The statistics of failure in the business are overwhelming. It's often said that about 90% of individual traders (and maybe funds as well) fail and fade away with time. On the other hand, very little is known about the long lived, successful traders. Others would say it's just O.K. Without the pool of losers there would be no source of money. And in fact, we know it's true. However, of course, they never contemplate to be on the losers' side. With that said, I would like to know from the long lived which they consider to be the most important aspect of trading a sucker should think about and act upon to survive in the long run. Say, something that would enable him, after 30 years in the business, to look back and say to himself: "Joe, you were a wise trader. I am proud of you." Is there a way to?
Always be mindful of your risk-of-ruin. For some that is to go bust. For others it is a certain amount of drawdown.
In the end it all boils down to having proper respect towards the market, doesn't it? You remind of a trading maxim by Michael Marcus: "There are old traders and bold traders, but very few old bold traders."
Very true, indeed. What I meant with my original post is that many traders are not aware of their pain threshold. Maybe they start trading with $25k and manage each trade in proportion to a risk on a $25k account, but as soon as their account size reaches a 50% drawdown they completely freak out, quit trading altogether, or worse start making irrational trades to win it all back! Perhaps if they realized that $12.5k was their max pain threshold they would've managed risk more appropriately! So before you start trading, I recommend you really do some personal introspection to really find out where your max threshold is!
Having traded for 30+ years, the most important thing I remember about my bad trades was saying the market was wrong.
Well, it didn't take me too much time in the business to realize that my maximum threshold is the minimum I can make of it. The smaller the better. cpo
I was trained as a net position trader at a investment bank years before it was discovered the markets contained periodic non-randomness. In our training we were taught the markets are completely random. Since they're completely random, the entry doesn't mean anything (one entry point is as good as another). We even did weeks of using a coin flip to practice entering a market. We were taught the only thing a trader can control is the exit. In short, exit losing trades early and let winning trades run was the totality of the training. We were shown a distribution of price changes which showed the markets had (and continue to have) fat tails. All we were playing for were opportunities to get a fat tail trade (intraday, daily, weekly...timeframe made no difference). We practiced entering randomly and exiting losers early and trailing stops behind the winners (method of trailing stop made no difference). Over the early years, I made lots of money with this information.
I don't remember where I read it, but it goes something like this: "If I am on a railway and I see the train coming my way I always get out because I think it's a sensible course of action. Actually, I do not have to think about it." cpo