Friday, 6 November 2009

Here's my SatNav for Being a Successful Trader

Over the years, I have trained a number of people who have gone on to be successful traders (successful = consistently profitable).
The road map to becoming a successful trader can be laid out quite specifically. For the road map to work the requirement is that the map MUST be followed. Like any other map if you don't follow the exact directions you won't get to where you're headed. Without the mindset to follow it before you start, it will not work.
  D   -Discover your edge (or have a mentor show you a methodology)
Sa   -Satisfy yourself through extensive back-testing that it is indeed an edge
P-   -Paper trade the methodology (walk forward testing), “live” with minimum size, until you are consistently profitable
T-   -Trade a real account with the minimum size until you achieve the same level of profitability you had paper trading
 If    -If you are not profitable live trading, go back to more paper trading and then repeat #4 above
Sl    -Slowly start increasing size in a manner that fits your methodology for scaling in and out.

Looks quite easy. It’s simple, but not easy. The problem is that we all begin with a handicap that, as some one I know says, “we camouflage with a hat”.
Having a mentor to start you off and then keep an eye on you will dramatically cut your learning curve from years to months. Let me say that again: Having a mentor to start you off and then keep an eye on you will dramatically cut your learning curve from years to months. Why? Because you will not have to re-invent the wheel and waste time on things that just don’t work.

If you can get to the last stage of a Traders Evolution by paper trading, you may be able to only suffer the “break even” stage when you begin real trading. Make no mistake, when money is at stake you will act differently. One of the secrets of becoming consistent is for the stop losses on your whole position to be small enough not to frighten you or make you wince when it's hit. That does not mean you have to have tight stops (because they can be bad too) but the number of lots and the size of your stops should mean you don't lose more than, at first, 1% or less of your trading account. Once you can emotionally handle that you can use a size that you are comfortable with, knowing that your historical trade statistics will keep you in the game.
K. has achieved profitability trading real money. Her level of profitability is about 20% of what it could be. That is to say, she is making about 20% of what my trades make on a per contract basis. Frankly, she is doing very well. I would have been satisfied with her being at the break even stage but she has the focus and passion that shows me even at this early stage, that she will make it, if she continues with the level of focus and passion she has now.
Trading today was average as you can see from the chart and numbers below. 

The European morning was quiet as we were waiting for the U.S. Unemployment numbers. You can see the added value  of the range bars after the Numbers came out. We had a tight 2 way market and the range bars kept me and K. out of trouble.

Click to enlarge

I received an email from a guy about trading as a business and I am going to do a blog about that on the week-end. Its something I laid out for K. when we started.  It is really an over lay on the road map to success. 

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