The Path of Stardom in any facet of life is paved by failures of lot of people, Eg Tennis World talks only about 3 Players Novak,Nadal and Federer so many other players were never taled about as they failed to win any Majors. on the SImilar Ground The path to financial markets “Glory Avenue” is paved with the corpses of failed traders. Yet, the lure of mastery over the markets sucks in millions of wannabe traders into the market ring, to “try their luck.”
With failure rates being as high as 98% , the temptation to even give it a shot should be astounding to a non market participant. With Lockdown happening last year lot od traders were attracted towards market and on Social Media seeing so many P/L Screenshots of huge profits tempts all the traders to come to the market to get a shot at fame and fortune in the dog-eat-dog world of Stock Markets and Options Trading.
Trading is always against the average trader due to mental / emotional resources required by traders. Then there are minor things about trading capital and a well funded “float” to even justify entering the market.
Today lets discuss
- Why is trading (for a living) success so elusive?
- Why are failure rates so high?
- What can you do to improve your trading performance?
If you consult a sports coach of some repute and standing, he will tell you a budding athlete takes years to “peak out.” The advantage of starting early cannot be emphasised enough, but reaching a peak takes time. For a trader, peaking would mean your subconscious mind takes over part of the decision making process once your terminal screen comes alive at market open. You instinctively “know” what to do. That level of finesse obviously takes time. How much time – most performance consultants will tell you it takes approx 10,000 hours or 10 years before anyone hits his peak. In his performance enhancing classic tome The Road to Excellence, K Anders Ericsson writes – It takes 10 years of preparation to become an overnight success. Can you give it that much time?
Trading for a living is a game of extreme skills. Dr Alexander Elder in his book Trading for a Living says – Gladiators lived and died in the arena. The winner gored the loser to death and kept the losers family and material possessions as prize money.
Modern research has shown that human beings unconsciously decide each of their actions about 230 milliseconds prior to their execution. For some it is even up to seven seconds in advance of execution! Certainly, this means that it is the trading doing the driving rather than us driving the trade, so to say, influenced as we are by our many experiences.
That is precisely why it is extremely important that we as traders have an exact
plan of behaviour to follow while trading the markets and that we routinely implement it in order to guarantee that our activities are carried out accurately. These correlations are usually called discipline. You’ve probably also noticed in your trading that this important capability
is more easily said than done. Just making a resolution doesn’t get you anywhere near achieving the desired objective. People need to change their behaviour and do so actively and sustainably! And that‘s hard.
Anything that requires you to curb your fear and face the markets day in and day out cannot be easy. A non trader will never have the privilege to do battle with himself and the markets and experience the ecstasy that victory brings with itself.
Many have tried convincing me over the years that trading success depends on internet baud rates, computer hardware clock speed, software, algos, charting skills, trading terminal refresh rates etc. etc. While I will concede that the above do have a hand in determining the success of a trader, they are a small part even collectively. The traders mind set is supreme – it makes or breaks the trader.
“The ocean does not care about your welfare, but it has no wish to hurt you either. You may feel joy on a sunny day, when a gentle wind pushes your sailboat where you want it to go. You may feel panic on a stormy day when the ocean pushes your boat toward the rocks. Your feelings about the ocean exist only in your mind.”
The ability to think further, deeper, faster and bigger makes the trader a sharp hunting weapon that he is supposed to be.
Remember the old saying – Life is 10% what you make it, 90% how you take it. Trading is somewhat like that. How you act under duress of a crippling loss determines whether you are fit for this game.
Trading is a Relection of Your Personal Life
How we are in personal life determines how we will be as traders. If you are timid, dominated, nervous, indisciplined and lazy in personal life, your trades will reflect your personality traits as well. It WILL show in your profit & loss account. No hiding from this whatsoever.
The body language of a successful trader differs from a wannabe trader like chalk differs from cheese. The successful trader is calm composed, well fed, content cat who doesnt need to get ruffled over trifles.
You will run up losses, some big, some small. Your margin account will deplete by varying degrees over time. However, your living expenses will inch higher over time, inflation will guarantee that. Can you live in deprivation of many comforts that most people take for granted? If yes, how long before your “nerve breaks” and you dash for the exit door? It takes courage to stay put in any field and trading is no cakewalk – you have no guaranteed monthly income, you are a hunter-gatherer and get to eat only as much as you can hunt – if at all. Sidney Poiter had this to say about Bruce Willis in the superhit film The Jackal – “In a business that is unforgiving, he has prevailed for 23 years and that commands respect.”
First, let’s begin at the end, so ask yourself, “how much money do I need to make in order to support my desired quality of life?” You will see that I have phrased this question in a very specific way. It asks you to think. To think about what your “desired” quality of life is. This is key because depending on the stage and circumstances of your life, you may have some flexibility in this area that will help you to reach an acceptable answer to this question.
- Are you early in your earning years, unmarried, with no children ?
- Are you supporting a family and a Home Loan/Car Loan, Child Education and your retirement fund.
Wherever you are, you need to decide what you need to make in order to have peace of mind, financial stability, and ideally the ability to grow your net worth.
Once you have that number in place, then you have to determine what amount of capital is needed in order to generate that number based upon a reasonable return on a percentage basis.
Unless you have a decent “float” dont even think about trading for a living. You also have to have a contingency float – what if you fall sick and cant trade? Do you have spare cash that will feed, medicate you while trading income is nil? The single largest reason (after lack of skill) for traders failure is running out of cash because the float was abysmally small. The ability of life to throw unforeseen adversities at you should never be taken lightly. If you have to square up trades to meet financial emergencies, your finances are wanting. Running up trading losses (which is inevitable throughout your trading life, but more frequent in the early phase of your trading evolution), will mean that your propensity to trade will go down with every loss. Apart from morale, your broker will also curtail your exposure limits. Keep your powder dry and cash spare in your bank account. I will admit that a whole lot of my trading sustainability has been made possible by my family patiently funding my mistakes and standing with me during downturns.
Arnold Schwarzenegger attributes a lot of his success to his training partners in the gym. He says a right partner motivates you on a lazy day, spots you while you do heavy lifts and talks you out of a “down” groove. He says good training partners feed off each others positive energy. Fraternising with successful full time traders has a similar rub off. You talk each other into building better trading systems, trader bigger & sharper and raise your rate of return by a few basis points every quarter. Try hanging out with losing traders for a few quarters and share melancholic and depressive thoughts, your trading account will deplete almost certainly. Success is contagious, just as failure is – choose who you hang out with, carefully.
You need to study! There is no getting around it. Read. Learn. Absorb as much as you can. There is some great material related to performance psychology specifically for traders. I’ll list what I consider essential reading below. But don’t be afraid to branch out into other performance related fields. I have read books related to the psychology of achieving peak performance in golf, tennis, general sport and poker.
The trading essentials though:
- “The Psychology of Trading” by Dr Brett Steenbarger
- “Enhancing Trader Performance” by Dr Brett Steenbarger
- “The Daily Trading Coach” by Dr Brett Steenbarger
- “High Performance Trading” by Steve Ward