“Making money is easy, it is keeping it that is hard.” Keeping the profits is what successful trading is all about. It’s not about making money. It is about risk management. Good risk management translates into good profits. Great risk management translates to great profits and a long-term career. So what about the herd mentality? You have all heard about it over the years. Psychologists talk about it all the time, but how does it play out in the applied trading world? The cliché is that following the herd is dangerous – bad for trading and leads to huge losses. But my perspective is different and one that states that following the herd is bad only if it was not YOUR game plan. You see, traders don’t mind losing money. That’s right. They don’t. What they mind is losing money doing stupid things. And one of the stupidest things a trader can do is to follow someone else’s game plan instead of their own. If you are going to lose money (and you are going to about half the time) then you might as well lose it doing the right thing, which is listening to YOUR ideas. Your instincts. Your research and YOUR game plan. Trading is not complicated. We make it complicated. Simplify the process. Break your trading down to its basics and follow your plans. And if your plans happen to be in line with the herd, then so be it. And if they don’t, that is fine too. The point is to be consistent in your approach and let the market come to you. |
Archives of “term career” tag
rssHard Realities for Traders
* If you don’t save a good portion of your earnings in successful years of trading, you won’t last during the less successful years;
* If you don’t have a solid nest egg of savings to support you while you’re learning trading, you won’t survive your learning curve;
* Everyone has a passion for trading; if you don’t have a passion for learning to trade, take a pass on financial markets and find the field of endeavor that offers intrinsic reward;
* If you’re living for your trading, you won’t make it trading for a living. Other things need to sustain you in the lean times, particularly the things that are more important than markets;
* The ratio of time spent working on your trading to time spent actually trading is predictive of long-term career success;
* In any performance field, the percentage of participants who can sustain a living from their craft is under 5%; always have a Plan B;
* No one can make you successful as a trader if you lack the requisite talents and skills; a mentor can, at best, help you make the most of the talents and skills you possess;
* Even if you are very successful as a trader, your annual income will be a fraction of your leveraged portfolio size;
* Your risk and reward will always be proportional: count on drawdowns of at least half of what you hope to make in markets;
* Psychology alone cannot make you a successful trader, but it can make you an unsuccessful one;
* Quiet markets reveal the best traders;
* Over time, your risk-adjusted returns are more valuable than your absolute returns;
* Trading is a business and, as such, must always adapt to changing market conditions;
* If you can’t make money consistently when paper trading, you won’t be successful when your capital is on the line;
* If someone promises you trading success, keep a close eye on your wallet.
5 Ideas for Traders
1) You can’t take your trading to the next level if you don’t know the level you’re playing at. It’s not just P/L; it’s also knowing how you manage risk, how you take advantage of opportunities, how well you execute ideas, etc. Self-improvement starts with self observation;
2) Improving risk-adjusted returns is as important for a long-term career as improving absolute returns. If you take half the trades and make 90% of your previous income, you’ve meaningfully improved. If you take twice as many trades and make 110% of your prior income, you’ve moved backward;
3) Learning to diversify your trading (and income stream) can be as important as improving your core trading. Diversification can be by market, by strategy, by time frame, or by some combination of those;
4) Many times, the best improvements come from doing more of what you’re good at. It helps to make fewer mistakes, but doing less of what doesn’t work is not in itself going to make you a living. It’s crucial to know what you’re really good at;
5) Improving your preparation for trading can be as important as directly working on your trading results. So many outcome results follow from improvements in one’s process.
Most of all, you elevate your trading by always working on your craft. A day without goals is a day without forward movement. And life is too precious to settle for standing still.