Thursday, November 29, 2007

Seven (Questionable) Things I Hear From Traders

1) I missed the bottom (top); it’s too late to get in – More of those destructive perfectionistic standards. By that criterion, you’d only get into a trade if you were clairvoyant. And, of course, if you bought a seeming low or sold a seeming high and were wrong, you’d beat yourself up for fighting the trend. You can’t win with that kind of thinking: winners want to win; they don’t set unattainable goals for themselves.

2) I have a passion for trading – Passion is what traders talk about when they can’t show results. Please, save the passion speeches. Just show a phenomenal work ethic and the commitment will shine through. But if you don’t have concrete goals, concrete ways of working on goals, and specific routines to research markets and prepare for the day, you don’t have a passion for trading. You have a passion for making speeches about being passionate. Whatever.

3) Trading success is mostly mental – I’m now working with six different trading firms, each of whom has very successful traders who have made substantial sums over a period of years. All have finely honed skills, superior information, and unique strategies for exploiting markets. Once you have all of those, then psychology enters the picture to provide consistency and resilience in the face of challenge. But what happens if you have a good mindset, but don’t hone your skills, obtain superior information, or cultivate unique strategies? You’ll calmly and smilingly go up in flames.

4) I have a feel for the markets – And I have a feel for bullshit. Do you have a track record of success across a variety of market conditions? Can you document solid risk adjusted returns over time? Have you actually tested the setups that you “feel”? If the answer to these questions is no, your trading identity rests on an unproven premise. Don’t be surprised when you have trouble sustaining confidence during a drawdown. When the chips are down, what will you really have to feel confident about?

5) Others are trading the pattern; it must be successful – Yeah, right. Back in the day when I actually participated in those well-advertised trading seminars (i.e., before I learned that such participation completely discredits you with serious trading firms), I made an effort to talk shop with the presenters. The majority had no clue as to what markets were doing, how to read the participation of institutions in markets, how to see what market makers were doing, or how to gauge intermarket relationships. Completely, utterly clueless.

6) I can’t afford to lose more money – Fine, close your trading account and put your funds in a FDIC insured certificate of deposit. If you genuinely can’t afford to lose more, don’t risk more. But if what you mean is that you are having trouble emotionally tolerating the feelings of loss and failure, then step away from the screen, study your trades intensively to see what’s working and what isn’t, and focus all your efforts on what’s working with small, small size. You’ll keep risk down as you rebuild confidence. But cut the “poor me” self-talk. I’ve never met anyone who paved the path to winning with whining.

7) I left my job to start trading for a living – Mmmmk. So you have no prior experience or track record, you have a $20,000 account, you’ve read some books and attended some seminars, and you’re going to sustain triple digit annual gains against experienced market pros. That’s a great business plan. And to top it off, you get defensive with anyone (like your spouse who has to pay the bills) who questions your “dream”. And you wonder why I don’t take on wing-and-a-prayer traders for coaching. If I have to participate in a delusion to get paid, I’d rather do without the income.

You know, trading is a craft. It’s something you hone over time. It’s not a place to act out one’s wildest fantasies or basest fears. If you’re not taking a logical approach to trading success, perhaps your motivations for trading are psycho-logical. That, is the saying goes, is an expensive way to learn hard lessons about yourself.


Three Market Idiots


The Financial Philosopher said...

Dr. Brett:

I feel your frustration. Success at anything centers around self-acquaintance. I sense that your clients or "students" often fail to understand that passion is useless without capacity.

I also detect that you often face the challenge of training or coaching "students" who are simply not ready to learn -- although they "think" they are -- or those who believe they are on the path to mastery simply because they feel they have the God-given skills to be traders...

You need a plaque on your desk with this Buddhist proverb:

"When the student is ready, the teacher will appear..."

...Although not many will "get it."

I enjoyed the post. You're doing a wonderful job...

bryan said...

Hi Doc, I can remember a time when I used to do most of the things on your list. Sorry! All that time I spent getting "training" in a well known guru's chatroom. What a complete and utter waste of time! It was actually much more destructive than a waste of time. When I think back to those stupid patterns they used to teach it makes me feel queasy. They would call those same patterns with no regard for market context or participation. A year or so after I left that chatroom I spoke to someone who had worked there and he told me that the guru would quite often fade the calls in room. You have got to love it. At least I can laugh about it now.

Still, thank goodness I found your webpage in the period when you were starting to blog regularly. It was like finding a needle in a hay stack as most of the trader education at the time was complete bullshit, peddled by self interested people trying to make a fast buck. Thank you so much for providing so much high quality education and trading insight. You have made a huge contribution to trader education singlehandedly. Bryan Wendon

Brandon Wilhite said...

Looks like someone slipped you a 'grumpy pill' this morning! ;) Just kidding. I can see how someone in your position would probably hear these things a lot, and it's certainly good for people to be disabused of their fantasies before it's too late.


abc2007 said...

This post is the best thing I read from the universe recently. Simply the BEST.

Even though I understand you completely from the books you wrote, this strikes me again.

Great work. A bit more emotional than usual you :-)

procol said...

Now tell us how you really feel Dr. ;-}

Great post, should be required reading by any wanna be trader.

jsp9999 said...

I see #3 is so true. With so much pop psychology talk in the media, it is not easy to think independently and analyze the market. Like Ken Fisher says one has to know some information other don't know or choose not to acknowledge, then one can win. Trading is nearly darn impossible if not too difficult without some deep insights and sound techniques on top of fortitude that can weather out storms.

StockMarketTechnician said...

"A Guide to Navajo SandPaintings" by Mark Bahti, AN EDUCATION IN SANDPAINTING, Page 16:

"...My father saw my interest, and thus began my formal instruction in traditional sandpainting...At first my tasks were menial: grinding the rocks of various colors, keeping the workshop clean, and preparing the boards for the paintings he did. Like most apprentices, I found the work tedious, but I quickly learned that they are a very necessary part of the whole procedure and would result in a beautiful creation. All forms of art demand discipline if pride in good craftsmanship is to be developed..."

Trader Training probably should first involve:

1. Understanding Correlations and Probabilities
2. Learning where and how to collect market and economic data
3. Learning to organize and interpret the data for various markets and market conditions
4. Learning the relationships of different markets
5. Understanding who the major players are in each market and how to find out what they are doing

I'm probably leaving out some additional "tedious" tasks that every trader should know. However, it is this type of foundation that should first be developed before one involves money in the markets.


Scott G said...


It’s never fun seeing aspects of myself in posts like this, but I’m so very grateful that you keep the heat on.

Every time I get a Trader’s Magazine (for free of course) with a beautiful woman, or some 25 year old male model in a suit who’s standing in front of his hot tub (that overlooks the ocean of course) I think of you.

I also think of you when I bump into people at the expos loosing their accounts because they can’t use stops. And how sad it is that these expo'ers are not listening to you speak instead of the usual suspects!

I also thought of you on thanksgiving. All off your hard work and good posts have helped turn me into a successful trader more than another other source.

And the more I effectively manage my learning process, the more "passion" I feel. Haha.

Funny how that works. Thank you Brett!

Dinosaur Trader said...

Is it questionable to blame your trading failure on "robots?"

Because I have this friend...


HPT said...

DINO you are hilarious,

Dr. B,
I really liked this post. #2 and #4
are the best IMO. I like posts like this because they are straight and to the point.

The fact is that most traders have small accounts, little experience, exuberant dreams, no trading plan, and no edge.

My passion is to make money, not really to trade stocks or futures, but because trading will make me a lot of money, then I will work my butt of to get that money.

Thanks for another excellent post.

Brett Steenbarger, Ph.D. said...

Thanks for the excellent comments on the post. My goal, to be sure, is to afflict the comfortable as well as comfort the afflicted--and that includes my own comfort. Too often, I assume an edge that I haven't adequately demonstrated and substitute long hours for focused creative effort. Holding the mirror to ourselves can be uncomfortable, but ultimately leads to the kick in the pants that gets us going and moving forward!


Longshort said...

Dr. Brett:
I respectfully take issue with your comment "trading is a craft".
Trading is gambling. Why? Because you do not know the outcome. All you do is look for an edge and trade it. Once you place your trade, you have no idea whether it will work out. Some do, some don't. Simple as that. It is not a craft because you cannot control the outcome. For example, I had a perfect set up the other day, and as soon as a Fed member spoke, the set up vanished into thin air. About all you can do for this "craft" is perfect your execution skills - that is it. Once people realize that they are gambling and cannot predict an outcome with any certainty, they can participate. Respectfully, Mike

Anatrader said...


I disagree with the comment from one of your readers that trading is gambling.

Although we cannot predict with 100% that a trade is favourable, one can trade with probability in our favour with technical analysis .

As for the FED announcement that could reverse the trend we trade in, it is wise not to trade before such announcements unless one knows how to trade with stop buy or sell orders, which will put the probability of trading in our favour.

Tony Chai said...

Hi Dr Brett :

Thanks for the reminder.

I've been humbled a few times by the market and the lessons were both painful and valuable.

I have a long journey ahead.

Yours Truly,

Tony Chai
My Options Trading Blog

bg said...

Trading is a craft where you know the outcome. If your trade works, you make money. If it doesn't work, your stop order gets you out at a pre-determined level chosen within your risk profile.

Oh, and with all due respect, of course.