I have two main trading accounts: a retirement account and a non-retirement account. This year my non-retirement account shows profits of 160% from the beginning of the year and the retirement account shows 200% in profits from the beginning of the year. These are from options profits alone and do NOT count any new deposits I have made to these accounts. And, importantly, I have done this by only taking trades with limited risk where the maximum possible loss (not maximum probable loss) across all my positions is less than 20% of the account value from the point of trade entry.
Let me repeat that last part:
I have done this by only taking trades with limited risk where the maximum possible loss (not maximum probable loss) across all my positions is less than 20% of the account value from the point of trade entry.
That means that about 80% of these accounts sits in cash at all times.
There is no shortcut to learning to be a successful trader. It is a personal journey and requires your attention, study, awareness and relentless, intentional practice. Only you can determine if the effort deserves all of that. That’s where it gets personal. Trading is not for everyone, the way playing the piano, poker and long-distance running are not for everyone.
I believe there are many different ways to trade and make money consistently. And there are many different stories people can tell about why their edge works, or about the best way to look at the markets, how to manage positions, etc. We can say that a group of successful traders can have very different beliefs and still each can be successful. But I have found there are really only two beliefs that affect a trader’s bottom line:
1. A way to make more money from winning trades than is lost on losing trades
2. The ability to manage risk
Not much to go on is it? Actually, it is.
Actually, my variation on this is:
1. A way to make wild amounts of money from winning trades as compared to losing trades.
2. The ability to fanatically and flawlessly manage risk.
One without the other is useless. What good is it to manage risk if you have no idea how to make big returns? And what good are big returns if you can inadvertently risk too much and wipe yourself out?
Trading is an endeavor that is very seductive. It appeals to our desire to increase our material wealth. And, the way trading is presented by brokerage firms and their “guru” educators, it seems almost like a logical game that can be figured out. Like a video game. And maybe it is. But unfortunately people are taught something like this: “Just look at that five minute chart of recent price history and we can see that the NeverFail indicator showed a clear buy signal before that last gap up and the BrokerMagic oscillator showed an oversold position.” Wow! Better get those indicators and start making trades, right? No. Don’t do that.
A trader may indeed find some useful indicators to assist with his/her market analysis, but indicators can only really help show when certain conditions have been met. But the trader needs to understand the context. Is the five minute RSI reading really relevant to anything? Have you tested it rigorously? My guess is: probably not. This confuses traders. But it gets them trading and this is really what a brokerage wants. Be very careful of brokerage-backed education.
Learn real, profitable trades first and then determine what tools help you recognize those trades.
As for me, I have my own beliefs about indicators and about trading. I occasionally use indicators to assist me in my analysis, and I occasionally build them when I they don’t already exist.
To good trading,
Todd
