I got an email yesterday and to sum it up it,it basically said “I am doing everything right and I am still losing”. The most discouraging part of trading or really anything is learning what you do not know. It is hard to measure the progress and many do not understand how or why they need to learn what they do not know. The only thing I can really compare it to is writing 15 page paper and the night before your computer erases everything. You put in all the work and now you have to start over. Same is true with trading. You read all the books and realize they weren’t all that helpful. Or your perception did not match reality. This is the first skill every trader must learn. Bridging the gap between perception and reality.
I am bias on this subject but I think every trader should have a mentor and be able to see it in action. I do not discount a great writer or communicator but you really need it beaten over your head. I can read what it is like to have my heart broken but until I felt it I did not have any context. It is nice to have a mentor to tell you that it will be ok and that if you keep doing it that it won’t be ok. I am not saying books are worthless but you have to be prepared to throw it all away if/when you find out there is no context behind it and at the very least adjust your thinking.
It will probably take the emailer losing more money to at least approach it in a different way. But it is important because it is the same thing every person in finance must do regardless of the time frame. It is just that they cycles might be different.
And once again I am not advocating forgetting everything or to never pick up a book or quit reading this blog or the countless other helpful blogs. But understand the limits. In this case, it is important to look up the bulls ass and not take the butchers word for it (Tommy Boy reference). Take a scientific approach and make small adjustments along the way. It is nice to work with new traders because their progress is quickest. The side effect is changing too much and not being able to tell what actually worked. Change with a purpose
Remember profits are not a perfect feedback mechanism but the goal is to make money and if you are really doing “everything” right you should be losing less.
I forwarded the emailer the article below, their assumptions were hold them back:
Trading has a steep learning curve this is in part because people try to guess what trading is without, I am certain at times, talking to anyone that has ever traded. Below is a good start to get you thinking in the right direction or a good reminder.
Risk/reward is set in concrete. Nothing in trading, with the exception of the process, is set in stone. I have seen that stone sink many peoples trading careers. Risk/reward is as much of a filtering process as it is risk management. We look at market in terms of volatility, it keeps us out of slow times but it can dry up quickly. If it does we get out before the “reward”. If we see it expanding and everything lines up we will get out after the “reward”. We are always adjusting to the situation.
Every market move is a reason to trade. There are so many opportunities that there is no reason to create one. Once again, this is where the selection process comes in play. Staying on the sidelines is a trade. Being able to separate what happened from how you felt is important and makes it easier. Missing a move is part of being a trader, you can get over it now or later.
You make money everyday. It might be possible to make money everyday but that is not the point. The object is to make the most money taking the least amount of risk. Sometimes that is $100 other times it is $10,000. It is very possible to do everything right and lose money or do nothing right and convince yourself that you did something right because you made money. It is important to evaluate winners and losers the same.
Trading is exciting. The first time I ran on the field to 100k people I was so excited I puked. Luckily and in some ways sad, that went away. I gave up that excitement for performance. Trading has done the same thing. That does not mean that nervousness ever goes away. Or the seriousness ever goes away. It can’t. But my focus had to shift to something that helped my performance. Trading is a lot of learning, waiting and doing nothing.
Traders take big risks. Bad traders take big risks. The difference between a retail and a professional is the professional trades bigger taking the same risk as the retail trader. That is in part because a professional sees more of the market and is flexible. They understand what they are comfortable risking and never get beyond that point with very limited exceptions. You cannot run away from the risk, it always reverts to the mean. But what you did before and when it does revert is the difference between profitable and unprofitable traders.
As always I appreciate the emails, so keep them coming. I do respond to all the thoughtful ones and constructive criticism.
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