In trading, perhaps more than most other fields, there’s a big gap between knowledge and results. Success can be elusive, and the path to that success, for both discretionary and systematic traders, is not clearly marked.

Essential knowledge

Many people are drawn to markets as a way to make easy money. (Confession time: this is exactly what got me interested in trading at first!) Most people who try to trade probably bounce off the experience like a spaceship poorly aligned for reentry bounces off the atmosphere. The biggest reason for these dramatic, early failures is simply that most traders aren’t willing to do the hard work to succeed.

A certain knowledge set is necessary—but not at all sufficient—for success in trading. Here’s a short list of the most critical understandings you need before you place that first trade:

• Basic math and a solid understanding of descriptive statistics. What we’re really getting at here is an intuitive sense of probabilities (and the ability to quantify where possible). This is not advanced math, but it’s deep math.
• The basics of how your chosen market works. It goes without saying that things like contract size, trading hours, and how to place orders are essential, but many traders clicking away on phone apps have no idea about these fundamental issues. Who are the major players? What happens to your order once it’s placed? How liquid or illiquid is your market, and when can that change?
• How your chosen tools to find an edge work, and when they might break down. There are many ways to trade—using only information in price, using outside information, using related markets; on long timeframes or short; high probability or high reward/risk trading—but the combination of tools you end up using will have some idiosyncratic strengths and weaknesses. You must know your method, and its strengths and weaknesses, very well.

This isn’t too overwhelming, and you can certainly dig deeper as you move further along your trading journey. But, starting out, especially committing real money, without having this basic knowledge in hand is like setting out on a long trip across the desert without any water. There’s pretty much only one way that trip will end; the only question is how soon!

Layers of knowledge

Once you have those basics, you’re ready to dig deeper. Keep in mind that much of that first-level information can be learned quickly. I’ve often said I could teach someone the essence of chartreading in less than an hour. Understanding basic statistics is no more complicated than understanding counting. The core of good trading psychology is this: “If you follow your emotions, you will lose because you will always get excited or scared at the wrong time.” You must have the discipline to do the right thing no matter what.

The devil is truly in the details, and you can go very deeply into some of these topics and questions. Mastery of any subject is largely a refining of basic elements. To paraphrase T.S. Eliot, the goal is to return to where we started but to know the place for the first time. If you trade well, you’ll spend years refining your understanding of some of these areas, and, chances are, you’ll love doing it. However, even that level of knowledge doesn’t assure success.

From knowing to doing

So here’s one of the true secrets of trading: There’s a lot to learn, a lot to talk about, and many things to discuss and even argue about. I have walls of bookshelves filled with trading books. People get advanced degrees in some areas related to trading, and some traders spend a lifetime learning everything they can about a small silo of information.

But none of that is enough. In trading, the only thing that matters is what you do. Actions are all that matters—we get paid based only on what we do.

Some of you reading this have probably struggled for years without the pieces really coming together. You probably also have the sense that further education might not be the answer. (To be clear, I’m never opposed to learning, but am pointing a finger at another aspect that needs attention.)

So how do we bridge that gap between knowing and doing? What is missing when we’ve learned everything we need to know? Some of this, especially for discretionary traders, crosses the line into other areas such as performance coaching, psychology, and even bigger picture meaning-of-life stuff. (We all know it’s 42, of course.)

Here are some thoughts for this stage of the journey:

• Make sure you’re trading small. Papertrading has its place, but you, ideally, should be interacting with the real market, and doing so on vanishingly small size. Trade as small as possible until you have a solid track record of results. Earn the right to trade bigger.
• This real-world interaction with the market will teach you things you cannot learn any other way. You’ll start to come to a deep understanding of how you, as an individual, react to risk, opportunity; surprise, boredom; and success, and failure. In trading, you’ll encounter the entire gamut of possible emotions, and you need to understand how they influence your actions. In short, you must know yourself.   
• Trade. Get in the market and place trades. Keep good records of those trades.
• Fail well. Understand the reason for your losses and failures and resolve not to lose money the same way going forward. For instance, if you’ve gone on tilt and had a screen-smashing, keyboard-bashing day, well… okay. That probably wasn’t optimal, but you cannot do it again next week. Keep good records and be your own supervisor, coach, and mentor.
• Do the right kind of work to understand the quantitative edge behind your trading. Too many traders struggle because they put an approach into production (i.e., put real money behind it) that does not have an edge.

Of this list, the most important things are: Stay small. Trade, and keep good records. Learn from your mistakes and losses so that you fail well and can move forward.

Trading success is not about what you know—success only depends on what you do. Disciplined execution, continuous learning and evolution, and the ability to adapt over time lead to long-term success. Embrace the journey and remember: In trading, actions are everything.

How to get started

I can suggest a few resources that will help, depending on where you are in the process.

If you’re at the gathering knowledge stage, two key resources are:

• My suggested reading list:  You don’t have to read everything on the list, but some of those books are excellent resources on specific topics. Additionally, many universities offer free online courses covering basic statistics and math that might be useful.
• The exchanges provide valuable information on contract specifications, trading hours, and more. Links can change over time, so search online for specifics, such as “CME wheat futures contract specifications,” to find current details.
• If you trade options, a bit of extra work is required to understand settlement issues. For instance, many traders hold short options positions and are surprised when they are assigned based on market movements after the close. Understand the product you’re trading.

Check out my latest course, TradeCraft. Yesterday, I received an unsolicited message from someone working through the course: “You have outdone yourself with TradeCraft, Adam. This course is a work of mastery. Working hard… Skill sequence 4: Trade management 101 might be one of the most profound/useful exercises I have ever seen. Can’t thank you enough.”

If you’re ready to do the hard work, see what TradeCraft can do for you today.