It’s interesting to see that at a time like this, a time of economic concern, a time of confusion, that many people (including traders) get caught up in information that doesn’t serve them in any way helpful. What do I mean by this? Well, if you look at most financial news networks or most financial news services out there, how often of the time are they serving us information that is helpful in any way to our trading? I listen and talk to traders on a daily basis and it amazes me how much overwhelming economic information they know. However, when I ask them how it’s serving their trading, I never seem to get a clear answer.
I’ve been lucky enough to talk to some of the most successful legendary traders out there and really pick their brains to see how they think. If you’ve ever had the chance to read Market Wizards and New Market Wizards, there is some real wisdom in those books that most people don’t seem to pick up on. In New Market Wizards, Jack Shwager interviews a very successful trader. During the interview he asks him:
“Can you tell who will be a successful trader and who will not?”
The traders response is very interesting. He goes on to say:
“Yes, on a less technical level, I can say that after years of studying traders, the best predictor of success is simply whether the person is improving with time and experience. Many traders unconsciously acknowledge their lack of progress by continually jumping from one system or methodology to another, never gaining true proficiency in any.
As a result, these people end up with one year of experience, six times, instead of six years of experience. In contrast, the superior traders gravitate to a single approach-the specific approach is actually not important-and become extremely adapt to it.”
Now, most traders would read that and think nothing of it. But look at how he talks about how most traders jump from system to system, never really gaining true proficiency in any. This is something I have come to observe as well within most traders. When I try to understand why this is happening it seems that it’s the same reason each time.
As traders learn more and more about different indicators and patterns in the market, they become more and more desperate to find this “holy grail” system that will produce some astronomical winning results. Not only that, but they continuously jump from doing one thing to another. One day they’re trading moving averages, the next day they’re trading a bear wedge pattern, the next day a double top; they’re just all over the place. Why is this? It goes back to the quote up top. Instead of focusing on ONE methodology and mastering it, what happens is as soon as a losing streak comes along or a trade doesn’t work out the way they would have liked, they begin to think that something is wrong with the system, when in fact the real problem is the trader himself. (more…)