Wednesday, March 12, 2008

Trading is Pains-Taking! -- IFCN Wk 14 -Wed- Equity: $601.75

Since there are no trades in the Forex Challenge account currently, I thought I would write a few things about discipline as a trader. I have my reasons. I want to spare some of you some pain.

This subject isn't sexy, but it is pretty interesting when you realize that the reason you can make money as a trader today is because so few have the right discipline.

The way most individuals end up as forex or futures traders is not the same way people end up as carpenters or doctors or McDonald's employees.

When kids leave high school and go out into the world, there are usually lots of forces pushing them around. They tend to be hormone-filled, anxious creatures, pushed and pulled by many desires and expectations thrust on them by their friends and parents. They usually want money, so they are determined to get a job or an education that leads to a good job--- if they have good parents counselling them.

What parent says: “Bobby, I think you should plan on a career of trading for a living! This is how you can go about it....”

Never happens! Definitely not my dad!!!

What I've seen most often is the following scenario: some advertising piece comes to Bobby's notice which says, “Quit your job by trading XXXX just 10 minutes per day!!! Jack Webb from Toledo, Ohio averages $287.00/day, every day following these two secret steps...!”

Then Bobby fanticises for weeks about whether this actually might be a possibility. This kind of offer to a person who hates their job, or is bored with daily living is like a drug they can't resist.

Not just the young are tantalized by this kind of offer. The young-at-heart, the tired, the depressed, the retiree who thinks that something like this HAS to work!!!! They remember a guy at work who knew someone who made $150K doing this.

Nevertheless, the seed is planted; whether the advertising is completely believed or not, and somewhere down the line the “mark” is going to spend some time or resources finding out what they might do to make “free money” from the market. They start noticing anything in the news, on TV or the internet that even hints at trading as a possibility.

Notice, this usually involves someone who has virtually no training to think rationally or research anything with the scientific method.

What a herculean task it is for Bobby Average to become someone who can out-think and handle the emotional demands that trading requires. This is not to say that one has to be an Einstein to trade. Far from it. But the skill-set is closer to that of an actor or race car driver. The job has to be understood and performed with care.

Even if the budding traders should spend the mountainous quantities of time to research a method, will they have the ability to follow through with the decisions that must be made, cold calculations taken in the middle of the night? Decision making in trading is a very painful process for everyone at the beginning-- and last I checked, humans usually like to steer clear of pain and will choose a gratuitous profit as soon as it is offered instead of waiting for larger ones that most good methods require for profitability.

In this world, just about anyone can do or achieve whatever they really wish to achieve. But there are costs to every endeavor, and maybe trading just isn't yours. Ed Seykota, of “Market Wizard” fame said many times that the best thing one could do would be to find someone who is exceptional at trading and give them your money to trade. His perception is that the odds of you becoming one of the “best” traders is very unlikely, so the odds-on bet is to find the ones who are and let them do it.

Then you can go and busy yourself in some other occupation with your skill-sets and have a combination money machine going.  Maybe you could sell real estate or become a lawyer, which is a much kinder profession to be in.

I actually agree with him.  


I've known way too many traders who made some money from their trading, but they weren't exceptional enough to make lots of it. Or they didn't develop the skills needed to multiply their edge with money management. They would have been much better being a good carpenter and let a real professional (even with a management fee) handle the trading.

I was very young when I started. I thought it was going to be great, making money the easy way. Make a year's salary in a month, take off the rest of the year. I wish it worked that way. It doesn't.

When you rely on the market for your ultimate income, you can't let “your” trades get away from you. You have to make sure you put in your orders, faithfully, every time. Have the right position size on for your edge.

Sounds simple. It isn't. Because you have to also have the confidence that the method you are trading really will work into the future, not just the past. You have to know why it works. And then you have to back that up consistently..., like rust constantly oxidizes iron.

That is the thing I wanted to express about trading discipline. And the reason no one raises their kids to be traders.


I'm not trying to bring you down.  I've just seen some half-way decent, but committed traders get handed their exit papers this week.  But, they weren't exceptional.  And half of their lives are now wasted!

Have a good night.

Joel Rensink

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