Professional Trader Series: The Art of Preparedness
- 29 June 2016
Professional trader and author of The Universal Principles of Successful Trading (Wiley 2010) now translated into German, Polish, Japanese, Korean and Simplified Chinese.
The second step in the process of trading is preparedness. Most people new to trading are totally unprepared for what is involved to succeed. Most of are clueless. With this short article I hope to "prepare" you to know what to expect if you decide to pursue trading.
First up I have to say that if you aren't prepared to accept the ideas I'm about to share then in my opinion you really shouldn't be trading.
Ok. Let me try to prepare you before you start. I believe that before you take another step towards trading you have to understand and accept the following ideas;
The market is ruled by a concept called maximum adversity. That is the market will do what it has to do to disappoint the majority of traders. There are no easy profits in the market. Maximum adversity will be your number one nemesis. Please don't come to trading thinking to make easy profits and get rich quick. It rarely happens, and if it does, the lucky trader usually gets poor again, even quicker. There are no short cuts in trading.
Most people are emotionally disorientated when they come to trading. Most want to earn unrealistic returns and achieve an almost 100% accuracy rate. Wanting to earn more simply increases risk to unacceptable and ruinous levels. High accuracy, although a nice sentiment, can be a ruinous goal. A goal that can unintentionally work against success. Rather then focusing on accuracy successful traders strive to maximise their "expectancy".
A Losers Game
Your preparedness will continue when you accept a little dark secret about trading - it's a losers' game. Over 90% of people who trade lose their risk capital. Where ever you look you will find it hard to find anyone who is consistently profitable. So if you decide to trade you must accept the long odds stacked against you. In addition you have to know why you think you will succeed where so many fail. You have to know what makes you different.
Markets are Random
You will need to accept another truth, and that is markets are essentially random. So please don't commence trading because you believe a certain advisory service, or trading/analysis technique or indicator etc will help you forecast the future. It can't be done.
Finally, to prepare yourself correctly to trade, I believe you have to view yourself as a risk manager and not as a "trader". Sounds strange doesn't it? It certainly does however it's the truth. When people ask me what I do, and they're insistent in knowing, I explain that I essentially manage risk. Yes I actively trade, but my number one priority is to manage my risk. I know from experience that it's not the profits that determine my longevity in trading but my losses, and in particular my string of losses and drawdowns. Forget about becoming a successful "trader". Focus on becoming the best "risk manager" that you can be. Do that and you will survive the markets. If you survive then by definition you will be a "winner".
If you are prepared to accept what I have shared here then you may well become successful in the markets. If you're not then I'll still wish you all the best and my only finally parting words will be to ensure that you "batten down the hatches" so to speak as you're about to embark on a dangerous and stormy journey.