Mother Market doesn’t care and if she doesn’t give you the follow through, whatever prots you have will evaporate regardless of the advancements you want to make in your life. Being inuenced by the money is an easy thing to succumb to simply because you’re staring at your P&L all day, but in the end everything has to do about the trade you’re in right now and making solid decisions. The money will come.
sanglucci.com
Listen to my interview with Lucci at
@sanglucci
chatwithtraders.com/ep-008.
Assad Tannous Head Trader & Founder of Asenna Wealth Solutions.
“Prevention is the rst step when dealing with emotions while trading, prevention is the best cure.” Find a strategy that you become comfortable with, that suites your personality and exerts the least amount of emotional capital. Even then, most traders have exaggerated emotional swings throughout their trading careers. The problem is most traders become so emotional they fail to identify they have lost emotional control. An exercise I used when starting out to combat loss of emotional control is to set an alarm to trigger at certain intervals, with intervals being closer together in periods of high market volatility. When the alarm is triggered make a conscious eort to calm down and look at yourself in the third person. I still do it to this day but without the alarm.
asenna.com.au @asennawealth
Davey Newall Independent UK trader
•
Trading Coach
“Work hard to develop your own trading strategy including the psychology to execute it awlessly and consistently.” Surely, if you could learn just one successful strategy from an established trader everything would be breezy. Simply implement their strategy and become protable. In reality though, it’s not that straightforward. Why? Well, new traders sometimes lack appropriate psychological resilience for the ensuing battle. Can anyone really have 100% condence in a strategy they didn’t personally develop or research? As soon that strategy goes through a losing period, psychologically and emotionally it easily destroys any new trader. At the same time the established trader who developed the system continues trading it, safe in the knowledge that this losing run is totally normal and expected. The new trader throws in the towel just before the next string of protable trades materialise. Avoid this pitfall by creating a trading strategy of your own! Research and rene it yourself. This will give you total condence to trade your system through thick and thin.
privatetradingcoach.com @davey_ptc
Fil Lorinc Futures trader
•
Coder
“Slow down and be patient; plan the trade, then trade the plan.” This is obviously a loaded directive, which for a long time I misunderstood. At the outset I had an unfounded fear that if I followed this advice I simply wouldn’t take enough trades, which in my mind translated to insucient P/L to sustain my trading operation. My predominant challenge seemed to be that I’m a real human being with real liabilities, real time constraints, and real pressures. Of course those self-imposed constraints are not determinants of protable trading; my focus was misdirected. Stepping back and building from the core the mechanics of a successful trade plan (integrating risk/reward, empirical probability, and capital/ risk management controls) brought the picture together for me. Using a base set of analytics, I created for myself an essential roadmap for when I do and when I do not want to trade; unsurprisingly, the proof was in the numbers. I’ve never looked back.
facebook.com/futurestradingl @l_lorinc
Ilan Azbel Algorithmic trader
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Founder of Autochartist & Seer Trading Systems
“Throw out all existing arithmetic technical analysis tools such as Moving Averages, Bollinger Bands, RSI , Stochastic, etc. They are useless.” I have spent hundreds (and possibly thousands) of hours trying to create systems using commonly used technical indicators, until I nally realized that because they are parametric one can get the answer you are looking for by simply changing the period of analysis. This makes them meaningless for building systems that are sustainable over the long term. Only use these technical indicators during the education phase of your trading career; they can teach you about marketing dynamics and provide you a basis for creating new and innovative ways of looking at market movements. Once you have some interesting ideas, learn R, then use more sophisticated non-lagging smoothing algorithms like kernal regressions.
autochartist.com @ilanazbel
Listen to my interview with Ilan at chatwithtraders.com/ep-014.
Jason Leavitt Swing trader
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Founder of Leavitt Brothers
“Slow and steady wins the race.” As an aspiring trader, I gured slow and steady is what large funds endeavor to do. Low risk, steady moves, collect dividends, beat the market by a small amount. Active trading? We’re looking for 10% gains each month, not each year. Because of this I passed on a lot of perfectly good set ups that didn’t oer me “enough” upside potential. In fact there were times I sat in cash waiting for great opportunities instead of taking the good opportunities oered. This was a mistake. Not only do little wins add up, they enable traders to develop a better intuitive feel for the market and therefore better prepare them to act when a great opportunity presents itself. I wish someone would have told me to slow down and not set my sights so high, that simply making a couple percent each month adds up over time.
leavittbrothers.com
Listen to my interview with Jason at
@jasonleavitt
chatwithtraders.com/ep-017.
Joel Kruger Forex trader
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Former currency strategist
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Founder of JKonFX
“No such thing as ‘The Big Trade.’ ” Why is it that when most people talk about what could’ve been, they focus on what could’ve been great? I mean, how unhealthy is that? We only go through life one time, and I would say, it’s far more important to be grateful for what you have and spend more time appreciating what could’ve gone wrong! As young, aspiring traders, we tend to get caught up in this and often shoot ourselves in the foot wondering what could’ve been if we just held on a little longer. Instead, we should take more time understanding that it is more important to recognize success in each small trade we take, while at the same time appreciating how much worse a position could have been had we not taken a small loss on a trade. Young traders have a tendency to get sucked into the illusion of the big trade that will make their career, and as they chase this illusion, they pull themselves further away from the reality of what it takes to be a truly successful trader. If it was only about one big trade, this would be nothing more than an exercise in gambling. Sure you could hit that big trade, but what then? How much does that really tell you about your capability to trade for the long-term and make a career out of this? There is no such thing as ‘The Big Trade,’ there is only the ‘Big Trader.’ The ‘Big Trader’ is the guy who wakes up each day and over time, continues to turn out protable results. It may not sound all that glamorous, but I promise, it’s denitely eective.
jkonfx.com
Listen to my interview with Joel at
@joelkruger
chatwithtraders.com/ep-015.
John Welsh Independent biotech trader
“Learning how to manage risk will make you the big bucks.” When I tell people what I do for work, I don’t tell them I am a day trader. It’s frowned upon. I tell them I am a risk manager. That’s what I have become. I’m trading calculated risks when I see an opportunity. I don’t gamble, I look for an edge that gives me the advantage over another trader. If I am wrong on that perceived edge, I let the market tell me what to do and I take my loss quicker than anyone else. This is called managing risk, because no one is perfect in trading.
johnwelshtrades.net
Listen to my interview with John at
@johnwelshtrades
chatwithtraders.com/ep-018.
Lance Beggs Full-time futures trader
•
Part-time trading educator
“The path to success is not one of nding the right system, setup or indicator, but rather one of skill development.” Often we’re told, “You just need to trade your system with discipline”. It sounds logical, but it’s a false path, leading only to frustration as we get stuck in the never-ending search for our Holy Grail trading system.
The reality is that a system cannot adapt to the uncertainty and variability that exists in market conditions and environments. The right path is one in which your edge comes not from your system, but from your own skill and expertise. Develop skill in real-time analysis of current market conditions. Develop skill in adapting tactics to suit the current market conditions. Immerse yourself in the charts. Study market structure – the support & resistance structure, the trend structure. Study the way price moves within that structure. And learn to ADAPT and exploit opportunity as it unfolds at the right hand edge of the chart. It’s not easy. But you can do it!
yourtradingcoach.com
Listen to my interview with Lance at
@lancebeggs
chatwithtraders.com/ep-013.
Recommended: Lance’s Price Action Trader course is an extensive resource created to help you develop your trading skill – huge value. Learn more.
Matthew Owens Stock, options and futures trader Prot.ly Guru •
“Stock trading is not a sprint, it’s an endless marathon of learning.” This statement is especially meaningful to me, as I nd with many traders they often get in the game thinking that there success will be almost instantaneous. However, this is the antithesis of what the truth is.
Whether you are learning to be an investor, swing trader, or day trader, slow down and take your time to learn. Do not rush into the market expecting immediate results. Take the time to learn and trade, and understand that you will be in a constant state of learning. Be receptive to new information and understand that you must be exible enough to roll with the punches, but strong enough to survive the ever shifting tide of the market.
triforcetrader.com
Listen to my interview with Matthew
@triforcetrader
at
chatwithtraders.com/ep-007.
Recommended: To learn about the patterns and rules that helped Matthew achieve almost a 600% return in ‘14, you can subscribe to his daily market commentary and watchlists. Learn more.
Nick Radge Head Trader & Founder of The Chartist
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Author of Unholy Grails
“A single trade should never make you nor break you.” The key trait for trading success is the long term application of a strategy that has a positive edge. To nd a strategy with a positive edge is quite straightforward however, the application for any length of time and risk management is where people come unstuck.
Most traders tend to have either limited psychological fortitude or unrealistic expectations, both of which make it dicult to stick with a perfectly good strategy for any length of time. At no time should a single trade cause you to lose so much money that you have to stop trading. A slow and steady long term application of a strategy with a positive edge might not be sexy but it will allow you to stay in the market and earn some extra income.
thechartist.com.au
Listen to my interview with Nick at
@thechartist
chatwithtraders.com/ep-004.
Peter Zhang Partner at Sang Lucci
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CEO of Flammarion Capital Partners
“Do not rely on trading money to eat.” Overall, when starting o trading in the traditional sense (without salary), the entire experience is very daunting and emotionally dicult to deal with as is. Trading has always been analogous to competitive sports. In the end, what separates you from scrub to average, average to expert, is simply how you can manage your own psychology. With the weight of putting food on the table, on top of performing in the markets, it can drag on your entire life. Usually the worst scenario you can be in, is trading under additionally stressful circumstances. Making logical decisions get thrown out of the window, and then you’re in a bad trade. Once you’re in a bad trade, your emotions take over, and it almost feels like life ashes across your eyes. It’s important to stay calm and be able to make logical decisions when trading, that should be the base layer of your emotional state. It should be assumed that while trading, you’ll be in a heightened state of whirl-winding emotions. Otherwise, what ends up happening is a very bad feedback loop. Your likelihood of blowing up your account skyrockets and your drive to trade drops. The key is, you must anticipate far out, and you must be ready to take a nancial earnings hiatus to start trading solo. As always, a mentor can help reduce that learning curve.
sanglucci.com
Listen to my interview with Peter at
@pz_sl
chatwithtraders.com/ep-009.
Steve Burns Options trader
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Author of New Trader, Rich Trader
“React to price action; don’t try to predict.” The active pursuit of understanding price action and following its path of least resistance should be every traders goal, rather than trying to predict the markets or make great picks. Protability comes from identifying the long term trend and trading it regardless of personal opinion. Learning to identify trading signals from historic chart patterns using technical indicators is the simplest path to trading success and protability.
newtraderu.com
Listen to my interview with Steve at
@sjosephburns
chatwithtraders.com/ep-005.
Tim Biggam Options trader for 30+ years
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Partner at RB Trader
“It is psychologically demanding to be a trader.” To be a great trader, you have to accept that you will be wrong... a LOT! There will be long periods of drawdowns that will test your resolve, and will to continue. But like any great endeavor, the tenacity to overcome adversity and persevere, while adhering to your beliefs and trading plan, will ultimately get you through the tough markets, and make you better able to position to ascertain new heights.
rb-trader.com
Listen to my interview with Tim at
@rb_trader
chatwithtraders.com/ep-016.
Tim Walker Independent swing trader
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Author of How to Trade Like W D Gann
“The most important thing of all is to become a TRADER.” Almost all the space in trading courses is devoted to how to analyse a market or a chart. This is good but trading is a skill all on its own. A trader is a person who buys and sells at a prot. It could be stocks and commodities, used cars, antiques, real estate or anything imaginable. It requires skills of instinct and timing and many other things. An analyst almost never makes money; a trader will always make at least some money. Someone who can do both has the keys to the kingdom.
timwalker.net
Listen to my interview with Tim at chatwithtraders.com/ep-006.
Wall St Jesus Son of the Market Gods
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Lord of Wiseguy Activity
“Learning how to lose in trading is just as important as learning how to win.” Understanding this has easily been the most important lesson in my career. Once I came to the realization that, no matter how good I get at trading, there will always be losing trades, that’s when I nally started to see the light and things began to roll for me. Admitting when you are wrong on a trade and being able to not only stop yourself out, but also not look back is critical in this game. Without being able to do this you will NEVER be able to succeed in this game long term. I see it everyday: traders getting knocked out just because they never learn to master this one critical aspect of trading. Trading is rather simple to me now, WINNERS > LOSERS. Nothing else matters. It’s not about trying to be right all of the time or feeling/sounding intelligent. As a matter of fact, there is no way I’d be able to use my current trading strategy earlier in my career because I avoided taking small losses. Once you learn how to lose, trading gets a hell of a lot easier.
optionjesus.com @wallstjesus
Zach Hurwitz Equities trader
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Trading coach
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Systems developer
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VWAP specialist
“Dissociate yourself from the identity — the image, the persona — of being a trader.” Instead, I should focus on developing technical skills more so than proving to everyone — to myself, my family, girlfriend, or colleagues — that I would one day become something impressive. All too often, developing traders want the badge of honor that comes with making a living (or not) by clicking a mouse. They want others to view them as intellectually superior to salaried professionals, revering them as cowboys/risk-takers, as brave radicals amidst a world of otherwise predictable careers. That’s just bullshit — u that developing traders feed themselves to ease the pain of not having an edge. Coincidentally, that’s also the one common experience across all of us: the feeling of what it’s like to be a beginner (and therefore, a terrible trader). I’d rather be a bad trader who is honest about my skill level than a good trader far too condent in my abilities — the former can grow to become talented and self-aware, whereas the latter is essentially guaranteed to meet an eventual risk explosion.
sanglucci.com/zach
Listen to my interview with Zach at
@zachhurwitz
chatwithtraders.com/ep-011.
THE ONE T HING
C H AT W ITH TR A D ER S.C O M
3
Contents BUSINESS
Tim Grittani
pg 05
Michele Koenig
pg 07
Bryan Wiener
pg 09
PROCESS
Dan Shapiro
pg 12
Jeff Davis
pg 13
Bryce Edwards
pg 14
Ari Pine
pg 15
STRATEGY
Paul Singh
pg 17
Craig Peters
pg 19
Kevin Davey
pg 21
Tom Basso
pg 23
Nicola Duke Luke Cummings
pg 25 pg 27
POSITION SIZING
Jack Litle
pg 30
Jon Boorman
pg 32
Trader Steve
pg 34
PSYCHOLOGY
Chris Sayce
pg 37
Stuart McPhee
pg 39
Kam Dhadwar
pg 41
Jesse (@PsychoOnWallSt)
pg 43
PERSPECTIVE
Bert Mouler
pg 46
FuturesTrader71
pg 48
John Carter
pg 50
5
Tim Grittani Day Trader
•
Equities
Trading is not easy; expect to fail before you can succeed.” Most people become traders looking to make a radical change to their lie. They’re ed up with their 9-5 job, low pay, and then they stumble across a service promising riches and telling the stories o successul subscribers who “made it”... Who wouldn’t want in? Unortunately, many ail to understand the long road they must travel beore reaching success. I studied my ass off and everything looked so easy in hindsight, but when I started trading and my money was on the line, it was suddenly a whole different ballgame. Perhaps your story will be like mine, where you blow up your account once early on beore finding consistency—it took me 9 months o studying/trading beore I did. Perhaps it will be like others, where you experience some early success (or luck) beore eventually giving it all back. Whatever the case, expect glorious ailure. I do not know a single millionaire trader who didn’t blow up
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their account at least once beore finally finding their niche and learning to be consistent. You will likely be no exception. So don’t start trading expecting instant earnings. You probably won’t pay the bills with trading profits anytime soon. Definitely don’t expect to get rich overnight and don’t trade ar too large when you’re in your learning period. I I hadn’t traded small or my first six months, my blowup would have been beyond recovery and I would not have had the opportunity to later succeed. Go into trading with money you can afford to lose, and let every loss be a lesson that helps you to improve. I you fight through those early losses and keep them manageable, the lessons you take away rom them will set you up or success down the road.
MORE ABOUT TIM GRITTANI
Interview:
chatwithtraders.com/10
Website:
tradetheticker.blogspot.com
Twitter:
@kroyrunner89
7
Michele Koenig Day & Swing Trader
•
Equities
Trading is a business and should be treated like one.” Take the time to educate yourself about the basics... What style o trading do you want to ocus on—are you interested in day trading or swing trading? What instruments are you going to trade—stocks, options, utures? Do you understand various order types, long/short, margin etc? Have you considered whether you qualiy or trader tax status? These are the types o questions most traders starting out never even consider. Most are in a hurry to start pushing buttons without even considering some very basic questions which they need to be able to answer. Take the time to develop a plan... What chart timerames are you going to use—daily, intraday, both? Are you going to use technical analysis or undamentals? What criteria are you going to use to determine your entries? What risk will you set and how will you determine that? How will you manage the trade while it’s active? How will you determine when you exit?
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Do you understand that losses are part o trading? How will you handle drawdowns? The emotional side o trading is the most difficult, and we’re ofen our own worst enemies. There are always ups and downs in trading, so having put some thought into the emotional side is very important—most give little thought to this early on… Many come to trading with a alse view that it’s going to be easy, but it’s very much the opposite. By spending some time to answer these basic questions beore you start trading will help you to be better prepared, but also know that your plan will be a work in progress as you develop as a trader.
MORE ABOUT MICHELE KOENIG
Interview:
chatwithtraders.com/44
Website: Twitter:
tradeonthefly.com @offshorehunters
9
Bryan Wiener Options Trader
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Former-CME Market Maker
There will be extreme ebbs and ows in the options market and you need to be able to deal with trading droughts.” Let me preace this by saying that I was recruited out o college to become an options trader and had no trading inclination beore graduation... As a young options floor trader, with a salary and time to learn the market, I had the luxury o eeling out the industry. I came in right afer the internet bubble burst, in mid 2000. So there was a decent amount o volatility, but it was kinda like the static that you’d see on a TV which is lefover rom the Big Bang. Afer 9/11 happened the market volatility returned, but then the drought happened between 2002-2005. During this time I still had a salary and a bonus, so I was sheltered rom what it would be like when I finally went on my own—outside o the pit and onto the electronic market, where I had no riendly advantage or paper on the floor. Soon afer I began at Trading Machines, working under Haim Bodek; I had a great salary and a great bonus or a ew years. But still I was sheltered rom what it would be like in the uture...
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And that was delayed even urther afer I lef Trading Machines, as I ound a great niche trading AAPL wings, making six-figures. But post-AAPL split, I have been trying to find my new trade, and it’s been a grind or over a year. So what’s the takeaway? In my proessional opinion, don’t take a comortable salary or granted. Don’t go into trading ull-time, giving up said salary, unless you have a plan that you are so confident about that it’s not even a question o whether or not you should do it. I hear so many people say they want to quit their job to become a ull-time trader, even doctors and lawyers. Well, that might just be boredom speaking or you... Consider this beore you take the plunge, because the water isn’t always warm.
MORE ABOUT BRYAN WIENER
Interview:
chatwithtraders.com/40
Website:
sanglucci.com
Twitter:
@dirtyautomatik
12
Dan Shapiro Day Trader
•
Former-Prop Trader
I wish someone had told me how important it is to be perfect.” We hear the expression all the time “no one is perect”. Sure, we’re all human beings who have many aults displayed daily. However trading is its own animal. None o us growing up wanted to be traders, heck most o us didn’t even have a clue what trading was. Since there’s no blueprint to success, when you open your first brokerage account, you have to figure out things the hard way—through trial and error. For the 10% o traders out there, the lucky profitable ones; value and process is all we have to keep us rom the other 90%. Our rules are our lieline. I we deviate rom those rules, we die. In trading we don’t have a luxury o a mulligan. You either trade with a process or you die without one.
MORE ABOUT DAN SHAPIRO
Interviews: chatwithtraders.com/3 2, chatwithtraders.com/66 Website:
accessatrader.com
Twitter:
@danshep55
13
Jef Davis Algorithmic Trader
•
S&P Futures Specialist
There is no magic pattern, indicator or line on a chart— the magic is only in your process.” Until a trader understands this they will waste a lot o time and energy. Charts, order flow sofware, and technical analysis are just tools. The idea that some tool will lead to success or somehow lead to consistent profitability is being sold to you rom many sources and is hard or aspiring traders to resist. Realize that these are just tools used in the craf and how and when you use them is what’s important. Spend more time on how you will manage the trade once you are in one. Spend time on what emotions will trigger and managing them. This is your process. The magic comes in the actions you take.
MORE ABOUT JEFF DAVIS
Interviews: chatwithtraders.com/70 Website:
medium.com/@shaq48_trading
Twitter:
@shaq48_trading
14
Bryce Edwards Day Trader
•
ASX Equities
Trading is just a series of processes. Develop, analyze, rene and apply your processes.” Most traders already have a process or scanning the market, but they should also think about developing processes or all elements o trading; or risk management, or scaling in/out o positions, or regulating their emotions when they’re on tilt etc. Particularly or short-term discretionary traders, the process approach brings structure to their trading operations and helps to somewhat suppress the rogue emotional human element. By developing a series o processes and operating purely on their application, you have the ability to create good habit patterns whereby your natural reaction to unoreseen circumstances will be to ollow your process and do the right thing. Consistent profitability can only come about by consistently applying a series o processes.
MORE ABOUT BRYCE EDWARDS
Interviews: chatwithtraders.com/51 Website:
-
Twitter:
-
15
Ari Pine Head of TradeCo Global
•
Quantitiative Trader
Focus on process.” At first I thought I would write about a very particular detail that would have helped me most at my start (and or ar longer than that); not every trade needs to be a winner. In act, i all o your trades are winners then you are not taking appropriate risk. But afer thinking about it, it seemed to me that this fits into the larger ramework o process driven trading (this is a hat tip to the successul Morgan Stanley group led by Peter Muller). The process comes with an estimate o how many times you should expect to be wrong. Wrong is actually the wrong word. Winners and losers both make up trading; they are neither wrong nor right. Which leads to thinking about psychology and that need to always have a winner. There is much talk about psychology in trading; you won’t hear it rom me. Either you have an exploitable edge or you do not. I you understand your edge and you have a reasonable idea o how to tell i it is degrading, then there is no need or psychology. A preoccupation with psychology indicates a lack o confidence in the process—that need to make money on every trade. Get comortable with uncertainty as this is useul in all parts o your lie. Even i your trading is not automated, you
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should still know what your set ups and exits are. Again, this ends up being something o a re-write o “plan the trade, then trade the plan.” Yet you have to have a good idea o what your edge is and where it is coming rom. In the end, i there is a “one thing” then that one thing is to ocus on process. Find an exploitable edge. Understand that not every trade will be a winner but all trades are part o the whole. Then, go out in the markets and beat that edge to death.
MORE ABOUT ARI PINE
Interviews: chatwithtraders.com/61 Website:
tradingtechnologies.com
Twitter:
@std_dev
18
Paul Singh Day & Swing Trader
•
Equities
Focus less on stock picking and setups—focus more on managing the trade once the stock is picked.” We are proessional traders, not stock pickers. Picking stocks and understanding setups is the easy part. Most traders have been successul in other walks o lie and mastered many complex ideas. Understanding a setup is simpler than understanding the tax code, the nervous system, or engineering ratios. However, setups are not what makes a good trader. Once in a trade, you need to know how to profit rom it. This is more complex as it brings into play; the mental game, our human railties, market understanding, risk tolerances, and ability to adapt. This is what separates winning and losing traders. As an example; I’m working with two students who both traded GOOGL through a market sell-off (as did I). The Sunday beore the sell-off, we talked about how to handle a possible over reaction, panic selloff and bounce. Our mental stops were hit, but I explained very clearly how to deal with the gap down. I the opening gap down level held, we would hold onto our stop. I the morning level broke, we get out... Trader A panicked and sold at the open or a 50 point loss. He explained how relieved he was to be out o the position, despite
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the big loss. He did not manage his emotions, which lead to poor decision making. Trader B understood the market, his own psychology, adapted his plan, and as o this writing is up 30 points on the position. Two traders. Same stock. Same setup. Different trade management. Very different results. To become a winning trader, spend more time learning ‘how’ to trade, not ‘what’ to trade.
MORE ABOUT PAUL SINGH
Interview:
chatwithtraders.com/58
Website:
themarketspeculator.blogspot.com.au
Twitter:
@pauljsingh
20
Craig Peters Algorithmic Trader
•
Equities
Focus on what actually works, don’t spend time on grand theories.” I, like me, you have a strongly analytical mind, we have the tendency to over complicate things in the pursuit o ideas and theories to more accurately capture market behaviour. I have personally wasted at least a couple o years in total, in such pursuits, only to realise that much simpler techniques yield the same trading perormance. For example; when setting profit targets, I now use a simple percentage target most o the time. While it would be an oversimplification to say that the pursuit o some sophisticated ideas wouldn’t be ruitul, close scrutiny o such ideas during backtesting, should be done as early as possible. This will prevent you rom wasting too much time, and investing too much emotional capital in bad trading ideas. One more thing that’s been key in my development over the past ten years is; thinking about whole portolio risk, not just risk per trade. I’ve had the message o only risking 0.5%-2% per trade drummed into me so many times that it’s has never been a problem or me,
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thankully. As much as this rule is one o the most important rules to ollow, I’ve been severely burned by overtrading and taking too much risk in my portolio as a whole... Today’s markets seem to have much more correlation across international boundaries than in the past. Thereore three trades in seemingly unrelated stocks, can end up being affected in the same way by the same piece o economic news/event. So I limit the number o trades I have on at any one time to a total o six, or up to twelve i I keep very tight risk management stops in place.
MORE ABOUT CRAIG PETERS
Interview:
-
Website:
-
Twitter:
-
22
Kevin Davey Algorithmic Trader
•
World Cup of Futures Championship Winner
Having one trading strategy is not enough.” Back when I first started creating algorithmic/mechanical trading strategies, I constantly searched or the “perect” strategy. You know, the one strategy that would, by itsel, make me abulously wealthy... I spent a lot o time and effort looking or that strategy. Many times, my historical backtest told me I had such a strategy, but every time I started trading such a perect strategy with real money, I almost always lost. It took me a long time to realize one o the secrets to successul trading; you need to trade multiple strategies. There are numerous reasons or this... First, every strategy will likely eventually stop working. I you only have one strategy, and it breaks, you are in trouble. Second, when you have a bunch o strategies, the strategies can be “good,” but do not have to be “great.” And good strategies are easier to create than great strategies. Third, markets change over time, and having multiple strategies lets you participate in whatever the day’s hot market is. With
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multiple strategies, you’ll have your fingers in every market opportunity. But the biggest reason why you should create and trade multiple strategies is diversification. The concept o diversification is well documented in financial literature, and it turns out not only to be academically acceptable, it is great in the real world, too. Simply create strategies or different markets, with different timerames and different strategy themes (trend, mean reversion, etc) and you’ll have a diversified portolio. Trading such a portolio really helps control the drawdown, while still allowing profits to accumulate. It is the best o both worlds, and I wish someone had told me about it years ago!
MORE ABOUT KEVIN DAVEY
Interview: Website:
chatwithtraders.com/38 kjtradingsystems.com
Twitter:
@kjtrading
24
Tom Basso Trend Follower
•
Market Wizard
Risk, volatility and money management are far more important to success than how to buy and sell.” I started out in trading looking at all sorts o trading strategies and this was beore personal computers, so I had lots o tedious work. When I finally got to a place where I could make it work, I spent the next 20 years learning how to improve that strategy with various ways o controlling risk, controlling volatility, diversification theories, hedging techniques and margin control. Only then did I have something I elt was truly robust. Why is this important? The general area o money management, which includes diversification, market selection, risk and volatility control, and hedging, smoothes the perormance. In other words, making that perormance more robust in varying conditions, helping the psychology o the trader to allow him/her to hang in there during tough markets. Without these in place, it’s going to be a wild ride and most can’t take the heat.
MORE ABOUT TOM BASSO
Interview:
chatwithtraders.com/30
26
Nicola Duke Swing Trader
•
Futures & Forex
Exits are as important as entries.” When people first start learning to trade they’re on an endless search or setups and usually the big “swing or the ences” trade. But how you take profit in a trade and get out when you’re wrong, is just as important as how you enter—it can make the difference between whether or not you’re profitable. When I first started I had a strategy with an edge, I was really good at seeing and executing the trades, but really bad at managing them so I wasn’t profitable. Nothing is more destroying than having a winner come all the way back to a scratch or a loser. Having a fixed method or taking profit that is as robust as the one you have or selecting trades means that exits are automatic and so much easier. For some, that means taking partial profits at fixed signals, and or others that means all in or all out. I personally like to take partial profits and try to run the rest. This was my turning point to becoming a profitable trader.
MORE ABOUT NICOLA DUKE
Interviews: chatwithtraders.com/63 Website:
-
Twitter:
@nictrades
27
Luke Cummings Hedge Fund Manager
Trading without an ‘edge’ is otherwise known as gambling.” Having an edge and understanding not only what it is, but also why it works is non-negotiable, i you plan on becoming a successul trader. An edge is essentially a technique or approach that will give you a higher probability o being profitable than not. It need not be elaborate or complicated—it’s something that gives you an advantage against the market. But more important than what your edge is, is actually understanding why it works, i.e. what exactly are you doing that gives you an advantage? I you don’t know, then you’re in trouble. Because markets are dynamic and you need to be prepared to adjust your approach accordingly. I you don’t know why your approach works, then it’s going to be difficult to make adjustments as circumstances demand it. Additionally, an edge needs to be repeatable. I you’re edge can’t be consistently exploited then your career as a trader is going to be short lived.
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The ability to identiy and continually exploit an edge is what separates a proessional trader rom a novice. In the absence o a known edge, profitable trades are nothing more than the result o temporary good ortune.
MORE ABOUT LUKE CUMMINGS
Interview:
chatwithtraders.com/31
Website:
longandshortofit.com.au
Twitter:
@lukecummings81
30
Jack Litle Global Macro Trader
•
High-Stakes Poker Player
Focus on the how, when, and why of making big bets.” Learn how to size your big bets properly and learn how to trade cautiously and conservatively when big bets aren’t appropriate (which is most o the time). Virtually every single superstar trader or investor you’ve heard o grew rich rom big bets. What do George Soros, Stanley Druckenmiller, Warren Buffett, Paul Tudor Jones, Bruce Kovner, Carl Icahn, T. Boone Pickens, and Jesse Livermore have in common? They all knew and practiced the art o the big bet. The big bet is multi-disciplinary. Silicon Valley legends like Bill Gates, Steve Jobs, Mark Zuckerberg, Larry Page and Sergey Brin were masters o the big bet—in respect to betting big on their best ideas. I you see a guy walking down the street with a supermodelcaliber girlriend on his arm, guess what? He had to approach her at some point, which meant betting big on his own selconfidence. Winners know how to bet big. The big bet principle is woven into the abric o the universe
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because o the way opportunity is distributed. Opportunity distribution is not smooth or requent—it is lumpy and rare. It tends toward outliers and at tails. Opportunity maximization thus avors a simple ormula: Stay cautious and conservative most o the time—and then, when true opportunity presents itsel, be incredibly aggressive. There are two pieces o conventional trading wisdom which are completely wrong. The first is, “take care o the losses and the profits will take care o themselves.” Baloney. I you ail to aggressively maximize your best opportunities, you won’t rise above the churn. The second wrong piece o advice is, “never bet the arm.” Instead it should read, “bet the arm on rare occasions—and always have a arm in reserve.” The art o the big bet is rarely discussed. It is one o the hardest trading lessons to master. But doesn’t this make sense? There’s a reason why only a small percentage o traders get rich.
MORE ABOUT JACK LITLE
Interview:
chatwithtraders.com/45
Website:
mercenarytrader.com
Twitter:
@mercenaryjack
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Jon Boorman Trend Follower
•
Chartered Market Technician
The one thing I wish someone would’ve told me before I started trading is the importance of position sizing.” I could easily say something about the need to be patient and disciplined, as those are important, but the truth is people did tell me all those things, and when you’re young you don’t listen. Traders are only human and need to make their own mistakes or behavioural lessons to hit home and to develop mental ortitude. But had I have known the role position sizing plays and truly understood just how significantly it can impact your trading, I eel I could’ve reached the current path in my journey much quicker. I’ve traded or many portolio managers over the years and I don’t believe any o them size positions in their portolios to account or a stocks volatility or or when they are wrong on an idea. Their mandate was more about weighting their exposure in a portolio relative to a sector or an index. Even as a prop trader years later, having never been taught the concept, I still wasn’t position sizing in the way I do now... It was only afer I went through a long period o losses and introspection that I broke everything down to its component
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parts, having been inspired by the work o Van Tharp on the subject, and I came to recognize the basic building blocks o any positive expectancy trading system. Exits relative to entry determine whether a trade results in a profit or loss, but position size determines by how much. For that reason, position sizing is a major variable in any system— when used correctly it can help you manage risk effectively and succeed in achieving your objectives.
MORE ABOUT JON BOORMAN
Interview:
chatwithtraders.com/43
Website:
jonboorman.com
Twitter:
@jboorman
34
Trader Steve Trend Follower
•
Trading Coach
Spend time to understand the basic maths behind winning.” A big “ah-ha!” moment or me was getting a grip on the concept o expectancy, and understanding how the basic mathematics o small losses countered by the occasional big winners, combined with a reasonable win rate, could work. I ound out that successul trend ollowers could win over a long period o time, while at the same time they were losing on most o their trades—how good is that? A lot o people cannot grasp or accept this. They have a belie that, to win, they have to win more times than they lose. There is also a need in a lot o traders that they need to be proven right on a trade or an investment—they reuse to cut their losses when things go against them. Trend ollowing and the concept o expectancy, proved this was not the case. Certainly when I started trading I ell into this trap, along with having weak risk control. This realisation came around the same time as determining to risk only a small portion o my trading capital on each trade, so there was a seismic shif not only in my perormance, but also on
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controlling my emotions. Once I “got it”, accepting losing trades, or even a run o losses, became a whole lot easier—knowing that over the long haul the basic mathematical logic held up. Then it was solely down to me to remain disciplined and committed through the bad times and the good.
MORE ABOUT TRADER STEVE
Interview:
-
Website:
thetrendfollower.com
Twitter:
@uktrendfollower
37
Chris Sayce Trend Follower
•
Equities
Make use of two trading accounts.” I once read a blog by a successul investor who had a ‘crazy punt und’ in this he used to make all the bets he wanted to make that were not part o his strategy. The idea is actually rather sound rom a psychological point o view... In Market Wizards’ Jack Schwager asks Ed Seykota i when he intereres with his system, does it affect his bottom line. His answer was that he needs to interere occasionally, as it is a side o his personality that i not allowed to express itsel could come out in more damaging ways. Put another way, let’s say you have a winning system but you’ve lost patience with it. Well you can address the patience issue at a later date, but the act you know the system is a winning one means you should probably continue trading it. You could do so by opening a second brokerage account; use one to trade your plan with complete discipline, and use the other one to experiment. O course, it goes without saying that you must still apply appropriate risk control to the ‘crazy punt und’! My experience rom when I first started trading, was I ound a system that I was okay with—it made money and suited me.
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However I got bored, changed things around, applied new ideas etc. Afer 18 months o tinkering I went back to my initial system and looked at the trades I’d made. It was clear, i I had o stayed with my initial strategy I would o made a lot more money... Now the positive in this situation is that I gained a lot o necessary experience which I use everyday. But i I had o applied my rule o two trading accounts, I would o walked away with the experience and a lot more money!
MORE ABOUT CHRIS SAYCE
Interview:
chatwithtraders.com/33
Website:
-
Twitter:
@chrissayce
39
Stuart McPhee Forex Trader
•
Author of Trading in a Nutshell
Most of the actions required to trade successfully are counter-intuitive.” Many decisions and actions that are required o us are counterintuitive. Let me give you some examples... As we are trading to make money, it is intuitive to think about and ocus on making money. It is counter-intuitive to ocus on protecting the money that we have. I we open a trade and it moves into a losing position, it is intuitive to hold on to that trade in the hope that it will soon return to break-even and we can close the trade with minimal loss. It is counter-intuitive to close that losing trade at a loss as it denies us the opportunity o at least breaking even and getting our money back. I we open a trade and it moves into a profitable position, it is intuitive to close that trade to realise the profit and keep the money or, at the very least, move our stop close to the price. It is counter-intuitive to hold off rom closing the trade, providing it the opportunity to continue moving higher. I we experience a losing streak o several losing trades in a row,
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resulting in a decrease in our trading capital, it is intuitive to commit more money into the next ew trades in order to win our money back sooner. It is counter-intuitive to scale back the size o our trades in order to manage our risk and protect our capital. Finally, when we first start trading, it is intuitive to think that our decision to enter a trade, being the first decision we make, is the most important and will ultimately affect whether our trade is a winner or loser. It is counter-intuitive to think that other things like the size o our trade and where our exit is are more important.
MORE ABOUT STUART MCPHEE
Interview:
chatwithtraders.com/19
Website:
stuartmcphee.com
Twitter:
@stuartmcphee
41
Kam Dhadwar Futures Trader
•
NLP (Neuro Linguistic Practitioner)
Specically, how could you become a more disciplined and a more patient trader?” Without having a specific set o techniques to build discipline and patience you only ‘know’ these are important traits, which is simply not enough. It’s like knowing that you need to lose weight, but i you don’t know ‘how’ you are lost dreaming about it. When trading without these traits you’ll constantly be reminded (by the market) that this is something you need to improve on. All traders learn to know; any trading strategy without the discipline to ollow it and the patience to wait or the right trades is pretty much useless. Which results in mindless trading, rustration and sel-doubt—because you cannot trust yoursel to do the right thing. The only way you’ll become the trader you aspire to be, is purely through dedication and commitment to becoming a more disciplined and a more patient human being (not just as a trader). This will mean being motivated through a thorough understanding o: •
Why are you in this business in the first place?
•
Why do you need this discipline?
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What will happen i you don’t obtain it?
Think about the situation you’ll find yoursel in i you don’t commit right now to becoming a more disciplined human being, then commit to a liestyle ull o discipline—consider how you eat, sleep, live, and trade. Learn the importance o mindulness and sel-awareness in everything that you do. When you get this and you practice it, you cannot help but become a more disciplined trader, as it’s now in your blood and in the core o who you are.
MORE ABOUT KAM DHADWAR
Interview:
chatwithtraders.com/41
Website:
thetradingframework.com
Twitter:
@l2st
43
Jesse (@PsychoOnWallSt) Day/Swing Trader
•
Equities
Take it slow. Start small. Crawl before you ball.” Many new traders want to go big right away, skipping the most vital part o what they need to learn or how to become a career trader... The most important rules you need, to graduate rom being a greenhorn to being green in the bank, are developed in the beginning—the other 1% come later when you eventually learn how to trade with size. The initial 99% consists o learning how to manage your emotional game. Technical analysis, scanning, execution, scaling in/out, price & volume—those aspects o trading are the easiest to learn. Mastering your emotions takes time. A lot o time. Also, too many new traders want to go ull-time immediately. The problem with this is, even i you have a tremendous amount o success starting out, i you aren’t emotionally prepared or your sole source o income to derive rom a completely unpredictable source, you’re gonna bury yoursel trying to comeback rom a big loss or a losing streak. Embrace the process, take pride in the journey, and put your dick
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back in your pants because the only person you’re competing against is yoursel. The tortoise will always beat the hare.
MORE ABOUT JESSE
Interviews: chatwithtraders.com/57 Website:
psychoonwallstreet.wordpress.com
Twitter:
@psychoonwallst
46
Bert Mouler Algorithmic Trader
•
Machine Learning
Look at what everyone else is doing—read books, articles, forum posts—then do things dierently.” From trading the markets mysel and being lucky enough to know some very proficient traders, I’ve come to realize that they have one thing in common; boundless creativity. There are literally millions o ways to make money in the market. However, to be truly great, you have to step outside the box. I’m a systematic trader, thereore I’m much more comortable risking capital on a trade when I have a large sample size (e.g. 1,000+) o trades that have been successul X% o the time with an expected payoff o Y. I keep to a set o very simple principles. I use machine learning to discover novel algorithms and trade as many markets as possible—remember; diversification is the only ree lunch. Always be mindul o your biases, both as a human and as a trader, and spend the least amount o time in the markets as possible. I you’re not there or the six sigma events, you are much more likely to survive in the long term. Know the maximum potential profit a market can provide and strive to capture 1% o that. Make sure to evaluate the signal content o your predictors—do
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you really think you’re going to outperorm using the same tools that everyone else uses? And keep your trade to parameter ratio (# out-o-sample trades / # ree variables) high. Finally, as always, utilize proper money management. A “tiny” edge utilized over and over and over will result in “huge” longterm profits. You don’t need to be right all the time—you don’t even need to be right hal the time.
MORE ABOUT BERT MOULER
Interview:
chatwithtraders.com/42
Website:
profluentcapital.com
Twitter:
@bmouler
48
FuturesTrader71 Futures Trader
•
Former-Prop Firm Owner
Your education so far is designed around conformity and predictability. Trading is about probability, constant change and modifying yourself to t the market.” In 15 years o trading and training prop traders, I have learned that the greatest part o the struggle to being a consistent trader is modiying who you are as a person. Everyone has been taught that i you do one thing, you should expect a predictable outcome. Trading doesn’t work this way. Trading is about probability and stacking the odds while minimizing risk. Trading is about being deliberate about the time you spend in ront o the market. Time is unrecoverable once it passes—don’t throw it away. The best chance you have o making it is to understand that you have to make it your own approach. Do this as a business owner. You have to modiy yoursel to fit what the market says it wants to do. You have to respect risk like an alligator handler respects the primal response o an alligator—so never take your eye off o risk. Look inwards. The inability to look inwards and be aware o your relationship with ear and with losing is the reason traders make money in theory but not in real lie.
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Want to do this for real? Then understand why price moves and ocus on the auction. Understand how you respond to ear. Learn to calm your mind through meditation. Define what a trade is worth to you. Take the trade and let the market tell you i it agrees with your current bias.
MORE ABOUT FUTURESTRADER71
Interview:
chatwithtraders.com/37
Website:
futurestrader71.com
Twitter:
@futurestrader71
50
John Carter Options Trader
•
Author of Mastering the Trade
A true trading journey involves unlearning most of what you were taught in the rst few years of your trading life.” It’s not magic; it’s just math, news and price have very little in common, and so on—these are oversold readings... What happens in the past has very little to do with what will happen in the uture. The reality is that markets move in such a way as to trick most o the people, most o the time. Have you ever noticed how an “obvious top” is never obvious until well afer the act? During the heat o the moment, the goal is to suck people in short, and then rip their heads off. Or suck people in long with a break to new highs, so the markets can be taken down to shake out the weak hands. Why is this? For a market to move, there has to be angst. Complacency in a market means that both buyers and sellers are happy with the current price. I they are both happy, then the stock isn’t going to move, as no one is buying or selling. That just doesn’t work in today’s markets, where probes or support and resistance are the norm.
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The markets’ job is, in essence, to get people on the wrong side o the trade. Suck them in long, or suck them in short, and then spit them out. The key to navigating these waters is to sit back and realize, anything can happen. And i anything can happen, this means you don’t know what is going to happen next. And i you don’t know what is going to happen next, then there is nothing to ear. Set your risk parameters and stay on the path o least resistance.
MORE ABOUT JOHN CARTER
Interviews: chatwithtraders.com/69 Website:
simplertrading.com
Twitter:
@johnfcarter
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Jerry Robinson Swing trader · Investor · Economist · Best-selling author · Founder of FTM Daily
What’s the reason why most traders never succeed? @FTMdaily
No system. The majority o traders don’t have a system. They’re attracted by the amount o money they can make, and the liestyle that trading affords. Although I’ve got to admit, the liestyle is very good when you succeed as a trader – you have the ability to work rom anywhere in the world. I’ll tell you a personal story about one o the very first traders I met, it lef this lasting impression on me. In act this might be the most motivating thing that drove me to become a trader… I met this older guy (who was probably in his late sixties), he had a yacht which he lived on or 5-6 months out o the year, with his wie. He would trade during the first ew hours each morning and close his computer by midday – he was done. He would trade companies like Walmart and IBM, and he would make $1,000-$2,000 each day using options. Because he had a lot o money, when IBM or Walmart moved 10¢20¢ he would make a lot o money with very low risk. I saw what he was doing I was like, ‘You’ve got to be kidding, this is antastic’. Because at the time I was working a slob-job where I wasn’t happy and I’d think, ‘Man, I have to make my lie something like this’. With the Internet the way it is now, computers and everything we have access to, you really can trade rom almost anywhere.
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You can do it rom a yacht (out in the middle o the ocean), or rom home in your pyjamas. Trading is really sweet in that respect. But ofen new traders see this and they caught up by it, they orget that in order to get there they have to have a plan. So
“Many times,
many times, people are excited by the dream and vision o what lie could be as a trader, but they don’t build the bridge and set
people are excited by the
orth the hard work that’s required to get there.
dream and
I went through a period where I lost money or an entire year. It
vision of what
was the worst time in my trading career; I could not make money
life could be
to save my lie. I was incredibly rustrated and I almost threw
as a trader,
in the towel. And I think back on this time – what i I had done
but they don’t
that?!
build the
This is one o the things that I tell new traders; do not give up i
bridge and set
you really want this. I you really want to succeed, i you really want to have that liestyle that you have in your mind then you
forth the hard work that’s required to get there.” JERRY ROBINSON
cannot give up, you have to continue. When you lose money you lick your wounds and keep going, but i you stop trading then it’s over. Now I will say this, i you don’t have a system that’s not my recommendation to you, because you’ll continue losing money. Here’s the thing you must remember, the guys on Wall Street are smarter than you, me and everybody that we know put together. Or i they aren’t smarter than us, they’re certainly more slippery than we are (that’s a cultural way o saying it, trading is a dirty game). They see guys like you and me coming a mile away. When we type in an order or 100 shares o a particular stock, they know exactly who we are, and they know how to shake us out and take our money. So that’s why it’s important or traders to have a system, not to
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give up, and to understand that you can’t do this without gaining some knowledge and experience. Now there’s a lot o seminars and coaching programs out there, many o them are thousands o dollars – I’ve never done any o those yet I still succeeded. Instead, I read through many trading books, looked at strategies used by other traders, and started experimenting with some o them. This is how to find out what works or you. Sit down, take the charts that you trade, print them out and draw on them. Look at them and become intimately amiliar with the tools o your trade. But most o all, realize that it’s going to take time. Unortunately there’s a lot o TV inomercials and websites out there that make it sound like ‘anybody can make a million dollars overnight by trading this one stock that you don’t know about, but I do, so pay me and I’ll tell you’. No, it doesn’t work that way. You have got to have a system o your own, i you want to do this long term.
Aaron’s take: •
To survive and excel as a trader, you must have a set o rules or parameters (a system) that you can stick to. Without this, you’ll only ever be as great as your last guess.
•
High priced trading education is not absolutely necessary. What is necessary is a genuine drive to succeed and the perseverance to push through times when you eel like throwing in the towel. Behind every truly successul trader are many years o hard work and grit.
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Steve Burns Options trader · Author of New Trader, Rich Trader · Founder of New Trader U
What’s the reason why most traders never succeed? @SJosephBurns
Risk management is a universal principle amongst the traders who have ‘made it’ over a long period o time. This goes to show that i you cannot manage risk, and you put your entire account at risk enough times, you will eventually blow up. As Victor Niederhoffer ound out, even though he was an amazing trader who had some o the best returns ever, he blew up several times due to poor risk management. So i it’s too costly or you to be wrong once, then you will blow up at some point.
You also need strict discipline to ollow a trading plan. Without the discipline to ollow your plan, it becomes worthless. Regardless o how good you are as a trader, i you don’t have the discipline to maintain correct position sizing, and continue taking entries and exits as specified in your plan, you’re not going to make it. Besides poor risk management and a lack o discipline, the other reason why a majority o traders ail, is due to their inability to react. Many trading legends were successul because they had the ability to react to what was happening (going all the way back to Jesse Livermore, and Nicholas Darvas). Where as some traders ocus on predicting (instead o reacting) and believe they cannot be wrong, which means they’re also likely to blow up. There’s also perseverance. I somebody decides they’re going to be a winning trader and they’re not going to stop until they are, then generally only time separates them rom success.
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Aaron’s take: •
Without a sound understanding o how to manage risk, you will eventually run your account into the ground. No one trade (or series o trades) should have the potential to take you out o the game. Trade positions relevant to your account size.
•
When you lack the discipline to ollow your trading plan, stop - you’re moving into dangerous territory. Get to the root o the problem and figure out what’s gone wrong beore you continue. I this means sitting on the sideline or a ew weeks or a ew months, that’s fine. The market will still be there when you’re ready.
Peter Zhang Major in Quant Finance · Partner at Sang Lucci · CEO of Flammarion Capital Partners
What’s the reason why most traders never succeed? @PZ_SL
Unortunately, many aspiring traders are looking to get rich quick... They’re either looking or fish*, or looking or services that give them picks, and many times, they get addicted to a couple good trades even though they’re losing money over time. I’ve seen these traders go down the spiral o, ‘I just need a better
* Give a man a sh and you feed him for a day. Teach a man to sh and you feed him for a lifetime.
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service provider’. Instead o owning up to the act that they don’t know how to trade, they continue ollowing everybody’s picks. They’re stuck on a vicious cycle (like a gambling addict), where they just continue to find more and more service providers, they continue to dump money into them, and they cannot come to grips with the act they don’t know how to trade. They never even get to the point where they can adjust their own psychology, because they’re not even really trading – they are just piggy backing on others. I eel like that’s a large majority, unortunately. Then there are those who are really trying to trade; they may open a prop account, seek out a good education, and they learn some o the best practices. But a lot o times, the difficulty or these traders is they may not be losing money, they’re just scratch (floating around breakeven). Which may indicate they’d be better off as a maker in the market versus a taker – meaning they don’t cross the spread, and that’ll actually turn them onto profitable trading. Another issue or traders in this category is, they don’t learn real stomach tolerance. So they always get stuck ordering position lots o 200/500/1,000 shares. They haven’t come to terms with the reason why they’re making mistakes, is because they don’t have the right stomach tolerance. They can’t think in terms o, ‘I I buy 1,000 shares at this breakout right now, I can make a couple hundred dollars or breakeven. So maybe I should just buy 2,000 shares, because that’s how I’m going to make greater amounts o money’. Thereore, as a hand trader they’re not what we call ‘linearly scalable’, because their emotional tolerance and stomach tolerance doesn’t scale this way. They need to learn the art o
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working an order into a trade, and letting trades breathe a little more - these are more proessional hand trader ways o looking at the market. Although it’s tougher to quantiy, this is ofen an area where they can scale up their trading to go rom breakeven to profitable. It will require them to learn a little more, as well as learning more about themselves. It’s just unortunate a lot o traders are not in the camp o learning how to fish, and they don’t look in the right areas. So most o the time, the deeper problem is right there within themselves and their inability to project properly onto the markets. They’re not able to look back and say, “I did not have a good morning, and thereore I’m going to make sure I trade
“It’s really hard
50% less than I usually trade this afernoon”. It’s really hard or
for traders
traders to come to terms with the act that it’s actually their own
to come to
ego which prevents them rom being successul. And many times
terms with the
they’re taking trades while trying to match their ego with the next best trader.
fact that it’s actually their
It’s important to understand your own psychology, who you are
own ego which
as a person, what your liestyle is like, what your behavior is like
prevents them
– and learn how to use this to your best ability.
from being
Personally, I know I hate breakouts. So i it’s a breakout market
successful.”
I’m actually going to scale back. I like when the markets are choppy, I’m a premium seller. Thereore I know when I should be
PETER ZHANG
increasing my exposure and playing a little more aggressively – i it’s my type o market. Unortunately traders in the first year (or even two years) are generally looking or those hot picks, and they don’t ever get to the point where they can actually try to do a little bit o
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reflection. That’s just the unortunate nature o the ‘greed’ that is sold out there. It’s very hard to be reflective and that’s one o the unortunate truths or aspiring young traders (even older traders, it’s sometimes harder or older traders who are trying to learn).
Aaron’s take: •
Blindly ollowing another person’s trades is not the way to develop real trading talent. Forget alert services, save your money and ocus on learning how to orm your own trade ideas.
•
An ignorance o market microstructure will occasionally be the cause or unprofitable trading. Although as you zoom out by timerame this becomes less likely. But nevertheless, market structure affects each and every participant, so it’s beneficial to know what goes on below the surace.
•
Make a conscious effort to increase your stomach tolerance, over time. This means you become more comortable with taking losses, which will allow you to scale effectively, and trade advanced methods when you’re ready to level up.
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Zach Hurwitz Equities trader · Trading coach · Systems developer · Founder of TheVWAP.com
What’s the reason why most traders never succeed? @ZachHurwitz
Many traders ail in the moment because o poor risk management, arbitrarily oversizing their trades. But they also all short in terms o ocus – rarely will traders master a single subject, let alone ever build skill in many subjects. Style drif depletes a trader’s energy, time, and enthusiasm.
“Rarely will
It’s understandable that traders can’t choose one style easily
traders
– where do new traders even begin? – and so they ofen let
master a
popularity proxy or ‘success’. Afer they’ve slugged through a
single subject, let alone
myriad o ‘common’ approaches, they’ve got little lef to devote to a subject worth mastering (once the trader finally stumbles across a worthwhile strategy).
ever build skill in many
I’m guilty o this, too. Early on I explored options and utures
subjects.”
but ound mysel drawn back to equities (and more importantly, pattern-based trading). Once I recognized my strengths – and perhaps more importantly, identified what ulfilled both my intellectual curiosity along with my financial needs – I stopped spinning my proverbial wheels and began building sustained progress. Sustained progress builds confidence; confidence leads to consistency; consistency is what we all seek in our own trading.
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Aaron’s take: •
Many traders ail to ever master a single strategy. Thereore, they never learn the ull process o how to develop mastery with anything they attempt. Continually changing strategies is an energy drain and a time suck. Once you identiy an approach that resonates with you, drive it into the ground with investigation.
Adam Ryan Futures trader · Founder of Optic Trader
@OpticTrading
What’s the reason why most traders never succeed? A lot o aspiring traders give up too soon, because they don’t realize how difficult it’s going to be to succeed. Part o the problem is, i you listen to what many educators are saying, “Trading is so easy, look how I made a thousand dollars with just 30 minutes o work,” and they really ram it down your throat. Then you have people who get into trading, thinking ‘wow, this is going to be so easy’. Although once they get into it, they quickly realize it’s not easy – in act it’s extremely difficult and they generally give up. So I believe that many traders give up too soon, and that’s why the majority never reach a high level o success.
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Aaron’s take: •
Have an awareness o marketing hype – trading is not easy. Plain and simple. But on the same note, it’s also not impossible... So be prepared or challenges, persevere, learn rom your mistakes, and one day you quite possibly will pocket a thousand dollars with 30 minutes o work. Just don’t expect that day to come next week.
Lance Beggs Full-time futures trader · Part-time trading educator · Founder of Your Trading Coach
What’s the reason why most traders never succeed? @LanceBeggs
There are many reasons… The first one is their relationship with loss. People come rom different backgrounds and jobs where income is pretty secure. But in this game you eat what you kill. I you do not perorm today and get a ew kills, you do not eat, you make no money. Trading is a perormance activity in an environment o uncertainty, so you need to expect losses. You need to accept that losses are just part o the game, and you need to learn how to manage them. That is something that traders ofen don’t understand, and you can’t understand until you’ve got experience – so it takes time.
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Additionally, they don’t have a proper process or growth and development. Many are looking at this game rom a systems perspective, and that’s why there’s a whole industry geared around this. The easiest way to make a million bucks trading, I believe, is to sell systems. There are countless orums filled with mediocre advice, and ailed traders showing their systems. And this is why many get stuck in the systems mindset. I make un o it, yet that’s where I was during my earlier years as a trader.
“Traders aren’t
Essentially, they approach trading as a systems game, instead
immersing
o one as a process o growth and development. For those
themselves in
with the wrong perspective, it would be worthwhile reading
the game, in the study of price action;
about deliberate practice and effective methods o growth and development. By looking or this shortcut, traders aren’t immersing themselves in the game, and the study o price action. They aren’t building
they aren’t building ‘deep domain knowledge’.” LANCE BEGGS
‘deep domain knowledge’. Unortunately there are no shortcuts; you’ve got to hit the books, hit the charts and study this game. All the answers, everything you need is there in the charts, get in there and study them. To summarize, many traders simply aren’t using the right process or learning. They’re looking or the quick buck systems and not treating it as a process o skill development. That’s probably the main reason, but there are many more traps around – this is not an easy game.
Aaron’s take: •
Losing trades are unavoidable. No trader has ever achieved
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a 100% win rate, nor do they need to. In act, the majority o proessional traders are wrong more ofen than they’re right. This is where effective risk management comes into play. •
Shortcuts do not exist. The greatest way to reduce your initial learning curve is with some old-ashioned study o price action. The answers to your trading success do not rest within someone else’s neatly packaged system.
Jason Leavitt Swing trader · Position trader · Founder of Leavitt Brothers
@JasonLeavitt
What’s the reason why most traders never succeed? First o all, the traders that don’t succeed don’t have a plan. They just don’t. They hope, they antasize, they dream, and they want things to go their way, but they don’t have a plan. They don’t know what they’ll do i the market goes up, they don’t know what they’ll do i the market gaps up, they don’t know what they’ll do i the market gaps up and then sells off. They pretty much just wing it…
They get into a position and they don’t know where their stop is, they don’t know i it’s a short term trade or a long term trade, they don’t know i they’re going to scale out, they don’t know i they’re going to add a new position i it breaks out and then pulls back. They literally just fly by the seat o their pants, because
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they don’t actually have a plan. Think about a ootball team, can you imagine i they showed up and didn’t have a game plan – that would never happen! They spend an entire week looking at game films, and practicing certain plays based on the type o deense that the opposing team is likely to play. Then they actually workout and practice many different plays in order to capitalize on this. And traders have to do the same thing; they have to have a detailed plan. Even though 90% o the plan will never matter, at least they’ll contemplate, ‘What will I do i the market does this,’ and, ‘what will I do i the market does that?’ I they have ten o these different scenarios that they’ve thought out, obviously most o them are never going to happen, but going through the motion o outlining a plan is an extremely helpul exercise. All traders need to sit down and say, “What’s my plan or today? What am I going to do i this happens? What am I going to do i that happens?” Play devil’s advocate – that’s what they need to do, but they don’t. Another thing aspiring traders ofen do is ‘style drif’. They constantly jump rom one strategy to the next, to the next. One day they’re swing trading stocks and playing chart patterns, then a month later they see something on a message board and get tempted to trade Fibonacci retracements. Now instead o playing breakouts, they’re buying pullbacks, and perhaps they’ll slap a new technical indicator on their charts also. So they’re constantly shifing rom one style o trading to the next. Although in saying this, it is necessary when you first start out. Because in order to zero in on what works or you, you have to
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experiment with several different styles. But once you do zero in on what works, you have to stick with it, and avoid the temptation to go elsewhere. So ‘style drif’ can be a big issue when new traders are starting out.
“They get into
In addition to this, they don’t take a loss. When they get into a
a position that
position that goes against them, they should get out, but they’re
goes against
araid o taking a loss, so instead o exiting they bargain and
them, they should get out,
negotiate with the market. They say, “I it can just go back up, I’ll get out at breakeven,” and then it goes against them even more. Next they say, “Well i it can just go back up to where it was two
but they’re
days ago, then I’ll get out with a small loss,” but it doesn’t go
afraid of
back up, it keeps moving against them. Beore they know it, a
taking a loss”
perectly normal loss turns into a huge loss. This creates a major problem. Not only do they suffer because o the money that they
JASON LEAVITT
lost, but also their confidence is shot, their emotions are shot and it spirals rom there… One other problem that many traders have right now is ‘inormation overload’. It wasn’t a problem when I first started, but it is right now. Even though TV is less prevalent now that it was back then, with all the websites, blogs, and services (i.e. Twitter and StockTwits), there is no end to the amount o inormation you can get. And no matter what a trader wants to do, or what their opinion is, they can easily find support or that opinion. Now, just to recap, these are the main points o ailure: •
They don’t have a plan.
•
They don’t know how to zero in on one thing, and they’re constantly changing their strategy.
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•
They don’t take a loss.
•
They don’t ignore the excessive amount o inormation that’s out there.
So i you flip this around and you want to know how to become successul: •
Have a detailed plan, outlining exactly what you will do in different scenarios.
•
Hone in on something that works or you.
•
Make a deal with yoursel that you will never let a small loss turn into a big loss.
•
Try to ignore a majority o the inormation that’s out there, because most o it’s noise.
Aaron’s take: •
Reer to Jason’s summary above – he nailed it!
John Welsh Biotech trader · Fundamental analyst
What’s the reason why most traders never succeed? @JohnWelshTrades
It all goes back to the mental aspects o trading. Many people don’t understand their personality flaws rom everyday lie also
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apply to trading, i.e. being insecure, not being humble, needing support, and needing conormation rom other people. Thereore, i you’re involved with a group (or a chat room), it’s important to realize that just because the group is thinking one way, that doesn’t necessarily mean the group is right. Ofen what happens mentally, when a group trade goes wrong and a trader loses money, they then try to chase the loss and make the money back. But it doesn’t work that way. That’s why a lot o traders ail, because they’re getting confirmation rom other people. They’re not doing the research and homework themselves. I you look online, the most profitable (and popular) products around are alert services. What this tells you is most traders just want to know what to buy, no questions asked – and those people are truthully not making any money. You know, i you want to learn how to fish, somebody needs to teach you how to fish. In order to learn you need to be able to study why somebody is buying, instead o ollowing blindly just because they made a good call two months ago. So that’s why I believe the majority o traders ail, because they are too busy ollowing ‘the group’.
Aaron’s take: •
Traits o your personality will ofen reflect in your style o trading. Some o these traits will help to you orm quality trading practises, and others may have the opposite effect. It’s about having sel-awareness, and the ability to control both your positive and negative characteristics.
•
Build the confidence and skill necessary to ormulate and
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execute your own trade ideas. You are not required to have the same views as the majority. While it’s ofen hard to go against the grain, just remember, most market participants do lose money. Markets move money rom the hands o many, to the hands o a ew. •
Revenge trading – orget it! I you happen to lose money in a particular stock, there is absolutely no reason to make it back rom that same stock. Leave your ego at the door, and don’t worry about trying to prove a point.
Stuart McPhee Equities + FX trader · Author of Trading In A Nutshell
What’s the reason why most traders never succeed? @StuartMcPhee
Many traders aren’t taking the time to do everything that needs to be done, in order to trade successully. They’re not taking the time to study and understand how to manage risk. They’re not taking the time to become more disciplined as a person, and as a trader. They’re also not taking the time to develop a plan, validate rules and test them, as well as prove and disprove different strategies. Additionally they’re not taking the time to become methodical in their process, structured and organized as a trader. This means they’re not treating it as proessionally as they
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should, and I’m going to say the word again ‘time’ – not investing the time. Here’s a great analogy I use… I play a lot o gol, which is one o the reasons why I don’t like looking at a screen or ten hours a day. But I am not a proessional goler, I don’t make one cent rom playing gol. In act it costs me money; I recently bought a set o clubs that cost a lot o money, and my membership ees cost a lot o money. While I don’t make any money playing gol, and I’m not a proessional – I still love playing gol. BUT it’s a hobby.
“Too many
And rom what I see, too many traders treat trading as a hobby.
traders treat
They enjoy it, they spend time doing it, they’re happy to do it,
trading as a
but at the end o the day it costs them money. They don’t take the next step o becoming proessional. So to many, trading is a
hobby.” STUART MCPHEE
hobby and not a proession. Gol or me is a hobby, but trading demands more o my time and respect.
Aaron’s take: •
To be a great trader, requires an immense dedication o time. In this sense, trading is no different to any other area o lie where your goal is to ultimately become a pro. Amateurs will orever struggle, because they do not invest the time to help themselves breakthrough.
•
“There is no room or amateurs in the game o lie.” I’m a huge an o this quote rom Tim Walker, and I eel as though it neatly summarizes Stuart’s point. I you’d like a detailed explanation
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o this quote, I suggest listening to Tim’s interview on episode 006 o the Chat With Traders podcast.
Adam Grimes Diversied trader · Systems developer · Author of The Ar t & Science of Technical Analysis
What’s the reason why most traders never succeed? @AdamHGrimes
False expectations. I could just leave it there... When most people go into trading, they don’t understand what success looks like. They don’t understand what success looks like along the way as they overcome obstacles, or even what their ultimate success will look like. They go into this expecting something other than what they’re going to get, even i they are very successul. There are a lot o other reasons that cause traders to ail like being undercapitalized, not doing the work. Or just going into trading or the wrong reasons. But I think the number one reason most traders ail is due to alse expectations.
Aaron’s take: •
Setting realistic expectations or yoursel as you become a trader can make a world o difference to your mindset (and
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results) along the way. By setting the bar artificially high, it’s likely you’ll eel like a constant underachiever. But, also be mindul not set the bar too low, as it’s healthy to push yoursel.
Mike Bellafore Prop trader · Co-founder of SMB Capital · Author of The Playbook + One Good Trade
What’s the reason why most traders never succeed? @MikeBellaore
It really depends on what type o trading that you’re doing. Many new traders choose a type o trading, a product, or a timerame that doesn’t best fit their personality and their thinking talent. Specifically; i you don’t think ast, then you’re not going to become a really good active trader. Instead, you may be better off as a global macro trader.
Aaron’s take: •
Develop an approach that meshes with your own personality type. Attempting to trade an approach that doesn’t eel right, is like trying to orce a square peg in a round hole – it doesn’t work.
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David Bush Quant trader · Systems developer · 1st Place winner of BattleFin
What’s the reason why most traders never succeed? @Alphatative
While I certainly speak for myself on this topic, I imagine many other traders are like this also; we come to the market with rosecolored glasses. I still remember looking at my father’s TV, seeing the ticker tape and this is probably 21 years ago now. So I certainly went into the market thinking, ‘Wow, there is so much opportunity’. But once you get thrown down a staircase or two and you’re hurting, you realize; this risk part is pretty important, that was not fun, and you don’t want to live through that kind of trade, experience or drawdown ever again.
“It’s a matter
So your lenses constantly change while you develop as a trader,
of being
but some people are just going to say, “You know, I just don’t
prepared to
want to dig that deep, it’s too challenging. You mean I’m going
dig deep.”
to have to look into my psychology, and examine my own belief system? Come on, that has nothing to do with trading…” But of course it does, it has everything to do with trading. Especially as a discretionary trader, since you’re more prone to succumbing to biases, and usually with larger positions. So it’s a matter of being prepared to dig deep. Just like multiple systems can diversify one’s strategy (by removing a single point of failure), I like to surround myself with people who are brighter than me, and who think differently
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than me. This way I’m exposed to more ideas, more knowledge, and more perspectives, so I’m constantly exposing mysel to new ways o thinking. But I eel like this is more than some people are up or, and to me, that’s probably the number one reason most traders ail. To succeed as a trader, you need to overcome a lot o biases and be able to take a hard look into the mirror. Understand it can be rough in the early stages, and it can be rough later on too. There are going to be bad periods or any approach or strategy, although as you develop you’ll be better prepared or these times. Especially as a quantitative trader, because you should know your risk parameters and the size o a normal drawdown etc. So i I can condense this down to two words, I’d say ‘digging deep’ – that’s what is required. But some traders are going to leave it at a certain level and aren’t willing to push on to get to where they could be.
Aaron’s take: •
The lie o a trader is one o constant growth and betterment. However, some will reach a point where they plateau; they become comortable with who they are, and what they already know – these are the ones who will never reach their ull potential. The ones who go on to become great traders embrace the act they don’t know everything, they push their comort zone and they’re prepared to ‘dig deep’.
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Ivaylo Ivanho Swing trader · Position trader · Co-founder of Social Leverage 50
What’s the reason why most traders never succeed? @Ivanho
In the beginning most traders don’t have an edge. And even when they do find a setup with an edge, most don’t concentrate enough efforts on learning everything about that set up to make it profitable or them. Most traders will try to trade a particular setup, but i they don’t see results within a ew weeks they’ll move on to something else. So they constantly jump rom one thing to another, and they never become masters o one particular setup. I believe that i you learn one great setup, and trade it or the first couple years you will become successul. O course you still have to know when to trade this setup, because there will be times when you need to sit on the sideline and do nothing (your setup won’t have an edge in certain market conditions). Over time you’ll be able to start adding new setups. But in the beginning, less is more – so you have to concentrate on one specific setup. The best part is there are many working setups that are shared or ree in the public domain, and many great books that you can buy or a small cost. This way you can take a working setup rom another trader that you know is already profitable, which you can then tinker to fit your own liestyle, or based on your own study o past winners.
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Aaron’s take: •
By now you should be noticing the theme o ‘style drif’ is prevalent throughout this guide, reason being, it causes many novice traders to become stagnant.
•
The point rom Ivan’s response which I’d like to highlight, is the importance o understanding when your setup has an edge. With most setups there will be certain market conditions where your expectancy to profit decreases. The added benefit o becoming intimately amiliar with a single setup, is you will begin to pick up on which market conditions deliver greater results.
Brad Jelinek Prop trader · Futures markets
What’s the reason why most traders never succeed? @JelinBra
The first thing you must have is that desire and fight inside o you – you have to really want to do this. Because as a trader, everyone goes through tough times and dark days. But it’s that knowingness and willingness to do anything it takes that keeps you moving orward. You can’t deeat someone who keeps getting up afer every setback. The second thing is to learn that when you understand something, you need to trade it larger. And when you’re not trading well,
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you need to cut down your size (drastically sometimes) and be prepared to exit positions quickly. I you can do this you’ll stay alive – and i you’re alive, you’ll be able to figure out a way to get back to trading normal size again in the uture. So it’s about managing yoursel this way, in addition to the desire to succeed.
Aaron’s take: •
Trading will test you, and there will be moments when you’re pushed to the verge o breaking point. So i you cannot uphold a high-level o commitment, you will crumble when the going gets tough. On the other hand, i you have a lionheart and an undeniable passion or what you do, you’ll be unstoppable.
•
When you hit a rough patch, reduce your position sizes. One may be inclined to do the opposite as a way to reaccumulate losses quicker, but in reality, this is how things escalate rom bad to worse – ast.
Andrew Falde Options trader · Systems trader · Educator at SMBu
What’s the reason why most traders never succeed? @AndrewFalde
One reason is, traders enter the market with a lot o confidence because they are ofen smart, or they may be more intelligent
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than a lot o their peers, amily or riends. So they look at trading and say, “Okay, most people ail at this however I am generally smarter. I have a good head on my shoulders, and when I try to understand something I do well. I’m also passionate about this.” They also say, “I have what it takes, because most o my riends aren’t even interested. So i they were to try they would probably ail. But I’m well suited or success, because I have other success in my lie.” I have seen very successul businessmen and investors that come to trading, and they receive negative eedback rom the market, meaning they lose money. They approach it the same way they approach anything else in their lie… Lets use sports as an example; i you’re losing, you practice harder, try harder, learn more and through sheer effort you’re going to improve and achieve better results. Or in business; you can work longer hours, cut your prices and make decisions that allow you to control how you’re going to achieve greater profits.
“They have
So in many areas o lie, willpower will lead you to overcome the
to learn very
issue at hand, and you’ll be rewarded with positive results. And
quickly their
those who are attracted to the markets, have ofen experienced
willpower has
this in one way or another...
no place in the
But when it comes to trading, they have to learn very quickly their
markets.”
willpower has no place in the markets. Using their willpower
ANDREW FALDE
they say, “I’m going to hang on to this trade until I am right. I am going to will this system to work. I am going to will this trade to work. I know I am going to be right”. This is the approach they bring to the market, and the worst thing that could happen is they get rewarded or it a ew times. Lets say they call the top in
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something that’s highflying or up big or the day, and it drops right away, they’ll say, “Oh, that’s great. I should’ve taken a bigger size”. Then it happens a second time and they do it again, this time with a little more size. But they don’t even realize that the whole market was consolidating so every pop was aded. Then all o a sudden the December rally comes and the market breaks out, yet they say, “Oh well, I’ve been conditioned, I know it works. I’m going to short this thing.” But prices take off, the whole market goes up 6%, their stocks go up 11%. Yet the whole time they’re just trying to will it and figure out why it should go down, why it’s got to work out, and why they’re right. And through sheer willpower they think it’s going to work out or them. Instead the mentality that works is, to know when you’re wrong, and understand there’s nobody who can be right 100% o the time. As soon as you’re wrong, and you get to a point that has exceeded your expectation o what should happen, then you need to do something about it. This is one o the reasons I love to trade options; I don’t always have to close the position. For my psychology that works great, because I still get to hang on to my idea. Using options I can take other approaches to deend mysel, by bringing in a different trade that can enhance the position, without closing the srcinal one. So that’s why I believe most traders never make it – they bring success rom other areas o their lie and try to apply it to the market, but the market doesn’t play by the same rules.
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Aaron’s take: •
Being ‘smarter’ than the average person isn’t a prerequisite or profitable trading, and neither is success in other areas o your lie. Truth be told, these two actors ofen attribute to new traders being overly confident, only to be humbled by the almighty orce o the market. The market is a beast o it’s own, which commands respect.
•
Having the stubbornness and willpower to hold on to a losing trade is a sure-fire way to damage your account. Know where you’re getting out beore you get in.
•
The worst thing that can happen to you, is you profit rom breaking your rules, because this means you’ll be more inclined to do it again. Then beore you know it, you’re trading without a plan and every decision is based off o a gut eeling.
Brian Shannon Swing trader · Author of TA Using Multiple Timeframes · Founder of AlphaTrends
What’s the reason why most traders never succeed? @AlphaTrends
Besides the act you have to have capital to start, there’s no barrier to getting involved. You can start out as a day trader right rom day one, when you most probably shouldn’t. And that’s why traders get impatient with the market. Because they don’t find out who they are, what their personality is best suited to, and
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what their appropriate timerame in the market is, until afer they’ve made too many big mistakes. They want to get involved in the market right away, and they see it as an opportunity to make easy money. When in act, it’s extremely difficult. Trading success first comes rom having a solid understanding o yoursel.
“Often their
Ofen their downall is a combination o impatience and ego.
downfall is a
When they get into a trade and see the price moving against
combination
them, they begin pulling up news, looking or other opinions and
of impatience and ego.”
their ego does not allow them to take a quick loser when they should. Even though they went into the trade with a plan and said, “I’m
BRIAN SHANNON
going to cut my loss here,” their ego gets in the way and says, “no, just buy a little more, it’s definitely going to bounce.” All along, they’re compounding their problems. So the reason why the majority ail comes down to, not understanding their appropriate timerame and being impatient. Also, not learning the mechanics o how the market actually trades, and not understanding the psychology o money flow beore they start the sizing up positions.
Aaron’s take: •
Slow down, prepare. Many people come to trading and want to dive in right away, without taking the time to investigate which approach, timerame, and market may be suitable or them. It’s only afer they get seriously hurt, do they stand
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back and look at what went wrong – which was essentially a lack o preparation. •
Ignoring the psychological reasons that motivate buyers and sellers at certain levels, may lead to unnecessary losses. By understanding markets on a deeper level (beyond price) you’ll be able to better anticipate uture movements.
Howard Lindzon Trader · Investor · Hedge fund manager · Angel investor · Co-founder of StockTwits
What’s the reason why most traders never succeed? @HowardLindzon
They don’t have the right mentorship, so they just give up. Learning to trade and invest is a long process, and ofen people are deterred by a really bad experience along the way. Plus this is not or everybody. But most people give up because they can’t find a mentor, or they caught during the years o a bear market. Also the media drums into people that you cannot beat the market. While I agree it’s not easy to beat the market, I don’t think ‘beating the market’ should even be in your vocabulary – it should be about ‘destroying the market’! I you’re going to trade, why would you do this to earn 12% a year when the S&P is 9% a year? I do this because I want to have years o 80-100% returns, or greater.
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So most traders give up because they have the wrong expectations, and started or the wrong reasons – that’s the main problem. But
“Most traders give up because they
they also give up due to having the wrong ramework or getting started. Most o the time you can solve these problems now that you
have the wrong expectations,
have podcasts etc, with people telling you the truth about their
and started
wasn’t as easily accessible in 1990 when I started, but now there
for the wrong
is no excuse not to dig into a ew podcasts, or try a ew financial
reasons.”
own experiences, which you can learn rom. This type o media
sites and see i you can find a mentor through these channels. And expectation wise, the same thing…
HOWARD LINDZON
I would say to anybody, “What is your expectation?” I they just want to earn more than cash, well they should dollar cost average in a low cost ETF. But when a trader says, “You know, I think I can make 80% a year.” Then I say, “Expect to lose and have years when you are down 40%. But i you’re willing to ride them out, then you should get in, start learning and find a strategy that fits your risk profile.”
Aaron’s take: •
Many traders give up because they struggle to find the mentorship that’s required. But with the advances in technology and the Internet opening windows o opportunity, everyone now has some degree o access to successul traders. However, i you reuse to take advantage o this – then it’s wasted. So put yoursel out there, and begin orming relationships with those who can help you improve.
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•
Having clear expectations about what you aim to achieve from participating in the markets, will help you to build the necessary framework to get there.
Peter Brandt Legendary trader · Classical chartist · Author: Diary of a Professional Commodity Trader
What’s the reason why most traders never succeed? @PeterLBrandt
They are afraid to lose – that’s the number one reason. I see so many traders who are afraid to put on a position, because they’re worried about being wrong. Whereas I don’t have a problem with being wrong on a trade. In fact, I naturally assume that I will be wrong on a trade – that’s my default position... And because of this, I approach money management dierently.
“I naturally assume that I will be
The second reason, is they trade too big. They oversize their positions, they trade too much, and they’re too aggressive; trying to build up a position that’s larger than
wrong on a
their account can support. This is particularly true in futures
trade – that’s
and forex. Not so much in stocks with a cash or margin account,
my default
because you’re reined in based on what your capital is, and you
position...”
soon run out of buying power. Where as this is not the case in futures and forex, but even still, seldom do I have more than 15% of my capital committed to margin.
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The problem is, novice traders come into the utures markets and they say, “My goodness, the margin on one contract o beans is $3,000 and I have $30,000 in my account, I think I’ll buy 10 contracts.” Well, I buy one contract o beans or every $100,000 in my account, or 10 per $1,000,000. When I tell them this, they’re shocked at how small I trade. So I believe a mistake that many aspiring utures traders make, is trading way too large.
Aaron’s take: •
As a trader, you’ll need to get accustomed with the act that you are ofen wrong. I you have a ear o pulling the trigger because you want to avoid being wrong, then there’s likely an underlying issue. Maybe you’re trading too large...
•
Just because there is an insane amount o leverage being offered to you, doesn’t mean you should take it. Leverage is a double edged sword, and you must treat it with caution.
And this brings us to the close... Like I mentioned at the very beginning, I believe there are huge benefits to understanding WHY most traders never succeed. While I know this topic may be considered as somewhat o a buzzkill, having now completed the guide you must admit; these are the pitalls that more traders need to be made aware o, i they wish to succeed.
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For that reason, I congratulate you on making it all the way through, and taking another step orward to improve your trading. The ultimate goal o creating this guide was to help you become more sel-aware o your own trading habits, and to serve as a valuable resource that you can easily reflect on rom time to time. I hope it serves you well. I you have any questions, comments or queries I encourage you to email me at
[email protected], or tweet me at @chatwithtraders. Now go out there and crush it! Aaron Fifield Chat With Traders
Listen to the full interviews Jerry Robinson: chatwithtraders.com/ep-001-jerry-robinson Steve Burns: chatwithtraders.com/ep-005-steve-burns Peter Zhang: chatwithtraders.com/ep-009-peter-zhang Zach Hurwitz: chatwithtraders.com/ep-011-zach-hurwitz Adam Ryan: chatwithtraders.com/ep-012-adam-ryan Lance Beggs: chatwithtraders.com/ep-013-lance-beggs Jason Leavitt: chatwithtraders.com/ep-017-jason-leavitt John Welsh: chatwithtraders.com/ep-018-john-welsh Stuart McPhee: chatwithtraders.com/ep-019-stuart-mcphee Adam Grimes: chatwithtraders.com/ep-021-adam-grimes Mike Bellafiore: chatwithtraders.com/ep-022-mike-bellafiore
David Bush: chatwithtraders.com/ep-023-david-bush Ivaylo Ivanhoff: chatwithtraders.com/ep-024-ivanhoff Brad Jelinek: chatwithtraders.com/ep-026-brad-jelinek Andrew Falde: chatwithtraders.com/ep-028-andrew-falde Brian Shannon: chatwithtraders.com/ep-029-brian-shannon Howard Lindzon: chatwithtraders.com/ep-035-howard-lindzon
Peter Brandt: chatwithtraders.com/ep-036-peter-brandt ... Plus, more trader interviews are available online at chatwithtraders.com.
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Contents Foreword
pg 04
Why You Need a Mentor
pg 06
When Am I Ready For a Mentor
pg 08
Who Will Mentor You
pg 10
What Should A Mentor Teach You
pg 15
How To Get Maximum Benefit From Mentoring
pg 16
Final Words
pg 18
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Foreword As I read through my emails each week, there’s one question that pops up more than anything else—and it’s a good question. But the only problem is, I eel like an email is not the ideal medium to give the detail response it deserves, without going on to write 3000 words like I have here. Seeing as you’re taking the time to read this guide, I imagine this is the question you’ve been asking yoursel also. So what is it? Well, the question I’m reerring to goes something along the lines o… “How do I get a trading mentor?” Like I said, it’s a good question, and I like that you’re thinking this way. But you might be surprised to know, that the purpose o writing this guide is not to give you a rigid step-by-step process or how to get a trading mentor. As ar as I’m aware, such a process does not exist. The role o a mentor will serve a different purpose or everyone. So let me explain… When I use the word “mentor”, I’m using it as a general term to describe a flexible and ofen inormal relationship that can vary rom person to person and field to field. Mentoring is organic. It’s not something that should be pigeonholed, nor does it reer to one person who should do or act in a certain way. I would like you to keep this in mind as we continue. The real purpose o writing this guide is to give you a ‘loose ramework’ or how you may be able to find someone who plays a bigger game than you do right now. And to give you some ideas
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about how you may be able to best approach someone, build and maintain a relationship with this person, and how to set expectations. To urther set the scene; i you would o hit me with this question about how to get a trading mentor at the end o 2014, I would have been stumped or an answer. But having had the opportunity to speak with many successul traders (many who owe at least a portion o their success to a mentor-like figure), I’ve picked up a thing or two about actively seeking help, and it’s only right that I pass this on to you.
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Why You Need A Mentor... I once heard someone say, “There’s no such thing as a sel-made millionaire”. At first I was somewhat puzzled by this. I was almost going to disregard such a bold claim, until this person went on to explain why… He described everyone who makes it to the big league as having a support team behind them, these team members may be in the spotlight or behind the scenes. So lets break that down; whose on the team? Accountants, partners, banks, lawyers, co-workers, and you guessed it—mentors too. So that should tell you something... I you plan on really making something out o your career as a trader, shif your mindset rom thinking o trading as a one-man sport and start thinking about how you’ll build your team. I you continue to push ahead on your own, you’re potentially going to have a tough time making progress. One o the great benefits o having a mentor, is having the ability to bypass some o the major learning hurdles that stunt the progress o many traders. A trader who is mentoring you, who has years o experience, has likely made all the mistakes you can imagine (plus more), and can thereore steer you in the right direction when you’re heading off course. Just on a side-note, while discussing ‘learning hurdles’, it’s important to highlight that the learning curve or a trader never completely ends. Yes, it’s pretty steep in the beginning and tapers off over time, but don’t eel as though there is a final destination
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you’ll arrive at where everything is beer and Skittles (as they say). Peter Brandt is a prime example o this, even afer 45+ years o trading and an incredible track record, he still considers himsel to be a ‘student o the market’. Since we’re digging into why you need a mentor, we should address something that’s ofen conused, which is the difference between mentoring and coaching (or education)… It’s my interpretation that a coaching arrangement is more ormal, structured and ofen involves monetary payment rom the student. Broadly speaking, a coach is ofen called upon to help solve a specific problem over the course o a fixed amount o time. Whereas mentoring is typically opposite to this, which is what we’ll continue to ocus on throughout the reaminder o this guide. In this section I’ve outlined the overarching reasons why having a mentor is beneficial, but ultimately it’s up to you to decide why YOU need a mentor. So try to be as clear as possible in your own mind, about what you want to achieve rom your relationship with a mentor.
“Learn from someone who is already where you want to be.” ROBERT KIYOSAKI
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When Am I Ready For A Mentor? There’s much that could be said on this subject, but I’ll keep this brie and straight to the point. There are two things that immediately strike me as prerequisites you should consider, beore attempting to chase down a mentor. These are, one— experience, and two—knowledge, here’s why…
Experience First, you’ve got to touch the stove to know it’s hot. Reading a book or listening to a podcast about the realities o trading is not the same as having lived it out in real-time. You need to experience the pain and rustration o being an entrylevel trader, and know first-hand how easy it is to get burnt by Mother Market. And to take it one step urther, even when you eel like a total loser, you need to continue striving or betterment without being deterred. You need to be able to prove to yoursel that you can take a ew hits without throwing in the towel, until then you’re not worthy o a mentors time. So, (some) real market experience goes without saying.
Knowledge Equally important is how well you understand markets and grasp common trading principals. Knowledge-wise you should eel like an intermediate trader, even though your account balance may not reflect this (that’s okay). In other words, you need to be able to talk the talk…
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A mentor is not there to answer generic questions or teach you the absolute basics. The internet is a beautiul thing, Google is your riend, and books are dirt cheap. Be proactive and educate yoursel as much as possible—while o course, staying ocused. There will eventually come a point when you either; hit a (genuine) roadblock, or the rate at which you’re learning compared to the amount o time and effort you’re putting into your study begins to plateau. A potential mentor wants to know that you are serious and committed, and what steps you have taken to get there on your own. Remember, you’re essentially asking someone to take time out o their day to expend brain energy on you, so prove that you’re worth it.
“Mentoring is a brain to pick, an ear to listen, and a push in the right direction.” JOHN C. CROS BY
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Who Will Mentor You... Right, so who’s it gonna be? It’s wise to spend some quality time thinking about who, as a mentor, would be a good fit for you. As cheesy as it sounds, this is someone who really could change your life, so best not to throw caution to the wind.
Identifying a Potential Mentor Obviously a mentor should be someone much more successful and knowledgable than yourself, but within reason. If you identify [insert famous, incredibly wealthy, genius person] as a potential mentor, you’re setting yourself up for disappointment. As an analogy, lets imagine you’re an up ‘n coming basketball player... What’s the likelihood of being mentored by Kobe Bryant or Michael Jordan? Yes, it would be super badass, but the chances of it happening are slim to none. Instead, being mentored by someone such as a retired minor league coach is much more realistic, and there’s no doubt you’ll still benefit in a major way. It’s also important that you use a good judgement of character. As you’ve probably experienced by now, in trading there are some individuals who are not entirely honest and not exactly who they claim to be... Just something to be mindful of, if you’re not already.
Where to Look For a Potential Mentor While a mentor won’t come knocking at your door, it’s very possible that you could meet someone willing to mentor you
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without stepping a oot past your door. As traders, the internet and social media has opened up unlimited opportunities or us. Take Twitter or example, you’ll find all sorts o traders knocking about there. Many active traders are constantly sharing insight, giving their take on the market, and speaking about the positions they’re trading. Plus you can see what they’re reading rom the links and articles they pass around. This is a good way (and a quick way) to get a sense o what someone is all about, and whether or not their style o trading clicks with the way you like to trade. It’s also totally fine to tweet someone you’ve never met beore, without being worried about coming off as “creepy” (as you might appear on a platorm like Facebook), or even jump into an existing conversation i you can add value or give another perspective. Pro Tip: A helpul and ofen underused eature o Twitter is the ‘list’ unctionality, this is an easy way to categorise and easily monitor who you ollow. But Twitter is not the only option, it’s just one o many. You may also consider getting involved in Facebook groups, like the Chat With Traders one which is ree to join. Here you can interact with other like-minded traders, and there’s also some really decent traders in the group who regularly offer support too. Another suggestion is to ollow the personal blogs o traders who have an approach which resonates with you. Read, share and comment on their articles, even drop them a line via their contact orm—start building rapport.
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The main thing is to put yoursel out there, because people are attracted to ambition, drive and enthusiasm (unless they’re intimidated). I wouldn’t mind betting, you’ll end up finding the person who becomes your mentor in a way you least expected. Like I hinted earlier, we live in a world without borders and technological advances are booming. So remember, someone who may potentially mentor you doesn’t need to be in the same city or even the same country as you are. With the power o Skype and other communication apps, you can speak or hours on end with someone on the direct opposite side o the world, and it won’t cost you a cent. Pro Tip: Use Calendly.com or a painless way o scheduling times. This ree tool takes all your available times and automatically converts them into your mentors timezone.
Reaching Out and Forming a Relationship This should be obvious, but beore you even consider reaching out to who you think would make a great mentor, you must research and absorb all you can find out about the person. This is the sort o preliminary preparation required to make the most o your interactions—homework comes first. Okay, moving on… One o the common mistakes made by those seeking a mentor, when reaching out, is asking the person to “be your mentor” right off the bat. That’s a big ask—ar too big or the first interaction. It’s kind o like asking someone to marry you on the first date! Instead get to know them, start small and see where it goes. It’s not enough to ‘want’ a mentor or even be ‘lucky’ enough to find one. There’s no way around it, mentoring is a relationship.
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You need to develop a relationship with this person, which will take time and will not happen over night. So to get the ball rolling, a natural way o doing this might be to ask or their input on a specific topic or a single question. When doing so, make sure they know you respect them, give them a small ego boost (but also keep your dignity, don’t be a complete suck up). I you’re communicating by email and you don’t get a response within a week or so, then send a short ollow up. I you do this right it’ll be received positively and you’ll come across as someone who is eager to learn, but i you ollow up a day later it’ll likely have the opposite effect. Once you get a response, it’s important to make sure they know you’re grateul or their time. The ultimate way o showing this is by taking their advice, putting it into action and sharing the result with them. This not only shows you’re serious, but it will also give you another reason to make contact with your potential mentor. From there, do what eels right… Maybe you’ll ask another question in a ew weeks time, or you might reply to a couple tweets they post. Then when it eels natural (there’s that word again), think about asking or a brie 15 minute Skype call with a specific purpose. All this time you’re simply nurturing a relationship with someone who may eventually become your mentor. I at any point you’re unsure how to best approach this, just put yoursel in their shoes. How would you like to be approached by someone asking you or help? What would make you want to give up your time or the gain o someone else?
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On the otherhand, i the response you received was the opposite o what you were hoping or, that’s okay. Going into this you need to expect to hear “no” numerous times, but every no is one step closer to a yes—so don’t be discouraged. You’re making a real effort to better yoursel, which takes courage and many people don’t even have that!
Why would someone want to give up their time to mentor you? I we go back to ‘put yoursel in their shoes’, it’s natural to wonder why someone else would want to mentor you. So why would they? Well, there’s two main reasons that come to mind right now: 1. Paying it orward. Established traders know how difficult it is in the beginning, and chances are they had someone who helped them out during their early stages. So in someway they may eel obliged to pass their wisdom onto someone who they believe has the potential to be a great trader. 2. Helping you helps them. When a trader is orced to vocalise their approach and communicate it to someone less experienced in a way that they’ll understand, this actually helps to crystallise things in their own mind too. Additionally, some traders are incredibly passionate about what they do and like the opportunity to discuss it with someone who is hungry and shows a genuine desire to learn.
“No one learns as much abut a subject as one who is forced to teach it.” PETER DRUCKER
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What Should a Mentor Teach You? Managing Expectations Make no mistake, scoring a mentor does not guarantee you a one-way ticket to trading riches. A mentor will guide you in the right direction and should care about your development as a trader, but at the end o the day, you still need to put in the hard yards or yoursel. There is no ree ride. In many cases a mentor may not teach you their exact trading strategy (or strategies), and that’s rarely a bad thing. Because as you’ve probably heard numerous times on the podcast, those who are successul trade a strategy that aligns with their personality. As Nicola Duke highlighted on episode 63, her mentor o many years never once showed her a single setup or told her what stock to buy or sell. A good mentor will likely ocus on how you can best develop a profitable methodology o your own and what they believe to be true about markets. This will probably challenge some o the preconceptions and thoughts you already have about trading, but don’t check out—keep an open mind, listen and trust what they’re telling you. Their role is to push you beyond your comort zone, call you out when you drop the ball and be honest with you. So encourage and embrace raw eedback rom your mentor, even i it’s not what you want to hear in the moment.
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How to Get Maximum Beneft From A
Mentor Like your mother told you as a young one; manners will get you a long way. So don’t be a punk—always show your appreciation! You need to understand your mentor is sacrificing time which could be allocated to their own trading, or spending quality time with their amily and riends. Thereore you should never take the opportunity to learn rom an experienced trader or granted. As I emphasised earlier, mentoring is a relationship, and like every healthy relationship it’s a two way stream. Don’t be all take, take, take. I there’s anyway you can make your mentors lie easier in return, do so without hesitation. An example o this could be: •
I he/she needs a website and you have prior experience designing websites, put your skills to use.
•
I you are a programmer, you could offer to analyse their strategy or automate some part o their trading process.
•
I you live in the same city and your mentor has an office, offer to come in and help with paper work.
… it doesn’t matter what it is, be creative and try to return the avour as much as possible. This way your mentor won’t eel as though it’s a chore to speak with you, and the relationship will last much longer. Next, you must ully commit to becoming a better trader. When your mentor gives you a piece o advice or an action item, go
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ahead and act on it. I’d encourage you to go above and beyond too, this will show that you’re not relying on your mentor to hold your hand and you have some real initiative. The last thing I’ll share is, work in with their availability. I your mentor happens to be in living in an opposite timezone and is only available at 4:30am on the weekend, get up and show up. Take whatever time you can get—remember; it’s you that needs this, not your mentor. I you get six months down the track and you find it doesn’t work out, don’t take it personally. People are busy. The positive is you’ve probably learned a lot regardless and since you’ve been through the process o linking up with a mentor once, you can certainly do it again!
“Value learning over money—you must value learning above everything else. This will lead you to all the right choices. Choose a place that has people and mentors who can inspire and teach you. In fact, it is the height of wisdom to nd the perfect mentor and oer your services for free. Such mentors will often divulge more than the usual trade secrets.” ROBERT GREENE
