Another somewhat off topic post, forwarded to me with excerpts taken from the futures newsgroups. Again I feel this may be of interest to some traders. I believe this was written by Gary Smith. Good luck! nextrade!
Subject: What it takes to become a successful trader.
I struggled for so many years that I
will
forever have this self image of myself as a small time break-even
trader.
I spent more years than I care to remember with an account that
fluctuated
between $2000 and $4500. I traded stocks, I traded options, I traded
warrants, and I traded futures. I went through the usual evolutionary
process all traders must endure. Always thinking there was some magic
formula, system, methodology, or better yet, some magical trader who had
the answers.
I wanted so badly to trade for a living. That was my dream, just as I
suppose it is the dream of many who "hang out' in this newsgroup. But I
stumbled blindly in pursuit of that dream because I never set any goals
on
how to get there. That all changed in 1985. I began making money. Then
each year a little more than the previous year. In late 1986, I began
rolling my futures profits into trading mutual funds. Trading mutual
funds
is no different than trading stock futures. Whether you are trading
futures, options, stocks, or funds, you still have to buy as near the
lows
as possible, ride the profits for as long as you can, then sell as near
the
highs as possible. It's just a matter of personal choice which weapon
you
choose.
Finally, the snowball effect kicked in. The larger my capital base
became
from my trading profits, the greater became those trading profits. Hope
that makes sense. I never aspired to be like Larry Williams. (who
believe
it or not I like and respect) Larry will be the first to admit he is a
boom or bust trader. if I ever busted, I wouldn't be able to come back
psychologically. I was more concerned with *never* having losing months.
(I average about one losing month per 26 months) than how much I was
making. I see, read, and hear of the hot-shot traders bragging about
their
big trading scores but then I always see them give it back. And please,
I'm
talking about home-based traders here. I'm not talking about the CTAs,
hedge fund managers or Chicago and New York based traders.
I remember when I was thrilled to make $10,000 annually. Then I was
thrilled to make $18,000. In the mid-1990s, I got stuck for awhile in
the
$40,000 to $50,000 range. I figured that was to be my destiny, which was
fine enough for me. But I broke out in 1996 making $72,000. I cracked
$100,000 in 1997 making $113,000. Last year I made $195,000. People say
"sure, but how large is your trading account now?. My response is I had
only $2200 and 13 cents in my account on March 13, 1985. That is forever
posted on my refrigerator door.
So what does it take to become a successful trader? *Extensive* academic
knowledge (like in trading books) combined with *intensive* real time
trading experiences (like in many years) Only then can you learn your
strengths and weaknesses and find out what works and what doesn't for
you.
Then you can go about the task of developing your own winning trading
strategy. Yeah, you read that correctly. Developing your strategy comes
last in the equation. (By the way, paper trading and simulated trading
is
worthless. Don't waste your time)
A lot of traders tell me they have spent a lifetime studying as well as
trading, yet still can't beat the game. That's where the last piece of
the
puzzle comes into play. *RISK* You have to be able to assume risk as
well
as manage that risk. Most traders are either too risk averse to ever
become consistent winners or conversely, they have too much of a
gamblers
mentality.
I probably could be debated on this, but risk is a "childhood thing." It
may even be an innate thing. Just as I possess no mathematical skills
and
thus could never become a physicist or scientist, very few possess the
proper risk skills to ever become successful traders. There are a lot of
academics and vendors who have superb analytical trading minds, yet
can't
trade their way out of a paper bag. And that's not meant as a derogatory
comment.
As for my methodology, I have none. I trade pure price action. And no,
that doesn't mean I'm simply a trend trader. Nothing wrong with trend
trading except most trend followers get in too late and out too late.
That
explains the mediocre performance of the CTAs and hedge fund managers
since
80% of them are trend traders.
I've wondered long and hard why after so many years I suddenly began
making
money so consistently. It's because I threw away the charts,
oscillators,
gave up on the Gann, the cycles, the waves, Fibonnaci -everything. Now
I'm
not suggesting there's anything wrong with those methodologies. They,
like
me, look to trade price action. As Jack Schwager says, some of those
methodologies are probably worthless, but they seem to work because the
traders who use them have developed some sort of intuitive experience
about
price. But they are looking at price through the tinted glasses of their
particular methodology. I'm successful because I look at price in it
purest form and without an intervening methodology as a go-between. Does
that make sense to anyone?
So why do I hang out here and trash some people? Because I understand
through a lot of years and hard work, the realities of successfully
trading
for a living. Why shouldn't I offer my two cents worth when the
blowhards
who are simply clueless start pontificating about what it takes to
succeed?
Much of what I read here and places like Futures magazine and TASC about
the trading game is pure myth. It boggles my mind to find so many with
no
trading expertise claim they have the answers for the newbies. |
