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