I left the smoothie shop to go on a trading sabbatical. I spent one year reading, learning and trading. If I were not reading about trading, I was certainly thinking about it. I learned as much as I could about trading. I tried to look at the markets through Gann’s Square of Nine, trendlines, moving averages, stochastics, MACD, RSI. If I remember correctly, nearly every week I had a new trading system.
I soon decided to analyze every time frame and do a top-down analysis each day. This became confusing.
It wasn’t long after I had read nearly every technical trading book I could get my hands on that I decided to read trader interviews. The Market Wizards and The New Market Wizards books are absolute trading classics. What became apparent to me was this: many very successful traders were using extremely diverse trading methods – in other words, there was no one magical system. This drastically changed my outlook on trading.
There were three valuable lessons I took from the Market Wizards books, I hope that they are helpful for you, because they certainly put me on the right track:
- Trading is a Game of Risk: Nearly all Market Wizards had a story about a trade in which they took an exceptional amount of risk and (win or lose) learned a valuable lesson from it. Trading is all about risk. Traders must come to grips with this idea, those traders who do not understand this fail, without exception.
- It Takes Courage to be a Pig: This may sound like a contradiction to the first point, but it is not. When trades go well, the very best traders take advantage of this – there are many ways to do this. The point is that winning trades should be maximized, and if your trading system does this you are in a great position. Students in the Personal Trading Program know what I mean.
- Making Money Must be for You: This may seem unbelievable, but many traders do not want to make money. As Ed Seykota was quoted in Market Wizards:
Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.
Some traders are simply not ready to make money, it may be because they have a negative outlook on trading (e.g., “why do I always pick the losing trades?”), maybe friends and relatives are not supporting, saying “are you still trying to do that trading thing?” or “when are you going to give up on trading?,” for some traders there is some self-sabotage, it could be because they believe wealthy people are bad people (and thus do not want to become one of the “bad people”), it may be that trading offers excitement (so excitement, rather than money is the goal). For many traders the real reason for their trading difficulties may not even be known.
Some traders have a deep-seated subconscious belief (e.g. “I am not worthy of money” or “Rich people are jerks.” or “Some people have too much money”) which makes it difficult to maintain profitable trading.
I will take a closer look at each of these three points in subsequent blog posts.