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So you want to become a professional trader?

I wanted to start a thread and give a little back to the community here.
Most people lose when it comes to trading, and the average trader doesnt last more than 2
years. Past that, theres a gap between normal and proessional that many are conused
about, so Ive written a bit about what can help bridge that gap and become a proessional
trader.
I currently work in the industry !at an e"uities irm and or mysel as an independent
trader,# and the ma$ority o my income comes rom trading in the markets. %hrough my
time interning through school, my work at the irm, and on my own, Ive surrounded mysel
with traders o all types. I hope to pass on the things Ive learned and whats worked best
or me.
What you wont find here:
%rade calls.
%rade signals.
Investment suggestions.
& ree lunch !no such thing.#
What I wont tolerate:
'esponses proving you didnt read the entire thread beore posting.
(on)constructive additions to the thread !post here i you want to contribute or
enhance whats already been written. *o not post inane nonsense. %he only
e+ception is i you want to post a thanks,#
If you want to post in this thread:
-e polite and helpul to others. %hats it. (o laming.
I ended up writing out .. pages in word... so uploading this section by section and
ormatting might take a while. *on/t $ump the gun "uite yet and wait till it/s all posted.
%hanks,
And PLEASE: I put a fair bit of work into this, don't just copy paste it around.. if
you'd like to share it, at least link people to this thread so they can be eposed to
the foru! and !ay e"en si#n up.
!edit, also I kinda $ust wrote it all out without much proo reading... it should be "uite
readable but orgive any missing words or typos.#
)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))
Table of Contents:
Main Material !all on the irst page#0
1. 1o you want to become a proessional trader2 !Intro#
2. 3nderstanding the impact o trading on your emotions
3. Mind and 4eeping a 5ournal
4. Meditation and 6isuali7ation
5. Positive 1el *ialogue
6. 8leaning 8harts
7. 8are not about bad trades
8. 9osers &verage 9osers and :rinding it ;ut
9. Points not *ollars, *on/t %ake &dvice <rom <riendly 1trangers, and 8onclusion
&dditions0
1. %he Positive Mental <raming o (on)Monetary :oals
2. =nter0 the (on)Monetary :oal
3. 1upport or %ribal Minds
4. (egatives o %ribal %hinking
5. Positives or %ribal %hinking
1ide (otes0
1. ;n 'andomness and >hy Money Management and 8utting 9osers Matter
So you want to become a professional trader?
-eing a proessional is, beore anything else, a liestyle and state o mind.
I personally know many traders who work on the trade loors o inancial irms,
proprietary traders who live o their trading returns, and und managers who have di77ying
amounts o assets under management?. who are all non)proessional.
I you need a $ob title, or account balance to eel proessional, youre in the wrong game.
%heres nothing wrong about that. 1eriously, the ma$ority o people out there will tie their
sel)esteem !and $udge their peers# to this metric. I this is you, and you love the
markets@inance, go out and get a $ob at a brokerage as a sales@account rep, or work or a
large company where years o tenure will land you with some 6P title and a nice salary, and
en$oy lie. *ont attach your idea o Asuccess to trading results alone, youll only end up
rustrated an in emotional pain !and worse yet, you might sour yoursel on the industry as a
whole.#
Bowever, i youre not interested in playing the game o lie in such a way, and you seek the
kind o ulillment that can only come rom taking total control over your actions against
humanitys strongest instincts and psychological laws... then read on, the lie o a
proessional trader might $ust be a good it.
Cuote0
nanos gigantium humeris insidentes
Cuote0
?I I have seen a little urther it is by standing on the shoulders o :iants D Isaac (ewton
!but this ideology stretches ar back, well beore his time.#
Most things youll read here have already been published by various authors or mentioned
rom various sources. Im not reinventing the wheel here when it comes to trading
psychology. Instead, I aim to align select bits o ino that I eel showcase the acme o skill in
trading and do my best to right the path may traders are current on.
Beres the best partE were not even going to talk about trading itsel right now. (o, thats
going to be ar down the road rom here. 'ight now, we have a much greater challenge
ahead o us0 >e must undo thousands o years o instinct reinorced by your lies
e+perience that lead you to where you are as a human being right now.
>ith that said, Im going to ask you to do something i youre current trading live. I any o
the ollowing apply to you0
Fouve been trading in general or less than two years
Four account e"uity is less than the net deposits made into the account
Fou have a drawdown on your account o greater than 2GH
Fouve been trading or more than a year, but have yet to achieve an annuali7ed
return o at least .GH per year
Fou are rustrated with your current trading results or current strategy
Fou havent written out a trading plan or have but cant remember the last month
period where you didnt violate your own rules at least once
Fou are to 1%;P trading right now, Fou will not trade again till you can prove to yoursel
that youre ready. I you do not have the discipline to stop yoursel, you should seek out
your local :amblers &nonymous organi7ation and sign yoursel up.
In the meantime, dont worry about missed opportunities, the market will provide you with
many more. 9iterally an unlimited amount o opportunities will be ound, so dont sweat it.
>hats important now is that you limit the risk you can inlict on your own account while
youre taking this time to relect and sort yoursel out. !(otice I didnt say limit the losses2
'isky trades could go your way, but that would $ust reinorce bad habits, and as well
discuss later in greater detail, all actions taken must be measured irst in the risk i
something goes wrong.#
1o as you can tell Ive casted a pretty broad net here? most people on these orums will all
into one o the conditions Ive listed.
!Put rankly, the average proessional trader, whos in the right mindset, wont be posting
very oten to online boards. %hey might have at some point, but its hard to constantly read
the ramblings o ine+perienced traders who believe the most inane things, so most end up
communicating with a smaller group o likeminded riends and ignore online public orums
altogether. %here are a ew who still do it, and hats o to them, I respect anyone whos
willing to help others with their e+perience.#
(ow with your accounts disarmed lets get move on.
Understanding the impact of trading on your emotions, eercises to cope and
re!erse this, and the steps to be ta"en to help pre!ent relapses
I dont want to sound too harsh, so let me start by telling you something. Fou are normal.
Fou are human, and theres a really, really high chance that you are normal. I you dress up
in all black and listen to death metal, you are normal. I you go skydiving every other
weekend and en$oy eating e+otic oods, you are normal. I youve ever elt ear, pain, $oy,
love, or euphoria, you are normal. %he average trader is normal. Its ;4 to be normal, but?
#ormal doesnt wor" in the mar"et$
%he market eeds o normal. %he market has to push people past their limits o pain, their
limits o ear, get them greedy then leece them or everything they have. %he market
thrives on slaughtering normal.
Its normal to eel an+ious about a winner and want to lock in proits. Its normal to not
want to accept a loss and keep the positions hoping it will reverse and go your way. Its
normal to e+ecute riskier trades than youd normally put on to make up or past losses. Its
especially normal to overtrade and ignore the very rules you probably spent time coming up
with. %here are very well documented psychological reasons why this is normal and why we
are wired to act like this. -ut?
#ormal doesnt wor"$
;ver the last ew thousand years as our brains have adapted to our environment, weve
picked up instincts and pass them down over generations. Its common or great heights to
make people a little more aware o their surroundings and possibly a little an+ious about the
prospect o alling. ;ther sensory input triggers ears in our brain that stick around
permanently, like how burning yoursel on a hot stove top causes you to be a little more
careul when cooking. ;ur e+periences in the market are no dierent, and whats worse, we
treat market risk with the same emotional ears as we treat death.
I$! not kiddin# you here. %o#niti"e psycholo#y studies ha"e hi#hli#hted how the
specific fear center within our brain that relate to !ortal dan#er can also
tri##ered by financial risk and loss.
It makes sense i you think about it. &ll our lives weve had the same idea pounded into our
heads, without money wed be living a dismal e+istence illed with pain and suering. ;ur
parents raised us to do well and be successul so we wouldnt end up being bums on the
street. %he nightly news broadcast shows images o deadbeats and criminals who look
weathered and sickly as they are carted o to a lie sentence in $ail or stabbing someone
over a ew bucks in their wallet. %he entire history o inance, dating back to the early days
o barter and merchant trading to the modern times o >estern capitalism, have molded our
evolving brains to e"uate monetary ailure with death and pain.
So, is it any wonder why tradin# can be stressful&
%here are a lot o things your body does when stricken in panic and ear. >hen stressed,
and with an+ious mortal ear running through your system, your body will direct blood low
toward muscle tissue and your cardio system. -e glad it does, or i youre ever aced with a
wild cougar !or Iinsert dangerous animal hereI# while venturing too ar into the wilderness
one day, youll be thanking your two eet and heart beat or making you run aster than
youve ever thought possible as you ee or saety. 3nortunately this doesnt help you too
much when trading, and considering your body has to get the e+tra blood low rom
somewhere, places like your brain start to get a lack o much needed uel $ust as you need
critical thought the most. Fouve probably already e+perienced thisE ever eel $ust
completely ro7en as you watch a position move against you "uickly2 %his is why controlling
emotion and knowing your triggers actually matters.
Fou might be thinking0 Bow in the heck we are going to unwire our brains i most o this is
part o our genetic makeup2 %he answer isnt simple. %heres a air chance that you werent
born as part o the .H o the population that can naturally ignore such emotions when
trading, but i you arent so lucky there is hope. Fou $ust have to spend time working on
understanding yoursel, your emotional triggers, and how you can disassociate trading rom
emotion.
&s I mentioned rom the very start, being a proessional trader is a liestyle. &nd the
oundation o this liestyle is going to be a daily regiment, discipline and ocus. I you cant
trust yoursel to ollow a daily routine !like very light e+ercise# then how can you e+pect to
trust yoursel when your acing inancial risk and pumped ull o adrenaline as mortal ear
throbs in your mind2
1o lets start working on ourselves, and Im talking about real basics here. >e M31% orum
a solid oundation beore we can take on greater tasks. %hese steps alone wont be your key
to success, but they help build the oundation o discipline and will end up helping you trade
in very indirect ways.
-ut theres good news0 Im not a health nut. Im #%T going to preach to you that anything
over a JH level body at is shameul. I honestly dont think you need to have a it, model,
body to trade well. &ll that matters is you T&' to improve yoursel. &nd as you try, even i
its small steps at irst, youll notice improvements in many aspects o your lie, not $ust in
trading.
(re)day Warm Up:
Its great to your blood lowing. It increases the amount o o+ygen in your system and really
wakes you up i youre sleepy. -eore sitting at a computer to trade, go out or a "uick run
around the block, even K minutes o $ogging will get your heart rate up. >ere not talking
about marathon training here. I you live in colder climates and running outside isnt as easy
at times o the year. :o to a discount store and pick up a skipping rope, theyre easily one
o the cheapest way o getting your blood lowing indoors you can ind.
I youre a coee drinker, have your irst cup -=<;'= you sit down to trade. *rink it as you
read the newspaper or watch morning %6. 9et it set in your system and eel that caeine hit
beore you worry about making a inancial transaction.
Stretches:
I youre anything like me, you spend a lot o time on the computer or sitting in general. ;ur
bodies werent designed or this, and our rate o technological advancement which has
placed so many workers into stationary positions !vs. active ones# has ar outpaced our
biological way o adapting to new environments. %he irst ew baby steps here involve
orcing yoursel to get up and stretch regularly at least once an hour or each hour you
spend at a computer or otherwise stationary. Ideally, youll be doing a light stretch and
moving around every 2G minutes.
1et an alarm on your watch, or get in the habit o checking the time, and keep on top o it.
It isnt $ust about the stretches, but being able to ollow a simple routine.
(ost)day wor"out:
1o youve been trading all day, now its time to blow o some steam. >orking out can be
one o the easiest ways your body can deal with stress. Beres where you want to push
yoursel a little harder. Maybe get a gym membership, or at least pick up a home workout
*6*. Fou dont have to work out every single day you trade !working out too much can be
bad or your body. 4eep it in moderation.# -ut I highly suggest working out ater a
rustrating day in the markets. Its a great outlet and can help you rom taking out your
rustration on someone@something else later on in the day.
9ike I said, you dont have to push yoursel hereE Im not suggesting every trader should
turn into a body builder. =ven something as simple as the warm up I talked about, running
around the block, can help i it gets you started. 'emember, this is not only about activity,
but building the discipline to ollow a routine.
*iet:
%his one is a bit tricky since everyone has dierent tastes and will like some oods over
others, but the basics here are0 I youre not already eating healthy, youre going to have to
start. I you ill your stomach ull o ast ood day in and day out, youre going to eel like
garbage, and it will relect on your trading decisions. Proessional athletes will go through
great lengths to make sure their diet is in order, and traders shouldnt be any dierent. I will
say this though, habits arent broken overnight, and I mysel loves me some greasy atty
oods, so its ok to indulge once in a while. %he idea is not to have anything in e+cess.
Personally, I stick to a high protein !chicken, tuna, salmon, pork, eggs, etc..# low carb, and
high greens !spinach is awesome# diet during most weekdays. &nd I let mysel pig out or a
meal or two during the week and one day on the weekend where anything goes. I love ood,
I wont deny mysel what I crave, but I know that during the week I must ocus on eating
right and eeling good.
I you have any concerns, please consult a dietitian or your doctor beore making any
drastic changes.
& great resource or both light workouts and diet without all that crud commonly ound in
itness material is A%he L Bour -ody by %imothy <erris. Its worth picking up i you can get a
copy.
+ind ,the -I. section/:
(ow that weve taken a "uick look at the body, lets get back to the mind. %rading
psychology is my avorite sub$ect by ar when it comes to learning about the markets. %he
unny thing is, trading psychology has a lot more in common with sports psychology than it
does with other sot sciences. 9et me give you an e+ample0
=ver watch a star basketball player during warm up2 (otice how they can sink like .G
baskets in a row without even looking like they care2 -ut when its down to game point or a
oul shot where their team only needs one more basket to win, how oten do they mess up2
!& lot more than when they practice, but you can still see why some are paid such high
amounts, because when the pressure is on they perorm.#
%he dierence is pressure and stress. 9ike an athlete, you need to be a well)oiled machine.
Fou need to have your trading style, orm, method and e+ecution so engrained in your being
that your body would e+ecute on a trade and ollow through with an order without even
having to think about it. -ut this doesnt happen overnight. It takes practice !$ust like an
athlete# to get to that level, and even star athletes still make mistakes.
I mentioned earlier that our brains have been wired to e"uate inancial risk@loss with mortal
ear. 1o we have to come up with ways we can help curb that mental reaction.
0eeping a 1ournal:
3nlike what a lot o traders suggest, I dont think you need to write every single trade down
in a $ournal. I do, however, strongly suggest you pick up a $ournal or notebook and keep it
handy to write down anything that you think is worth remembering later on as it relates to
trading. I you made a mistake and want to remember what happened or what caused it,
write it down. I you got into a ight with a amily member and put on a series o bad trades
in your rustration, write it down. Fou want to record what triggers your mistakes.
(ot only that, but it helps keep track o good ideas as well, I cant tell you how many
moments o insight Ive lost because I ailed to write them down in time beore they let my
active memory.
=instein himsel was said to never remember his own phone number, saying hed never
commit to memory what he can easily commit to paper.
*uring the weekend, read your $ournal and highlight whats interesting? look or patterns in
your thoughts, see what you might be able to ocus on later or what might need improving.
*ont be restrictive in the ormat or re"uency o your $ournaling? youll most likely stop
using it i you eel its bothersome to keep it up. 5ust keep it handy to get your thoughts out
when you need to record them.
+editate:
Meditation is probably one o the most helpul activities Ive ound to work or me when it
comes to trading. My ather converted to -uddhism not so long ago so the last time I visited
him I spent "uite a bit o time at a temple and talking to monks. %his was my irst e+posure
to meditation and all I could think about ater my irst session was how this could help me
with my trading. I started gooling around and sure enough traders have been turning to
mediation or "uite some time now. %he idea is to calm your body into a state o rela+ation
and ocus on a singular, simple thought at a time. *well on the thought or as long as it
takes to eel you have sorted it out. *o not deviate or spread your mind too thin, ocus on
that one thought till you are satisied with the completeness o your compilation. Ive
"uoted and linked the ollowing below as a starters guide to mediation0
Cuote0
MMM1it comortable, start at the top o your head and rela+, eel your eyes sink and rela+,
your cheeks ne+t and your mouth. (e+t your neck and shoulders, eel the rela+ation travel
down your arms to your ingers. %hen rela+ your abdomen, do not suck it in anymore !I hold
mine in all day, I think most o us do# let it rela+, as you breath in it should ill like a beach
ball and as you e+hale it should collapse back in !'emember as you rela+ to keep the good
Posture#. 9astly rela+ your legs and eel the tension drain into the loor through your eet...
you may even eel yoursel sinking into the ground, this is good.
8lear your mind? it helps to ocus on your breath, watch it rom a distance as it travels into
your body and ills your lungs and how it travels out... do not control it $ust watch it.
&ter about .G).K breaths... when you can eel like an observer to your body, and have let
go o all the control you e+ert over it.MMM
1tart to ocus in on the rustrations youre having and whats causing them. %hink about
things one issue at a time and try not to deviate. I your mind easily wonders rom sub$ect
to sub$ect, go back to ocusing on your breaths till your mind is at ease again and repeat
the thought pattern o whats rustrating you.
%ry to think about the source o this rustration. >hats causing it2 >hat could be done to
avoid it2 >hat are you doing now thats triggering it, can you stop that trigger easily2 8an
you remove yoursel rom what triggers it2
8ontinue this pattern or about 2G minutes. &t irst, this will be hard to ocus the entire time
!heck, i you get K solid minutes o ocused thought your irst attempt youre doing great,#
but with practice you will ind that meditation can help you really sort out lie troubles and
get to the root o whats causing you grie.
2isuali3e:
;ne handy tool used by athletes is to visuali7e what your actions will be in a variety o
dierent scenarios.
*uring a meditation session, instead o ocusing in on one thought, instead visuali7e a trade
thats going or well or you. >here did you get in2 *o you eel conident2 >hen will you put
your stop to break even2 &re you going to let it ride2
(ow visuali7e a horrible trade. ;ne that started moving against you ast as soon as you
pulled the trigger and got in? no matter what, its going two ticks against you or every tick
back in your direction. -e calm, cut your loss, be happy its been cut early and not causing
you any more pain. =ven i the price moves in your direction ater you get out, be happy
that you made the right choice to get out beore it potentially became a atal trade.
'epeat the horrible trade scenario in your mind, over and over? make the market move
erratically, but eel good about cutting your losses "uick.
%he idea is that when you ace a real trade that goes horribly wrong, youre $ust going to
rela+ and do what youve been practicing in your mind. Foull start to eel good about
cutting losers early on your account, and eel more comortable letting your winners run
instead o taking them early.
(ositi!e self)dialogue:
(ever talk down to yoursel i you make a mistake. (ever call yoursel stupid. %he action,
bad trade, etc, might have been dumb, but you arent. :et in the habit o positive sel)
dialogue. 8ongratulate yoursel when you get through a day without violating one o your
trade rules or your acceptable risk. (o one else is going to do it or you, you most likely
dont have a coach monitoring your every trade and your amily@riends might not
understand trading to the level that they can identiy when youre doing well !not in terms
o return, but in sticking to your rules and not being risky.#
'emind yoursel that its ok to screw up once in a while and its even more ok to correct
mistakes beore they get worse. Beck, i you over leverage yoursel on a trade, or let it run
against you way too ar, close it out, and congratulate yoursel on doing the right thing
instead o punishing yoursel or the loss. %his is really important, as i you keep telling
yoursel youre stupid it will eventually prove to be true without ail.
Its ok to make a mistake. >ere human, It happens. 8halk it up to a learning e+perience,
write down what happened in your $ournal and what might have triggered the mistake.
Meditate on how you will avoid it in the uture. Move on. *one.
(ow let/s look a little more directly at trading itsel0
Clean your charts$ Messy charts, messy mind. Indicators are great i they are part o your
system, but i not, toss them out. ;ur mind does a great $ob at iltering out anything that
doesnt support a positive outcome or us. Its $ust another way our mind deals with stress.
=ver been in a trade that doesnt start o so good and you immediately drop to a longer
timerame to see i its worth sticking around2 Feah, i the trade was wrong to begin with,
turning it into a longer term trade isnt going to save you. Its better to $ust to cut your loss
and move on. ;r, ever get in a trade that goes bad only to reali7e that the indicator you had
right in ront o you clearly said not to e+ecute2
8hart clutter can only serve to give us too much inormation. ;ur brain will simply ignore it
should the inormation cause us pain. Fes, well see it, but the indicators importance will
be dimmed in our unconscious, and ater the trade all we are let with is the eeling o being
silly or ignoring it.
1trip your charts down to $ust the price itsel. ;nly add a new indicator i its absolutely
re"uired.
Personally I dont trade with many indicators at all !I trade rom completely clean charts but
use 88I in some cases or a speciic strategy that involves it.# (early all o them are lagging
and can only tell you where price has been or what the dynamics o the market in the
recent past. Fou must live in the moment as a trader, remember that, so while indicators
can be useul, you shouldnt let them $ust add to the noise. %oo much noise, conlicting
signals, and youll end up in trading paralysis !eeling uncomortable being long, short or
even lat.#
Part o living in the moment as a trader is accepting that the market can and will do
anything it pleases despite what its done recently. %hink the =uro cant go any higher2 It
might. %hink the 9oonie is overvalued2 It might be? or it might continue to chug along
gaining value. Indicators wont stop a currency, stock, or anything rom going anywhere.
Beck, the euro has no idea what M&8* is, nor does it care, it ;(9F reacts to order low and
order low isnt only looking at M&8*.
>hen ever you get e+cited about some new whi7bang indicator that you don/t even
understand the math behind it yet want to sub$ect your hard earned capital to it/s wrath,
think o this0
*on/t be this dog.
Care not if a trade goes for or against you$
*; care about your long term account e"uity trend. &s I said beore, be in the moment, and
you cant do that i this one trade going bust means your account is cut in hal. I you stand
to lose KGH on a single trade, you cant help but care about the results o the trade, and
that will lead to very bad e+ecution decisions.
Foure going to have to break your trades down to a risk level that you can easily accept i
its a loss. %he idea !like we talked about in the visuali7ation segment o this article# is to
eel good about cutting a loss beore it gets bad, regardless i what the market does ne+t.
I personally trade with a risk o G.KH to .H ma+ at any given time in my account. 1ince I
usually only have one trade on at a time, this pretty much means I can walk away rom any
horrible trade with hardly a scratch on my account. Fou could suer K losses in a row and
still wake up the ne+t day and be a trader. %his is the key to the game, surviving and
preserving capital, i you trade risking the house each time !even with a NGHO win rate
proven system# eventually youll have no house.
Its easy to walk away rom a G.KH loss. 8lick, done, order closed, moving on. Fou dont
want to get tied up in a bad trade with .GH drawdown on your account while good setups
are passing you by since your capital is tied into the cruddy trade. %hink you cant make
much risking only G.KH a trade2 I you let a good trade run, you can easily get KOH return
!i not more.# %hat kind o return given the risk is the most holy grail like thing youll ever
come near that wont burn your account to the ground.
4osers a!erage losers:
'epeat that to yoursel. 9osers average losers, %here is only one time you should average
into a position, and thats when your total risk is well below what your ma+ acceptable risk
is allowed to be, and youve planned it out beorehand that you will be averaging in? other
than that, $ust take the loss. Fou need to build a good habit o taking losses !notice I keep
harping on this2 I%1 8'I%I8&9,# and averaging in doesnt help build it. &veraging in is the
opposite o taking a loss, it $ust allows the market to hurt you more, and now every tick is
more painul. I it goes your way, sure youll be out without taking a loss, but the bad habit
o averaging will be strengthened !you must break it# and or every K times it works, it $ust
takes once to knock your account down considerably.
&veraging in to avoid losses has been tossed around by the investment community as
dollar cost averaging or "uite some time now... but you are (;% an investor, you are a
trader, leave the dollar cost averaging or an inde+ investor who will systematically put the
same amount o money away in the inde+ every month or the ne+t PG years till they retire.
&veraging a loser is not, and will never be, a tool in your toolbo+ as a proessional trader.
I you ind it hard to stop averaging in the moment !knowing what to do and doing it are
two dierent things when youre stressed out in a bad trade, see the part about mortal
ear,# go back to the meditation section and spend time thinking about what causes you to
average in? what pain are you avoiding2 >hat greater pain has it caused2
%his is Paul %udor 5ones, he/s one o my idols, he keeps a sign above his desk to remind him
about averaging losers0
.rind it out:
&s I mentioned beore, what matters is your e"uity curve over many trades, not the results
o an individual trade alone. Foure going to have to e+pose yoursel to the markets "uite a
bit, even i its only an hour a day, it has to be consistent. %heres a theory behind becoming
an e+pert in any given talent or sub$ect, .G,GGG hours spent working at it? you need to put
the time in to become good. (ot $ust become good, but to prove you werent $ust riding
some luck and actually can start depending on your trading results. &nyone can have a
great year trading, I know people whove returned QGGOH on their accounts over the year
!and some within a month,# but not all o them keep it P)K years out. >ere ocusing on
trading as a proessional, not to be a one hit wonder, this is your career and like any career
it takes time to build and become good. *o not e+pect money overnight, do e+pect to put
the hours in, and i success comes around youll know its something you can count on. Its
like in music, you want to be the band that makes .GO platinum albums and lives o the
royalties o their hard work, not the luke overproduced band that has one hit and ades
"uickly into memory.
I you ever get yoursel into a trade where the position going against you means tomorrow
you wake up and start looking or another $ob, then get out, no matter how painul it is, and
be thankul that tomorrow youre still a trader.
%here is a pla"ue on the wall above a door at the 8M= that reads0
%hink about that. !image credits to my man -en rom %raders&udio, he/s in the relection#
(oints, not dollars:
;ne thing you can do to help with cutting losses is remove the dollar signs rom your view.
1top looking at your accounts P@9, or it can only be a source o bad inluence. Four time as
a trader is to be spent living in the moment, in the current trade, thats it. &s a ore+ trader,
you will be aiming to make pips, not dollars. !<or the utures traders reading this, the game
is now ticks and points.# %he idea here is to remove the ability o seeing your accounts P@9
or any one trades P@9 rom aecting your trading e+ecution.
In M%L, switch the P@9 to points by right clicking on your %erminal window near where it
shows open orders. %his isnt perect, since below it still shows total account P@9, but its a
start. Im working on inding modiications to M%L that will cover it all up and only show the
net pips in open trades !i you have a suggestion, post it.#
&nd lastly !or now#.....
#e!er ta"e ad!ice from friendly strangers$ %heres no ree candy, that white,
unmarked, van is only going to be pain.
Put simply, no one wakes up in the morning and says aloud Im going to make someone
else rich today,
%hese online orums are great or sharing ideas, building out systems and bouncing ideas
around? -ut do not get in the habit o letting others think or you. %his relates back to the
"uirky games our brain plays on us. >e are wired to be tribal, communal, and think as a
group. It eels more comortable doing something i others are doing it, but as most o our
parents would say as we grew up i everyone was $umping o a bridge would you do it
too2 %hink or yoursel, and i youre tempted to shadow trade someone since they posted a
new shiny screenshot o a . hour =3'@31* chart in their $ournal, 1%;P '=&*I(: %B=I'
5;3'(&9,
*o take advice rom people who are interested in teaching you Ahow to trade, not
Awhat@when to trade. Many people teach others as a way to horn in on their own skills
!mysel included# but you seldom will see these types giving out trading signals as well.
(ever pay or a signal service. Fou arent a trader !or proessional# when you do, youre $ust
indirectly letting someone else trade your money and think or you and paying or the
privilege o it. %his is not the way to become successul.
)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))
Tying it all together5
'emember how I asked you to stop trading earlier on2
I you/ve read this ar, cool, I/d like you to really try what I/ve suggested i you haven/t
already and see i it improves your trading over the coming months. 'eally give it a shot,
I/m not suggesting anything risky, you can only stand to improve yoursel by ollowing it.
%ake a ew days to work on your body, your mind, and your diet. >rite your thoughts down
in your $ournal. &nd when you eel at ease, put on your irst trade as a renewed and
rereshed individual on their way to becoming a proessional.
I you notice, I didn/t give you some ool)proo system or plan to ollow to be a proessional.
%here/s no one)si7ed)its all method o becoming consistently proitable. Fou are going to
have to ind the right system that its your uni"ue personality. &ll this thread is about is
providing you with some common skills and the base oundation behind building good habits
and managing some o the natural ways we humans goo up.. the rest is up to you to work
out, because I don/t think I/ve ever met two proessional traders who are e+actly the same.
&nd o course0 .%%* 4UC05
The (ositi!e +ental 6raming of #on)+onetary .oals
Bumans love positive eedback. Positive eedback lets us know were doing something
right.
3nortunately though our mind can work against us in how we set goals i want to become a
bra7illionare through trading ore+. Its all in how we break goals down to smaller chunks so
we can get that positive eedback along the way? and it works against i we dont
understand what triggers negative mental states as we make e+ecution decisions in
trading.
%he logical and analytical side o our psyche will lead us to breaking down any large goal
into smaller steps, though this we gain a sense o accomplishment as progress is made. I
this thought doesnt come naturally to us, weve probably learned to do it rom one o many
bits o advice on time management picked up while we were attending school or at work?
or heck, any pro$ect management course@book@etc? would have beat this into our heads
many times over.
1o i youre like the average trader out there, youve probably set a ractional goal on a daily
or weekly bases that gives you something to work toward? .GH per month, .G pips per
day, .GG pips per week, etc.. .etc? >ere probably all guilty o it, and I know I made that
mistake when I irst started trading with spreadsheets making daily proit pro$ections.. I I
could only make KH a day Id be a bra7illionare in no time,
1o i youve done this, youre normal and thats ine, but what do I say about normal in the
markets2
#ormal doesn7t wor"5
-y setting monetary goals youre really $ust giving yoursel additional pressure and priming
your mind to give in to all the normal human tendencies that will cause traders to have
severely reduced returns or even ail in the long run.
<or e+ample0
9ets say you have a .G pip per day goal.
Fou eel that with all the market action in a given day, with currency pairs moving hundreds
o pips each, you could capture .G pips o net proit per day easily. %o achieve this, youve
created a system that waits or a speciic signal beore entering a trade.
;ne day, you dont get a clean signal all day long. Foure rustrated because the market isnt
acting in a way your system can proit rom?. Foure worried you wont make your goal, so
you take a not)so)clear signal thats not "uite within your system but you eel its close
enough to $ustiy the risk. ;r, worse yet, you did have a good signal, but it was a loser, and
now your brain is in revenge mode where youre looking or any cruddy signal possible to
take so you can make back the loss and grab your net o .G pips in the process? the
monetary goal has become a negative psychological inluence, despite you creating it with
all the best intentions.
=ven i the not)so)clean signal or the revenge trade work out, youve violated your risk
tolerance within your system and shited the statistical e+pected outcome. ;ver time, youll
have trades taken like this that dont work and the losses will sting on an emotional level
!since they weren/t within your plan and you werent truly prepared to deal with them# as
well as sting your e"uity curve.
In the case o the revenge trade, this might even compound and youll end up taking yet
another crappy signal $ust to make back the two losses and get ahead !or $ust break even.#
%he cycle would continue till you snap out o it and reali7e your losses or the day, inally
reach your goal o .G pips despite risking many times more than your acceptable risk limit
to get there !negative e+pectancy trading,# or bust out your account all over a ailed .G pip
trade.'hat ri#ht there has to be the worst feelin# as a trader, not the loss, but
reali(in# you blew an account throu#h e!otional tradin# o"er a s!all )* pip initial
trade tar#et.
!In another section, I will e+pand on revenge trading in general and how to cope with a loss
so as to avoid the revenge cycle.#
(ow, goals are still an important part o trading, and I dont want to give the impression all
goals in general are bad. >hat matters is setting the right kind o goal that will actually help
you with consistency and discipline, and raming the goal in a way that works to overcome
our natural tendencies that hold us back rom becoming proessional traders.
8nter: The #%#)+onetary .oals
I you remember rom my section o APoints not *ollars, I talk about removing monetary
gains@losses and losses rom your view so they cant aect your e+ecution decisions. I do
suggest only viewing pips, but in conte+t I mean as it relates to an individual trade and your
trading system !which is built around targets and stops set in pips ater all.#
Bere were going to take the idea o removing R)signs rom our view to the ne+t level by
removing them rom our longer term planning and shorter term goals as well.
9ets say you are trying to be a career trader0
Instead o thinking I want to make R.GGk 31* a year trading, lets approach this rom
what you truly want? I want financial independence$
(otice how theres no mention o trading in there2 Fou want to be inancially independent,
that can happen through trading, but it can also happen though sitting on your hands during
times that your trading style will only hurt you !dierent types o markets.# -eing lat is
$ust as valid o a position as being long or short ater all.
'emoving the yearly income goal also removes the pressure to perorm a little each month.
%he best trader I know at my oice will happily sit on his hands or trading with ne+t to no
si7e or nearly a year without eeling pressured. I he doesnt have an edge !that is, i his
systems arent good or the current type o market# he doesnt risk, that simple. >hen his
type o trading becomes in avor, -&M, the guy can turn out .GO years o an average
workers income within a ew months. Bis goal is to be inancially independent, not make a
given amount each year, and that allows him to be happy to sit all day long watching the
markets or months at a time not doing anything o signiicance with his capital because
risking outside o his edge@plan violates the goal o being inancially independent.
(ow, i weve cut away the tangible R)sign rom our longer term goal, how do we break it
down into smaller, easy to achieve, goals that we can aim or on a daily or weekly basis2 >e
still want that short term gratiication ater all and it can be a really good thing to get
positive eedback day)to)day as you trade !so long as its ramed correctly.#
1o lets take the longer term goal o being inancially independent and see what
components o said goal can be e+tracted0 >ell, someone whos inancially independent sure
isnt letting the market have its way with their capital, so theyve probably set strict stops
and dont leave themselves e+posed to greater losses by trading without stops or doing silly
things like doubling down, averaging losers, or over)leveraging? so we got the basis o a
ew short term goals right there0
I didnt put my capital at risk beyond whats acceptable in my trade plan today.
I didnt lose more than +H on my bad trades today. &nd I didnt lose more than +H
o my total capital should it have been a bad day. !1ub + or your acceptable risk, I
suggest G.KH).H or individual trades and LH or the daily ma+.#
I didnt over)leverage today.
I didnt revenge trade today, or i I did, I "uickly identiied it and took mysel out o
the market. I did (;% let it stand to see what happens.
I didnt over)trade today.
&ter each day, go over this list !or the list you created o non)monetary or pip related#
goals# and do something positive i you can check each one o. 'eward yoursel. >atch a
movie you wanted to see, or maybe get a glass o wine@beer@etc to celebrate !. glass, lets
keep it in moderation.# %his direct reward system is going to combine with one thing that
will really give you some gratiication, your e"uity curve. I youre in a drawdown, it will help
limit the impact o the bad trades, i youre doing well, your e"uity curve will start to smooth
right out and look like a steady gradual increase.
Fou want a result that looks like this0
!-%>, this is a logarithmic balance by R growth chart e+ample, (;% an e"uity by H growth
chart which would have a much higher incline on the curve and look more impressive. %he
point is to show consistent non)compounding gains as it relates to the sub$ect.#
'his is the eact #ratification, in the ri#ht fra!e of !ind, that$s sustainable and
contributes to beco!in# financially independent.
Fou will eel good not only or rewarding yoursel and ollowing your rules@goals, but youll
have an e"uity curve that gives you direct eedback o doing well. Most new traders e"uity
curves are like mountain peaks, $agged and volatile, you cant truly tell how well youre
doing i youre $ust 2)P days away rom dropping LGH o your account. >orse yet, how will
your e"uity curve ever tell you somethings wrong with your system i by the time you
reali7e it your account is only .@Prd o its ormer value2
!In a uture segment, Ill be talking a lot more about monitoring e"uity curves and paying
close attention to statistical evidence ound within your trading history.#
>e can build on this, and e+tend the goals over a weekly basis0
I e+ecuted over NGH o my trades this week without violating my risk rules
!remember, were human and mistakes happen, dont punish yoursel twice or
making a mistake, but do correct the mistake instantly when you reali7e youve
made it.# !(;%=0 the H should change depending on how many trades your system
does per week, so or a scalper who trades .G)PG times a day like mysel, my
percentage is NQH.. but i you only trade .G times a week on average then N@.G is a
good goal so NGH would due.#
My drawdown periods over multiple days !it happens to even the best traders# were
limited and in line with my acceptable risk.
>hen the market wasnt going to work or my system, I didnt trade.
I you can check these o !or any other weekly non)monetary goals youve written or
yoursel# at the end o the week, reward yoursel. It can be anything, like your avorite
chocolate bar that you always eel guilty eating since youre trying to cut out sweets.. but
reward yoursel.
*on7t punish yourself, "eep it positi!e, and reward yourself when it7s deser!ed:
9astly, rerain rom rewarding actions@treats to make yoursel eel better ater a bad day.
%his would be like hitting the bars ater a bad day... Fou want to avoid such actions to
smooth over bad moods as they generally only build up dependence on such things !using
alcohol as a crutch that later bleeds into alcoholism or e+ample.#
I you did violate such rules, reer back to the e+ercise and mediation section rom beore,
but do not reinorce it by treating yoursel.
Im not telling you to punish yoursel ater a bad day or do something negative, you can still
be positive and do positive things !e+ercise, seriously this helps on bad days a lot, and i
youre the worst trader in the world at least youll be really it and healthy,# but dont
reward yoursel with treats@drinks@etc i you want to associate said rewards with positive
perormance.
%his might sound restrictive, but think o training your unconscious mind like training an
animalE i you eed your pet treats ater it takes a dump on your e+pensive rug, as well as
when it does a trick or behaves well, its not going to stop dumping on your rug.
!I youre a social drinker or instance, then it might be a good idea to use something else
than a glass o wine or beer as a reward, since youll be in environments that include
drinking i youve met your goals or not. Maybe have a pi77a night at the end o the week2
:o on a nature hike2 -reak out the u77y pink hand)cus with your signiicant other2 -e
creative here, youre going to know what best rewards yoursel and what you think would
be a good it.#
%n Support and .uidance for Tribal +inds
; the many dierent emotions and instincts wired into our brains, our natural tendency to
be tribal !both socially and proessionally# has to be one o the more interesting barriers to
successul trading.
;ur minds are both awesome and la7y. >e can invent and be creative, but we also seek the
approval o others and wish to Abelong in a group. %his is where a lot o new traders get into
some serious hot water without reali7ing that the comort ound in collective thought will
hold them back rom the goals they seek.
%his isnt to say acting tribal is entirely a bad thing. In act, there are ways we can tap into
this instinct so that it becomes a positive, so this ne+t section aims to break down how to
ocus on the positives while cutting out the negatives aspects o tribal thinking.
%o be clear, when I say Atribal I do not "uite mean primitive, or degraded? Im using tribal
in this section as a reerence to the social)communal and cooperative makeup o our
psyche, be it the instincts weve been instilled with genetically, or the social abric impressed
upon us in our early years? I use the word tribal because I want to highlight where these
instincts originated rom and where they had the most use, back in our tribal days.
%housands o years ago, humans needed to be tribal in small communities to survive, as
alone we oten died o, but as groups we could hunt bigger game and lourish.
In todays world, however, our society is structured in a way that we, as individuals, can be
much more independent. >e still have our instincts, and they play a part in our social circles
and relationships, but as ar as survival goes they arent e+actly as depended upon
anymore.
6irst up, where our tribal mind can fail us as traders:
The non)traders influence
>hen you approach the people close to you about the little trading business you have going
on the side !or as a ull time career option,# youre going to get a wide variety o
responses.
Four riends and amily will have only the best intentions with whatever advice they give you
!hopeully,# so dont ault them trying to be apart o your lie. 3nortunately, theres a good
chance these people will be pretty disinterested in the world o trading and inancial markets
!or at best their understanding stops at the mutual und they bought or their retirement
account,# so soon youll be bombarded with words o advice without much o a oundation
behind them.
-e polite, but do your best to turn the volume down on incoming advice rom this category
o people. 9ike I said, they mean well, so dont get lustered with them over it. *ont tell
them they are wrong, dont correct them, $ust reali7e that they care enough about you to
e+press their concerns or give and opinion. 1o thank them, but move on "uickly to other
sub$ects.
%here is one e+ception to this group o people !riends and amily# who youll have to both
listen and communicate in detail with about trading, and Ill talk about them when I go over
the positive side o being tribal.99
6ellow traders and :eperts: infulence
;utside o your riends and amily, new traders will oten lock in droves to market
commentators and e+perts. It makes sense, i you want to do something well you ollow the
e+perts. -ut tell me, even i the e+pert is talented, do you know anyone who made it into
proessional basketball by watching (-& games2
%his is assuming the Ae+pert is even hal good. Most arent good at all and try building a
business around trading signals or market calls because thats the only way they can make
a decent living in this business.
>hats worse, non)proessional trades will oten see their accounts die by an Ae+perts
recommendation because the e+ternal inluence o the e+pert makes taking a loss so very
much harder than it has to be. I you got a tip rom an Ae+pert, taking a loss isnt $ust you
admitting you were wrong, but saying the e+pert was wrong too, and youve already put the
e+pert in your mind as a more e+perienced trader that you respect enough to ollow so this
creates a huge internal conlict to deal with.
&t this point, you might be saying to yoursel0
;h, but I totally dont watch 8(-8, or listen to these so)called e+perts at all.. I dont have
this problem,
'eally2 =ver watch a webinar that talks about a new trading system2 =ver dive into the
interactive trading orum and read through the last K pages on =3'@31* $ust to see what
other traders are doing2 =ver read through another traders $ournal and drool at their
charts2
:uess what2 Fouve $ust created a serious unconscious bias and you might not even reali7e
it. I a hand ull o traders you generally respect all go long on a given trade, and you sit
down to do your own chart analysis telling yoursel youll make your own decision, guess
what direction youll likely trade2 =ven i you go short, do you not think youll be a tad bit
more uncomortable doing so2
;nce again, theres nothing wrong with wanting to be tribal, being included, eeling
conident since so many others are with you? its normal. -ut remember what I say
bout normal?
1ome o you might have this down pat so ar, you might ignore other traders sentiments,
calls, and charts entirely. Fou might put on a trade only ater taking a cold, hard, un)biased
look at your own analysis. %his is all good, but your tribal mind isnt done with you $ust yet,
=ver get into a losing trade and peek at what other traders are doing to see i you should
close it out or not2 =ver let their inluence turn a trade into an investment2 Feah, thats
the tribal mind going at you again.
%rading in general, especially i youre in a drawdown or in a losing trade, is uncomortable.
%his is why, in an earlier section, I talked about limiting your risk to something you dont
care about losing so i you e+perience a stop out you arent emotionally aected. I you care
about a single loss, youre most likely going to give in to e+ternal inluences, and ne+t thing
you know youre looking or reasons to say in the trade hoping it will turn around instead o
$ust cutting the loss short? looking around or people trading in your direction, or thinking
this trader took the same trade as me and hes an e+pert will only give your emotional
side reason to let the loser keep hurting you.
I will say this now, i you want to stop being held back rom trading on a proessional level
and gain better consistency through your own hard work, you M31% let go o e+ternal
inluences all together and instead rely on yoursel or all trade decisions. %urn o 8(-8,
stop browsing online orums or trade ideas, stop spending time in trading chat rooms
where people yell out calls to ollow? etc?
If you cant rely on yourself and yourself alone to ma"e a return in the mar"et,
then youre not really a professional, youre 1ust indirectly sub1ecting your capital
to other peoples trade ideas$
(Though by all means keep using online forums to talk about trading, Im saying to cut out
the sections of the forum that might give you a bias and without question stop shadow
trading people online I personally dont post or read the Interactive Trading forum here,
nor do I read through journals unless its the weekend and Im curious about peoples
thoughts in the past that cant possibly affect my trades since they already happened!
*o you want to "now some real life eamples of why its good to turn off our
tribal)communal instincts:
I you read the biographies o a ew ultra)successul people !e+amples in technology0 :ates,
*ell, 5obs, etc.. in inance0 1oros, -ogle, long list here..# youll ind that most didnt care
about what others thought o them. %hey did what they thought was best, or what they
en$oyed, despite the world only giving them riction. Put simply, most ultra)successul
people are, to some degree, eccentric or odd.
%ake :ates or e+ample, the guy dropped out o Barvard to start his company. I he went
out and asked or advice rom the schools academic advisors, his amily, his riends, etc?
theyd have told him to stay in Barvard and inish irst. :ates didnt, he hated to lose and
didnt want to miss out by being even a year late to the game. >as it the right choice2
Probably not, but then again I cant argue with the empire he built.
SSSSSSSSSSSSSSSSSS
%", I thin" I!e beaten this dead horse enough$ #ow for the upside:
"#hats that$ Theres an upside to tribal%communal thinking$ I almost forgot after so much
about the negatives&
'8S5 There is5
Foure going to need support. %rading, i youre doing it right, is lonely. Most o your close
riends or people you grew up with arent going to be traders so its hard or them to relate
with you when youre talking about work at a social gathering.. its still healthy to eel
included and part o a community ater all.
1tart using places like these orums as a constructive and positive place to share ideas and
talk about trading in general. 1tart keeping your $ournal !remember the $ournal I asked you
to start earlier2# online so others can relate with you. 8onnect with people who are like)
minded in a way that doesnt involve bouncing trade ideas o each other but instead
ocuses on the substance that is trading itsel.
('nd please, always conduct yourself in a constructive and positive fashion when you post
online or partake in any anonymous means of communication if you cant keep cool talking
to other traders how will you ever e(pect to keep cool during a bad trade$ It all comes back
to discipline, and keeping control over your emotions is something you need to e(ercise at
all times if you ever want to count on it when you need it as you trade!
99 =arlier in this section I said there was one e+ception to the amily@riends rule. ;ne o
the single most important people you should converse with about your trading is your
spouse or partner. %hey might not have much o an understanding but they, o all people,
need to support you emotionally and they cant begin to do this i they dont understand
e+actly what you do.
%his might not be easy, as Ive dated a ew people in the past that only see lashing
numbers and the chance o risk, but sit down with your spouse and teach them the basics.
%hey dont have to become a trader, and thats not what Im suggesting, but give them the
very basic oundation o whats going on and how youre making money.
Fou need to be able to communicate your rustrations, and your $oys, when it comes to
trading. &s much as theyll be happy or you when you do well, i they have no conte+t and
are unable to relate they wont understand e+actly what that success means or you. ;r, i
youre having a bad week, they wont truly grasp why youre not in a great mood !beyond
any losses# and may even start to resent you or being a dark cloud around them.
)ommunication here is key here
%hey are your better hal, so keep them included, since down the line when you need to
convince them its ok youre "uitting your day $ob to trade ull time, or when you need to
make any ma$or inancial decision as it relates to trading proessionally their understanding
will pay o.
See" out mentors
&s we want to avoid letting outside inluences aect our trades, we do want to take in some
types o outside inluences that aid our development as a trader.
%heres a key thing here to keep in mind, you want to look or people who teach you how to
conduct yoursel as a trader, not ones that tell you what to trade, teach speciic systems, or
give trade calls.
%his is a give a man a ish vs. teach a man to ish type comparison. I you want to develop
yoursel as a trader youll need to look or the ollowing in a mentor0
& ocus on consistency regardless o the strategy
&bility to ob$ectively look at any strategy, not $ust preach about their own method,
since a proessional career trader is adaptable to dierent strategies in dierent
markets and understands that not everyone thinks the way they do
&bility to tell you whats not working and what you need to stop
&bility to talk about their own mistakes and their own trading record without buing
out the scratches? =6='F trader makes mistakes, its how they survive their
mistakes and learn rom them that matters.
&bility to walk you through liestyle e+ercises and theory e+ercises that will help build
skills used in trading. Mental walkthroughs, number games, probability theory, etc?
I cant stress this enough0 I the potential mentor only wants to teach their system and
doesnt think anything else works, stay away. I they only want to eed you trade calls, '3(
away. %his isnt about letting them inluence you in such ways.
Ta"ing on students
*ont stop thereE you didnt make it this ar without learning a thing or two. <ind students,
share what you know. Im not saying you need to give away your edge, but a lot o
proessional traders horn in on their skills by teaching others. Fou really reinorce the
lessons youve learned over the years i you reteach said lesson to other people.
+If you$re still new to tradin#, this part won$t ,uite apply to you, it$s for
eperienced traders tryin# to better their perfor!ance and focus their skills. -ou
can still do it as a new trader, e"en a newbie, but please keep in !ind the li!its of
your eperience and know when to refer to other resources when faced with
,uestions that are out of your reach..
'emind anyone learning rom you that you wont give them trade calls, and you wont
suggest trades. I they only want you to give them trade ideas then youre not really
teaching them and they $ust want someone to make trade choices so they dont have to.
&void these types o Astudents. Foull get lack or it, some might even suggest you wont
give trade calls because you arent proitable, but ignore them and remember where they
are coming rom !a place where they cant make their own decision or want someone else to
trade or them.# Fou didnt sign up to make them rich through your trade choices, the only
person whos going to make them proitable is themselves, youre $ust in this to progress
yoursel as a trader , nothing more. I they cant deal with this, they are better o signing
up to a signal service and blowing their retirement savings chasing penny stock.
%ribal minds, once tamed and used properly, can be an asset. 'ecognise why you want to
seek outside validation in your trading choices and why it will only hold you back. >ork
toward being a completely independent trader. 1hare this mentality with other. Four account
balance will thank you in .G years.
9ast time I will post anything about this sub$ect...
& simple google search on the random entry methods and coin toss methods return many
results, and yes, as n.. mentioned a ew o them don/t show proper proo or only rely on
anecdotal evidence, but you gotta dig a little deeper.
%he idea behind this thread is to get people started and point them in the right direction so
they can achieve great things on their own. I ind hand holding rustrating since teaching
people that aren/t receptive to new ideas $ust becomes a shoving match... which a lot o
recent posts have become.
&nother reason I asked people to search out sources is a lot o e+amples come rom other
orums and I didn/t want to link to Prd party sites that compete with <ore+<actory.
-ut anyway$$$ to put an end to this:
;n 2an Tharp0 Bis e+act system around trading on randomness involved a trailing stop at
P+ the recent volatility. %his ensured that bad trades not only got stopped out "uick, but i
you happen to catch a runner that/s going or you and the market slows down, you/d be
stopped out even aster so as to capture as much o the move as possible. Be mentioned in
two o his books he got the system to work and be proitable over longer periods o time
and based his work o a utures trader named %om -asso !yes, the same amous trader
who spends time sitting on the board o hedge unds and the (<& at one point.#
1ince the source is rom 6an %harp/s books, I can/t $ust link it, but I can talk about the what
I did to try and prove it or mysel0
I personally wrote an =& based in this mysel over a year ago, because I was skeptical. &nd
to my surprise, it sorta worked.. as ar as proitable systems go it pretty much sucked... but
it was a positive e+pectancy system non)the)less. Fou/d be better o trading with an edge,
since the system was very trade intensive with only a small payo e+pectancy, but with
enough o a sample si7e !thousands o trades# it did work and beat the spread.
I re)ran the =& $ust now to show you the results0
%his is running on a . hour timerame using %om -asso/s system o a completely random
entry and random direction, using a trailing stop set at P+&%' !.N period#... and conducted
over .GO years
1ince %om was doing this with multi)million dollar accounts and risking only a small amount
each trade, I set the deault and i+ed lot si7e o G.G., and used the period o .. years
!rom 2GG. till today# on the =3'@31*.
:et this, the random entry method actually ends up working better on the instruments that
%om -asso picked rom years ago and back then there wasn/t as much volatility !.NQG/s)
.NNG/s.# -ut it still worked, in modern times, on a currency pair that/s whips)saws around so
much I personally nick name it M*irty Mc8hops.M
The significance here isn7t 1ust that it was slightly profitable o!er ;; years$$$ but
that the profit also co!ered off an a!erage spread of <$= pips ,from the data
source I used/ per trade5 ,That7s <$= pips paid for each of the <><? trades made
during the test$/
(ow, you can understand why I keep saying MI don/t suggest you trade like this, since any
edge is better than randomness.M -eating this system can be done as easily as dropping
your unds into a high interest account or .. years. &ll this e+ercise proves is that random
entry and proper money management with the psychological discipline to ollow it will work
out with a large enough sample si7e.
>hen I researched this initially ater reading it out o 6an %harp/s books... I didn/t $ust make
assumptions or educated guesses. I didn/t stop at the irst resource I elt was worth being
skeptical over... I set out to prove it or mysel. I sat down, and ground it out with my own
hard work to prove what/s what.
I/m not the only one either, below is another e+ample o a coder who did the work himsel0
http0@@www.automated)trading)system....on)randomness@
&nd that/s $ust what I ound on a "uick search, there are many more out there...
+o!ing along$$$$
<ollowing this bread crumb, you/d ind very similar ideas used by 'ichard *ennis !o the
%urtle %rading group.# Be trained his %urtle traders with an e+ercise o Mhere/s a position you
didn/t want, manage it,M to get across the importance o stop management. 1oon the %urtle
traders learned through blunt trial and error that they needed to keep their losses cut short
and know how to handle a winning trade !ie, when to tighten the stop and where.#
4en M>oodieM >ood, o the >oodie/s 88I indicator and trading program, also uses random
entry and coin tossing e+ercises with his students. Be also developed a system solely
around using the result o a coin toss to chose what direction he played in the utures
market with strict money management rules to manage the position once it was on. %his too
proved to be proitable..
1ources here, and here.
I could go on quoting sources from various respected traders around the net on this
Bowever, the entire e+ercise wasn/t meant to actually be a trading system you/d use... IT
SUC0S... *on/t do it. Bave an edge, it/s much better. It was $ust a theory e+periment.
&t this point I/m literally TI&8* o this topic. &s I said this will be my last post on it. I/m
simply no longer interested in trying to e+plain a simple e+ercise that/s only designed to
open up your minds about the importance o money management and sel control.
I anyone here still eels they want to be a skeptic since in their heads it makes more
sense... cool, start your own thread and we/ll battle till the ends o time there about it. %ill
that thread is started, this has gone so ar o topic in over)e+plaining a simple logic
e+ercise that I/m convinced that anyone reading it has lost the point by now and is too
caught up in the details to actually have learned anything.. and that/s sad$