You don't become profitable by "being right" all the time, but through risk control. "Risk control" means picking only the high probability trades, limiting the amount of your losses (stoploss), and staying flat the rest of the time. We all know what trades are more probable and what others aren't, but we don't all discard the less probable trades. Why? In my opinion because many of us don't mind losing money. You have to get to a point when you are craving for money. Until you won't need the money from trading for anything, it will be like the Monopoly money to you, and you won't care about picking the right trades, but only about making a legendary trade that you can brag about. When do you get to be craving for money? When you need it to pay your bills. Sure, not all people needing to pay for their bills will be able to make money through trading, but a trader could be good, and lose because he ignores risk management, if he doesn't care about losing money. You have to suffer deeply every time you lose money, and that's not a given. You almost have to be terrified by the idea of losing money. Do you feel that way? And, if you haven't become profitable yet, are you in a situation where you don't mind losing money?
travis, excellent post. the old adage that scared money never wins is quite true. this is why some people do great on a trading simulator but freeze up when real money is involved. best, surf
When did I become consistant... hrmmm... hard question first of all because it was a gradual process. First, the base of the consistancy came from trading Turtle Trading EOD. The time frame is longer so I can't really say I was consistant but ended up positive when I switched to becoming a daytrader. Daytrading was a tough adjustment. I take a lot of time with my after-market hour analysis(homework). But daytrading doesn't allow me to do that. I was at a crappy sub-LLC prop for 3 month. Along the way I've created a system ready to trade but they didn't believe in mechanical systems and they tried molding me into a certain trader. Quit the place and moved to another prop. I had more freedom(still, I was limited with # of shares and the money management model). I'm consistant since then. Well, don't know exactly when but that's my story.
In order to make money, in most cases, you have to lose money. The reason for this is because you have to experience the mistakes of trading. The key is to recognize the mistake and make sure it doesn't happen often. Since we're all human, we tend to repeat mistakes, but that's ok, as long as they less frequently as you get better. You can't crave money. You have to take from the market what the market will give you that day. The biggest mistake new traders and some experienced make is trying to hit a certain target daily. By doing this, you may try to press a trade or trades and end up losing money on the day, instead walking home with cash in your pocket, which is the ultimate goal. What you should be concentrating on is your average over a specific time frame. So if you lose today, or don't make as much as you want to for a day, there will be days in the month where you'll make up for the loss or the shortfall. I have come to grips with losing money on a trade as long as I follow my own risk management rules. Cause the longer you control your losses, the more likely you'll hit a trade that will take you of negative territory for the day. Most traders finally turn the corner when things look grim and they're ready to quit. Usually the reason behind this, is that they give it one more shot, but apply proper risk management, and enter trades when they're right, and not just to enter a trade cause they feel like they need to trade to make money. If you press, you will lose. Mental control, in the end, is the difference between a good trader, and a bad one.
Thank you all for replying. I just learned that I was wrong to say "craving for money", since "to crave" is a transitive verb, and it should be "craving money". The few people who have voted so far seem to confirm (9 out of 11) my assumption that the motivation necessary to learn to trade profitably (by learning to control risk) is to be "craving money". Of course, once you learn it, I also assume that you won't be craving money as much as before, but that you'll still keep doing it right. I am very optimistic now since I have been trading for many years almost as a gambler, without ever considering risk, because I wasn't craving money, in my opinion. Now that I am craving money for the first time I see my trading in terms of risk, and I often choose to stay flat, whereas before I was always in the market, worried I might miss precious opportunities.
Craving money in order to control risk properly or operate at an optimum level Unbalanced like ants and elephants on a see-saw...
That sounds a lot like my trading style. I will sometimes go for days without taking any trades, waiting for the right time to strike. On choppy/flat days, I keep my account flat as well. Staying out of the slop has increased my weekly profits. I think it all boils down to patience and discipline.
Yes, Corallus, it sounds like you're even better at waiting for the right opportunity than me. You made me see how we have all the time in the world to wait for the right opportunity. Not just hours, but days. Your capital is the only thing that matters. Hold on to it at all costs. If you have any doubts about a trade, or the timing for it, stay flat. Money is everything. I only recently realized that. Money is time, it's health, it's a good computer, it's everything. It allows you to lower your risk, by having the time to wait for the right opportunity. The more you have of it, the less you have to risk. Many of us who consistently lose money, could easily make one 3% trade every day, but they'd rather try to make that 6% per day and fail constantly. Once they establish a record of 20% return per day, every day they try to beat that record. I used to be like that. It sounds banal, but it's not a given for traders to have a good relationship with money, and to consider risk/reward in their trading. If one is a trader, it means he's got plenty of time, money and resources on his hands, and often ignores the value of money. If he was poor, he'd have the right hunger to make money, but he'd probably be working at McDonald's, and wouldn't even have the tools to trade. You can only learn to trade properly when you learn the value of money. To learn the value of money you have to be without it for a while. Or at least it has to be scarce. Until you don't realize the value of money you'll always be a happy-go-lucky trader, and you'll feel that God loves you and he's going to help you be successful in trading, like he's helped you all your life. You'll have a carefree and careless attitude toward money. You'll even brag about losing it. But when you can't add money to your (decreasing) trading account, you quickly realize that God is not on your side. Only your capital is on your side, until you have it.
I absolutely agree with all thats been said. I believe I've finally turned a corner in my trading just 4 weeks ago. Basically, i was down to my last. Ive been giving this a go for 6 years, but it took for me to get right down to nothing. I took on debt to feed my habit of trading...the "tuition" i told everyone and believed it. Got laid-off....no income at all...just scared money left, telling myself saying 'this is it , you better trade for living now more than ever....' , no concrete system tested, poor money management, down to where I couldnt buy another NQ contract. Well, it seems it may have been the best thing to happen, because I realized i needed to get serious, I couldnt afford ANYMORE mistakes, none. I had to tell myself that even 2 pts profit will make a living someday...so what do i need to do just to get that. With the pressure gone...finally papertrading with the seriousness I shouldve had 6 years ago. I was brutally honest in my papertrading because i would only be betraying myself. Amazing, from day one I was able to wait for that perfect setup, all day if need be because I had no money to overtrade with out of boredom. I did that for a whole month....never had a losing day...some losing trades...but not one losing day, yet. Well, today was my first day with real dough and i took 5 pts. I was already anxious because , after all i was only papertrading the previous month. Over time, i hope the anxiousness goes away and more trust for my system will develop. LP