How to Succeed?

BarroMetrics Views: How to Succeed?

John writes: “Ray, I want to become a professional trader (snip)……What are my main obstacles?”

(In his email, John indicated that in the transition to full-time trading, finances were not an issue. And, he narrowed the request for information to the elements for trading success: mind, money and method).

You have three skills to acquire:

1)  Ruthless Self-Honesty: For me this is the first and primary skill.

Let’s face it, we all lie – for a variety of reasons. It’s part of being human; we lie  to be kind; we lie to protect our own egos; we lie to…..etc etc…..(see Why Do We Lie). But, when it comes to trading, we cannot afford the luxury of lying. We need to be able to call a spade, a spade without the frills of self-deception. The great thing about trading is we have an inbuilt lie-detector – our results. No matter how much we may seek to deny their message, our results communicate the state of our knowledge and skills. I am not speaking about the results  of a single trade or a single month, but the results built over a large sample size: stats say we need at least 30 results secured over the different trading conditions (up, down and sideways trends) for the results to be meaningful.

For example, if your method suggests an win rate of 40%, and your trading is producing a rate of 18%, stop pretending all is well; stop trading and seek some help.

2) Do Whatever  It Takes: The heading encompasses a wide area.

It not only suggests a general unwavering determination to succeed, it includes the necessary ancillary skills necessary for success. In trading this includes:

  • Self awareness skills
  • Goal achievement  skills: setting goals, creating plans to attain the goals, reviewing the results to make required mid-course correction.
  • Time (Self) management skills.
  • Skills relation on focus, and how to think logically and effectively.
  • Skills relating to mind, money and method.
  • Skills in the integration of our left and right brains.

3) Setting LAHG Goals that are Tempered by Realistic Expectations.

(LHAG  = Large Hairy Audacious Goals)

I believe that one of the main reasons newbies fail is because they have unrealistic expectations of  what is possible – end of day win rates of 90%, 67% etc; average annual returns of 100%, 200% etc…….They move into the markets wanting to believe that these results are the norm. They refuse or fail to consider that what is normal for the flip side of making money, our drawdowns and that we need strategies and skills to manage those times when all we do brings in the dollars (our flow stage) and those times when all we do brings in losses (our ebb stage).

About a year ago I helped train two traders who are very close to me. They are both very talented traders with a great feel for the market. Each has different trading styles. When their training ended in September 2013 my last words were: trading is essentially risk management. You will have stretches of ebb and flow. Manage both appropriately and you have the talent to succeed and succeed well.

From October to March 2014, they experienced flow of massive proportions! But, they forgot that Ebb follows Flow, and by May 2014, both had blown their trading accounts.

Now they are rebuilding both their confidence and accounts.

Sure, we need LHAD  but, we need to temper them with what is possible. We can acquire great wealth by trading – we do this not by huge one-off returns but with patience and through the power of compounding.

4 thoughts on “How to Succeed?”

  1. Hi Ray

    When I read “market wizards”. It seems many wizards can produce huge profits in a short time,although they all say risk management is very
    important especially after they had experienced account blown,but they can recover their equity curve so quickly. Their stories sometimes give some impression that you should be bold and lucky to archieve huge returns in the early years of your trading in order to get enough reputations to raise more funds or give yourself some margins for making mistakes.

  2. Hi Wenda

    All traders can make ‘huge’ money in a short time from time to time. This is what I call a flow stage. The key here is to manage risk while pressing your advantage.

    It is also important to recognise that flow, like ebb, is a temporary phenomenon. In flow, we keep our heads, in ebb, we ensure we do not give in to despair.

    I suspect that what you mean by ‘bold’ and the they mean by ‘bold’ are very different. From personal experience as a fund manager, I can tell you that you attract large funds by the extent of your drawdowns (short periods and low losses) and consistency of profitability.

    Huge returns with large drawdowns are not conducive to raising funds.

    From my coaching experience, the focus by newbies on huge returns in short time is what makes it likely they blow their account.

  3. Hi Ray, I think ebb & flow is something more easily noticed and acted upon,as i get older. You begin to see and understand the cycle of life more. I used to express it as, when you’re hot, you’re hot and when your not, go do something else. I use this principle a lot as i like blackjack, sport trading and arbitrage but also if i am doing some work around the home. ie say i have several tasks to do, i will keep going with the flow until say i bang my fingers with a hammer,thats the ebb, i call it a day and go have a beer, try again tomorrow if happens three times, i will pay a handyman to fix it. This way you can enjoy both ebb and flow. especially in summer! cheers Baz

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