I hate to open with a cliché, but it’s an important one: The reality of trading is that over 90% of retail traders who start trading a live account will ultimately fail; losing money and suffering emotionally all in a short space of time. The typical trader will start live trading way before they are ready, they risk money they shouldn’t, have no clear capital management strategy, they are not mentally prepared and lack discipline in all areas.
To make a simple analogy, would you put a tennis player in his first few years on the circuit into the top seed professional tournaments? Sounds crazy, right? Well as a trader, when you dive in with all your optimism and enthusiasm to beat the market and make money, you’re doing something equally as crazy, yet the mainstream accepts it as normal. This is why the cliché is unfortunately very true; because so many people start trading before they’re ready.
Jumping into the market and trading live before you’re ready, almost certainly ends in you losing money. In the end, the only thing that keeps you in the game is your bankroll, and if you burn through it before you know how to trade properly, you’re going to fail, obviously. You must properly prepare yourself and arm yourself with knowledge and experience, before risking real money. This way, you will give yourself the best shot at not ending up like most traders, who fail. Trading is about staying afloat long enough to be able to take advantage of big moves in the market, and if you trade away your capital too fast, you won’t be able to do this.
However, there can be a different trading reality for you, it doesn’t have to be this way!
What if your future self (10 years from now), could sit down and have a conversation and give your current self advice on all the mistakes that ultimately led to your failure? What do you think you would say?
In writing this article, I imagined that I was sitting down with myself as a beginner, 15 years ago, sharing all my experiences, highs and lows, traps and pitfalls, triumphs and tribulations and the wisdom and insight I’ve learned from all of that. Here is what I would say…
A message from yourself 10 years from now…
– “Dude, don’t trade so much, slow it the hell down!”
The very first thing I would say to my former trading self is to slow it the hell down. Not to be crude, but honestly, I have seen more people blow trading accounts from simply trading too much than I care to admit. I too was guilty of over-trading in my early days, and I know how quickly it can destroy your trading account, your mindset and potentially even your life.
The lesson that the market will always be there, can be an expensive one to learn. But, it doesn’t have to be for you. If you heed my advice here and listen to what I’m saying and implement it, you can largely avoid all the pain and suffering that goes with over-trading. The point is, the market isn’t going anywhere! Markets have been around since the 1700’s when people first started using candlesticks charts in Japan to track rice prices. Barring the end of the world, markets will be here tomorrow and forever. Don’t get your pants in a bunch, slow down and realize if you miss a trade, it’s not a big deal, if you have to wait a few months to trade live, it’s not a big deal. Whatever you do, don’t be in a rush to make money, because that will be the thing that prevents you from making money!
I have an excellent article that shows in detail why low-frequency trading is far more lucrative than high-frequency trading. As the old saying goes, “All good things come to those who wait”. It’s not just a general saying, it’s also a fact of trading. Let the market come to you, meaning, let those obvious trades develop, don’t force a trade that simply isn’t there. The market will show you its hand, so to speak, if you simply wait for it to do so. The last thing you want to happen is not having any money to trade with when the market does finally show you its hand!
– “Dude, trade smaller position size!!!”
The next thing I would say to my former trading self is to respect and protect your bankroll because it’s the only thing keeping you in the game. In trading, your bankroll, or trading capital, is your tool and your equipment, it’s the supplies you need to make your money. Just like a doctor needs his or her medical supplies and equipment, you need your bankroll. The thing that most beginning traders underestimate or don’t understand, is capital preservation. Preserving your capital so that you can take advantage of the big moves in the market when they come along, is one of the keys to long-term trading success. Your trading capital is your life-line in the market, treat it like oxygen, without it, you cannot ‘breath’ in the trading world, and so you will die if you don’t preserve it.
When you start trading live, you must start smaller and build up to larger amounts over time as your skill and confidence improve. You will not achieve success as trader staring out trading large position sizes. So, you need to understand capital preservation as discussed above and position sizing. Most beginning traders know little about these topics or they ignore them and erroneously assume they are less important than they are or that they will “figure them out later”, HUGE mistake, HUGE (Donald Trump voice).
– “Dude, let trades play out and master patience. Please.”
Don’t interfere with your trades Nial, have patience, please. That is the next thing I would tell my former trading self. I would stress the low-frequency approach I discussed above and to avoid day trading.
As beginning traders, it’s hard to even realize, let alone accept the fact that trades take time to play out, often longer than we desire or expect. So, it’s very easy to get into a game of constantly closing perfectly good trades early, before they have a chance to move in your favor and hit your target. This is called getting “shaken out” of a trade. You must avoid this. You have to let the market take you out most of the time, rather than taking yourself out.
I would tell my former self that the market often moves further and stays over-extended in one direction longer than most people ever expect or think is possible. How many times have you thought or said to yourself “The market can’t possibly keep going!”, only to see it do exactly that? This is a common beginner mistake. You cannot assume anything about a market. Let the market and the price action guide you rather than making up stories in your head about what ‘should happen’. The market doesn’t care what you think should happen, it’s going to do what it wants regardless of you or anyone else.
In my early trading years, I cannot tell you how many times I have closed a trade out too soon, only to see it go on to be a winner, without me on board. There is perhaps nothing more excruciatingly maddening in life than ALMOST making a lot of money but because you weren’t disciplined or patient, letting it slip right through your fingers!!!
I would tell myself: Patience and its ‘brother’ self-discipline, are your greatest allies in this game we call trading. In addition to mastering your trading strategy, you need to become a master of yourself, which means mastering the ability to stay disciplined and patient. You must master these via whatever ways possible. This is largely something that cannot be taught. You just have to dig-deep and do it!
“Dude, just stick with the one strategy”
Master one strategy first, then add if required. Build your trading arsenal one ‘weapon’ at a time. But, don’t deviate outside of your core trading philosophy and beliefs.
Often, one concept or trading pattern / setup is enough to make you a fortune. You learn to trade a concept, it makes you money, you run with it and you ‘strike while the iron is hot’, pyramiding into positions especially during your winning streaks. What you don’t want to do is get overly-confident and start bolting on new tricks and toys right after you find something that’s working (many traders make this mistake), go with what works. If you try adding too many things too soon, you will end up over-trading and become over-whelmed and frustrated. Remember, as I always say, Keep It Simple Stupid!
You need to avoid temptation, difficult to do in trading, but necessary if you want to succeed…
There are logical ideas and there are ‘hocus pocus’ ideas, so don’t be lured astray. Remove clutter from decision making in all forms. The news or fundamentals will rarely serve a short-term trader positively so believe in the technical analysis, the price action.
The world is a simpler place than most believe, as are the financial markets, so stick to reading the price action of the charts and anticipating trades based on that price action, whilst always managing risk appropriately.
“Stick with a good thing if you’re lucky to find it, kid.”
Take a deep breath, life and trading are marathons, not sprints…
Finally, the most important thing I would say to myself 15 years ago, is something applicable to both trading and life in general. As we get older, we learn, we gain wisdom and insight, indeed this is the silver-lining to aging. Whilst I am still relatively young, at 33 I have learned a lot. The one thing I can honestly say more than anything else is that life and trading are both won by thinking of them as and treating them as a marathon, not a sprint.
Good things seldom happen by acting before you think. We are told as kids to “think before we speak”, yet it’s so hard for a kid to do that because kids are largely operating on impulse and feeling, with very little planning, forward-thinking or recognition of the consequences of their behavior. It is no different in trading really; those traders who simply act (start trading live) without a trading education and without planning ahead are the approximate 90% cliché who lose money.
So, former Nial self, my parting words of wisdom to you are:
“Take a deep breath kid, it will all work out in the end if you just slow-down, learn from others and think about the future consequences of your actions. Don’t rush, the market isn’t going away, but your bank account just might if you don’t heed this wisdom.
2017 – Nial Fuller“
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