1) Began 23 years ago last month. First thing? I banged my head against the wall, for probably 3 or 4 years. That part, was invaluable. The pain taught me what doesn't work.
2) Ran across an audited profitable trader, who was willing to mentor me. Basically told me over and over that:
a) What really counts? Is Risk Math over many many trades.
Not your education, or where you went to school, or who you know, or what you know.
Some of the best traders to ever live? Were 'dems and dos' kinda guys. You know ... 'dems guys' and 'dos guys'.
(See this as but one example of many. Some of the best Traders Chicago every Produced came from the South side)
RISK MATH IS WHAT COUNTS.
Blackjack tables run with a SLIGHT edge. Just over 0.50. But they tilt the risk math in their favor so that over many hands (
an iteration) ... they win. But they lose, and lose plenty during an iteration. It's only after many "hands" or "trades", that the risk math moves in their favor, and they win. The same can be true in trading. Incidentally? This is where many traders fail because they take 1 binary loss, 2 losses or 3 losses as "proof" of what they are doing? Doesn't work.
b) Risk Advantage is inversely correlated to accuracy rate. You can run a low accuracy rate, with higher payout odds. Or a high accuracy rate, with an inverse advantage (
In other words, you are 90% accurate, but for every $1 you win, when you lose? You lose $3 or $4). Just the way risk math works. I've seen people try for years to deny that math, and work to win $4 dollars for every $1 at risk with a 90% accuracy rate.
It's never ... going ... to happen.
Or worse, it'll happen on a limited sample size ... fool you, and when the "Risk Math Daddy" comes to collect ... the blow up is usually pretty spectacular.
c) I had to find my own way as a trader, and what fit "me". There are many, many, many ways to trade. Myriads really. As long as there is "positive expectancy", you need to find what fits YOU
d) And even after he mentored me? It took me another 3 years to really turn it around, and get it in my head? That trading is gambling. And while we provide an economic benefit to society as a whole (
shoulder balance sheet risk of entire corporations, price discovery, liquidity on markets where Pensions may have their money, etc.), the job of a Trader ... is really? Gambling. Only once I embraced the mindset of a professional gambler ... and develop that mindset? Did I turn it around. Trading is actually a little easier than gambling in the Casino though, because you can set your own payout odds.
3) Don't believe anyone. Including myself. Only trust math. In trading and finance, there is a
lot of ego. And that ego causes people to present themselves as someone who makes a lot of money? And in actuality, they don't. They even find ways to 'skew' math to make it
appear like they make a lot of money. And they don't. There is a lot of that out there. A LOT. I saw one guy once try to hookwink the
Carters out of money (
Yes, THOSE Carters), because he was so full of himself, he didn't think he wouldn't get called out on the carpet for it (
he did and spent time in Prison for it). Watch episodes of American Greed repeatedly, to get a healthy dose of cynicism. One numnut recently landed all over me on these forums, and I kid you not ...
because of my word order. Seriously. The weirdest ones I've encountered in my 23 years? Are those that
actually know how to make money, but their ego is so important to them, they can't handle binary losses. I highly doubt their crowd entire crowd makes money. Why? Because they have all the earmarks of what we refer to as "the retail mindset". The "retail mindset" (
donkey at the poker table) is something you don't want. That mindset obsesses over silly details, can't seem to understand risk math over an iteration, can't understand Game Theory math, want everyone to believe them, and what they do and who they are, etc. Ego stuff. Those are all the hallmarks of a retail trader.
To fight this? Do not fall in the "guru" trap. I don't believe in Guru's. We're all one step away from doing something stupid. Supposed "Guru's" as well. So?
Develop your own critical thinking skills, and prove something to yourself. Who someone is does not matter.
Ideas and concepts matter.
4) And sometimes you can't even believe the math. Yes I did say that. "False Positives" are an absolute beast. Because of things like bad noise ratios, limited sample data, etc. ... something can "appear" to be profitable? But the "test" of it, only goes back about 4 or 5 years. To truly test and idea out? You should have about 30 years of tested data behind you, and
at least 6 months of live out-of-sample data (
preferable to have at least 3 years of out-of-sample data)
5) For god sakes, don't obsess over entrances. Or what we refer to as "hyper-focus" on entrances. Do you need an entrance to a trade? Yes. But for some reason, new traders get hung up on this particular aspect, due to a human psychological bias known as Apophenia.
All a trade entrance is, is the beginning of a trade-event. After the trade is initiated, your risk math / risk overlay / trade management? That's what counts.
Which is why I don't really hold a "grudge" against technical tools like some traders do. I don't see such tools on a graph as predictive (
they're not, since obviously, they are recording what DID happen), but merely as tools to initiate a trade event. What comes to the fore AFTER that point, is the aforementioned factors. If someone wants to use some 'technical tool' to initiate a trade event? Who am I to argue. I'm more interested in what 40 to 200 trade events look like, to the P&L though.
6) And learn to
bang out an iteration. This is somewhat related to the above points, but deserves it's own bullet-point.
In other words, sit through uncomfortable periods because trading is about learning to grind and deal with discomfort. Some of the most profitable Asset Management Firms out there routinely have to sit through 20% drawdowns. A midtown Hedge Fund PM I once knew liked to say: "
We get paid, to be uncomfortable, with the correct math and research on our side".
Years ago, I used to do what my mentor did for me, and train traders. I since have gotten out of it, and won't do it any longer. But routinely, I'd see a trader, with some new process they talked about and loved and were all excited over. They were all hyped about it. Something they developed, and they loved. So I ran an exercise on them.
I told them, that no matter what? Bang that process out for
thirty to 60 trades and come back to me with the results.
You know how many could actually get through 30 to 60 trades on the same process? How many I saw do it?
Three.
Just three come to mind.
One guy couldn't even seem to get through TWO trades, before he was re-inventing his wheel, and wanting to totally re-design his process. I actually coined a term for that phenomenon. I called it "Method Hunting" (
If you ever hear that term? I'm the guy that coined it). Regardless ... he just could not handle the discomfort of one or two losses, and took those meaningless statistics as proof that he did something wrong. In trading? You can execute a trade perfectly, and at times it will result in a loss. Doesn't mean you did a thing wrong.
It's not about the one trade. It's about the many trades. Or as I like to say?
The holy iteration. 
Trading is about learning to grit your teeth, and grind through series of trades, doing the same thing over and over and over again, and be flat, and still grind like a Rounder working for his rent money.
7) Almost forgot this one, though it's related to point #2
Become obsessed with learning to control risk with low-effort methods ...
