Quote from NoDoji:
Since Iâm going to be taking an extended âspring breakâ, Iâm offering a bit of tough love for FCX and anyone else who wants to trade for a living and still hasnât taken the first step of the journey to consistently profitable trading.
FCX, your result Friday has nothing to do with âFridaysâ. It has to do with putting on a trade without a setup. It wasnât a âpoor setupâ because thereâs no such thing as a poor setup in trading. Why would a professional trader trade anything less than a thoroughly tested positive expectancy pattern? A thoroughly tested positive expectancy pattern is called a setup. Period. You can have a variety of thoroughly tested positive expectancy patterns, some of which have higher odds of success than others, but anything that doesn't produce a profit over acceptable series' of trades after the cost of commissions and slippage, is not valid trading material. âPoor setupâ is an oxymoron.
And in the bigger scheme of things, your result Friday has to do with gambling. You have a little knowledge and thatâs a dangerous thing. Youâre aware of a couple of isolated intraday price action patterns and youâre gambling with them in a live trading account via derivatives.
Since youâre trading a fairly small account, avoiding trades with unlimited risk (such as selling naked calls), and have a full time job, you can afford to play at the casino. But the habits youâre developing now are likely to lead to ruin in the future even if you experience a gamblerâs lucky streak and multiply your account many times over. Big traders throughout history have made millions or billions, and have come to feel invincible, only to give it all back (and sometimes more) by gambling.
Right here on ET, you can compare the multi-year record of âgrinding outâ consistent gains (Lescor) to gambling (Neke), and decide which trading journey you prefer to embark on if you want to trade for a living.
If you want consistent success over time and through varying market conditions, if you want to trade for a living, at the very least you have to do ample research and develop a plan based on favorable probabilities. Thatâs the absolute minimum requirement. Then comes the real work: learning to trade your plan or automating your plan without overriding it.
âThe 95% failure rate makes sense when you consider how most of us experience life, using skills learned as we grow. When it comes to trading, however, it turns out that the skills we learn to earn high marks in school, advance our careers, and create relationships with other people, the skills we are taught that should carry us through life, turn out to be inappropriate for trading. Traders, we find out, must learn to think in terms of probabilities and to surrender all of the skills we have acquired to achieve virtually every other aspect of our lives.â - Thom Hartle, in the Foreword to Trading in the Zone by Mark Douglas
From Mark Douglasâ Trading in the Zone:
âThe earth and moon are both celestial bodies that exist in the same solar system, so they do have something in common. But they are as different in nature and characteristics as night and day. By the same token, anyone who puts on a trade can claim to be a trader, but when you compare the characteristics of the handful of consistent winners with the characteristics of most other traders, youâll find theyâre also as different a night and day.â
ââ¦the risks inherent in trading do not cause the best traders to lose their discipline, focus, or sense of confidence. If you are unable to trade without the slightest bit of emotional discomfort (specifically, fear), then you have not learned how to accept the risks inherent in trading. This is a big problem, because to whatever degree you havenât accepted the risk, is the same degree to which you will avoid the risk. Trying to avoid something that is unavoidable will have disastrous effects on your ability to trade successfully.â
âTo operate effectively in the trading environment, we need rules and boundaries to guide our behavior. It is a simple fact of trading that the potential exists to do enormous damage to ourselves â damage that can be way out of proportion to what we may think is possible.â
âIn trading, no one (except yourself) is going to force you to decide in advance what your risk is. In fact, what we have is a limitless environment, where virtually anything can happen at any moment and only the consistent winners define their risk in advance of putting on a trade. For everyone else, defining the risk in advance would force you to confront the reality that each trade has a probable outcome, meaning that it could be a loser. Consistent losers do almost anything to avoid accepting the reality that, no matter how good a trade looks, it could lose.â
That last sentence pretty much sums up the downfall of the many famous market gamblers who had everything and gave it all back.
This is in the Top Ten of missives ever posted on Elite Trader.com going back into the 1990s.
but that is ok I appreciate it.