The article is from Market Advance newsletter, Issue 2
Today we are going to look at the 3 main parts of trading profession, the essential treats of character for any successful trader.
Trading is first of all a business. It is about embracing the risk, taking the action and accepting the full responsibility for the actions we take.
When I read about trading online, I always see that trading is about being home, waking up whenever you want to, and taking a couple trades with an easy to follow trading system that you can conveniently buy on the same website for $99.99. Even better, the system can be fully automated, a miniature variant of money printing machine at the convenience of your home office! Sure, I get the fine print required by the government about how risky it is (you can find it in the beginning of this newsletter as well), but the big letters right here say clearly “90% success rate on any timeframe, any trading pair, any account size!”
That was the general mental state I was in when starting to trade. However, trading turned out to be one of the most difficult paths one can take in life. I was lucky enough to find an online community of professional traders where I learned not only all the basic and advanced technical analysis but more importantly the right attitude to trading. The rules for all newbies were the same: not only had you pay the monthly fee to be allowed in, but every day you had to be there in the discussion from 8am GMT+3 (start of the European session) to 6pm (after the start of US session) and had to create pictures for every single post that pros make. Only by going through that, following them word to word, typing in their comments in the pictures, could you understand what trading is about.
Of course, it was strictly intra-day short term trading – It is a little bit slower pace of action on higher timeframes. Either way, anyone expecting to have a relaxed time trading should seriously reconsider his goals.
Having said all that, it is not just hard work that make the trading difficult for most people. Being a businessman implies another important character trait – the ability to accept full responsibility for one’s life. Most people can never truly exchange the comfort of day job with an expected paycheck by the end of each month, employer provided benefits and a relative sense of stability for more freedom. Freedom of being self-employed implies the ability to make your own choices and decisions in life. It never implies freedom from responsibility. Only by embracing the risk, the unknown, being responsible for each moment in your life you can truly succeed as an entrepreneur.
What does it mean being a trader? If we had to define one core function a trader has to perform, what that would be?
Trading, like any other profession requires a particular set of skills. We teach economists, analysts, bankers, but I will argue that having all these skills, even at a very high level, does not guarantee any success in trading. In fact, I found that studying the market only made it more difficult for me to actually trade.
First of all, let’s define what trading is NOT about at its very core.
Trading is not about analysis of the market. It is not about forecasting the price, knowing where it will go. Trading is also not about understanding the underlying economic reasons why the price moved where it did. Sure, all these things can and will help in trading and I am not denying the great value in this additional knowledge, but at its core these skills are not definitional of trading.
Let’s take a look at an example. A musician, just like a trader, needs a certain set of skills to become successful. He can learn all he wants about the history of music, understand all different musical styles, become very knowledgeable in works of every major composer, learn all ins and outs about musical theory and harmony, etc. All these things are extremely important but in themselves they will only make a good historic of music, or (god forbid) a music critic.
What defines a musician, however, is first of all his ability to play, to perform. There are countless successful musicians, especially in modern popular music, that reached success with no knowledge of musical theory but simply by superb performance of their original or someone else’s work. The technique, the ability to make the sounds pleasant to our ears is the core of any musician.
Coming back to trading, let’s see if we can define a trader’s core skills in a similar fashion. Just like musician final creative output is the sound he produces, the trader’s final output is the money. There is nothing else a trader generates by the end of the day but a balance – negative or positive – in his account.
Musician’s ability to produce sounds pleasant to our ears is defined by his technique – his ability to execute every single note in just the right way. Similarly a trader can produce money by his technique – his ability to execute every single trade at the right time in just the right way.
I accept that one can be a high level composer, writing music for the orchestra or solo performers, without having the ability to perform his work himself to a high standard. You can also be a good market analyst, forecasting the price with high precision. You can plan your perfect trades all day long, and still be unable to trade your plan.
So, at the core, being a trader means executing the trades, pulling the trigger with no hesitation and great consistency. There may be bad trades indeed, but I never said that trading is only about taking the trades – I only shared my opinion that without that ability no one can be called a trader.
This is where you plan your trades. We discussed trading the plan in the previous section, when in reality you have to plan the trades before you can trade them. However, I feel it is important to emphasize how much more crucial it is to execute the plan then to write it.
When I started my main goal was to analyze the market the best I can, try to forecast the price, predict every single move of the market. I read and learned everything I could find, starting with simple charting tools such as trend lines and channels, then trying every single indicator, hoping that I can find “the one” that works more often than it doesn’t, exploring the Fibonacci set in great detail (going as far as reading his original work), getting stuck with Elliot Wave theory for at least 5 years and then finally programming the most complex automated trading strategies I could imagine, powered with desire to have my own money-printing machine in the office. Naturally, none of that worked.
It was a very vicious cycle indeed, something many traders get stuck in for many years. You find something that seems to work on the history, start using it life, fail with the first couple of trades and quit before too long, swearing never to come back to the markets again. However, as frustration wore down with time I was ready for another try, another great idea to make me rich overnight.
Many traders are lucky to end that cycle either by becoming totally hopeless or losing enough money to quit for good. I did not have such luck on my side. Being careful enough to follow money management rules and never risking more than 1% in a trade I was going in circles for more than 7 years. When I was ready to quit after the first 4, I started programming for other traders and that was fueling my desire to come back to the markets all the time, nonstop.
I never actually did badly, I had many good trades and was considered a good analyst. The fact that I did not get at the time was that being a good analyst, predicting the price and winning consistently in trading have very little in common.
Until very recently I never even considered that my problems could be in trading execution. Any time I would miss a good signal that I planned to take, I blamed my analytical abilities – they are not good enough to provide the confidence to take the trades I plan. And so I searched for the next golden trading rule. When I took the trades that failed, guess what, I blamed my analytical abilities again. When I took the trades I never planned I once again reasoned that I do not have a trading system good enough to trust and not consider taking any trades that are not part of it. You see, our brain is extremely good at finding excuses.
Just like any other profession or pursuit in life, trading is a journey. In this series of articles on trading mindset and psychology I am attempting to draw a map that we can rely. It is not going to be a perfect map that can change us from failure to consistent success overnight, to follow the map precisely we will need a key. That key is our understanding of ourselves – our own beliefs, fears, expectations, the excuses our brain makes. Developing such deep understanding that is necessary to succeed goes well beyond the scope of any writing – it is the pursuit of one’s whole life.