A reader, Denys, sent me a question this week:
Dear Adam, . In short, i’ve been doing some trading for about a year and read dozens of different books and other resources etc. What surprises me at this stage is that I feel that i know nothing despite of all that information. Basically, something is missing and it is something ‘big’, thats how i feel. At this point i should probably mention that I am somewhat introverted, reasonably educated person who is used to going through tons of information which has to be organized and prioritized. (I am a doctor).
Obviously (as you mentioned) everyone think they are good enough but i am not that type of person, i always question my capability. You probably won’t believe me but this is not about money. Have you ever had an unsolved equation which keeps you awake at night? So, I have only one question: “Is this possible at all and what is realistic expectation?” I am not asking for “holly grail”… Its just your approach suggests you have genuine intentions. One thing I have learned through my life is intuition about peoples’ nature.
Thank you for your kind words on my work and for the great questions. Whether you realize it or not, you’ve actually asked a set of nested questions here, so let’s see if we can untangle them. Perhaps starting in reverse order…
“Is this even possible?” Yes, it is. Also, every trader who goes through the process of learning asks this question, usually more than once. Nearly every trader gives up and starts again. We might think of this question as a crisis of faith, but it’s absolutely the right question to ask—you should not be afraid to ask this question. There’s a lot more information about trading available than there was a few decades ago; much of it is of uneven quality, but, if you sort through the scams and misleading statements, you will find a core of material that will show you this is possible. Of course, doing your own work and research is the best way to answer this question decisively.
The problem with learning to trade is at least twofold: 1) what edges there are, are very thin and 2) a lot of this is counter-intuitive. Good trading might not look like what you expect it to; if you spent time with a good trader you’d likely see many losses, some indecision (depending on the style of trading), perhaps some emotion that would surprise you, and, overall, probably more variable results than you wished. Why? Probably because the marketplace is so competitive and trading edges always evolve.
There are plenty of people who make money in the market. More lose, yes, but it certainly is possible to find an edge and to carve out your own place in the market. One of the best trading quotes I ever heard comes from Jack Schwager, who said, roughly, that there must be a million ways to make money in the market, but the irony is that all of those ways are hard to find.
“What’s a realistic expectation?” Well, it depends entirely on the risk you are willing to take. It certainly is possible to double or triple your money (or much more) in a year, but it’s not possible to do that without accepting some risk of completely blowing out the account. Is that risk acceptable? Perhaps… especially if the account represents an amount of money which you can afford to lose. If you want a more “sane” benchmark, it should be possible to create trading program that returns you somewhere in the 15% – 20% range, and then you can build from there. I give that as a good starting reference, but your mileage will certainly vary. For the new trader, develop your system and verify it however you can. Then start trading on very small size. Limit your losses until you see the results with your own eyes, and only increase your trading size when the results justify doing so.
“Obviously (as you mentioned) everyone think they are good enough but i am not that type of person, i always question my capability. You probably won’t believe me but this is not about money.” Yes, everyone thinks they are above average in most respects, which, of course, is not mathematically possible. As someone who is also introspective and given to self-doubt, let me gently remind us that this cognitive error might serve a good purpose. What if Edison though he had no shot at figuring out the lightbulb? Having a little inspiration might not be a bad thing… At the very least, we can accept that we are probably average but then commit to doing what we must do to be exceptional. To succeed in this business, we truly do have to become our best selves—perhaps our best possible selves. Trading can be a reasonable route for self-development and improvement that will trickle down to other areas of your life. Yes, it’s about money in the end, but a good trader will have powerful motivation outside of and beyond the monetary compensation.
To come back to the beginning of your question, let me just say a few things. You’ve been doing this a year. That’s a great start, but it’s nowhere near long enough to have developed proficiency. (What does a future surgeon learn in the very first year of her education? How good of a pilot is the first year rookie? How about a carpenter or glassblower? Musician? It takes time, making mistakes, and repeated exposure to develop skill in any discipline.) So, take this start as a good foundation and build from there.
As for this feeling of not knowing anything… there are a few ways to turn this. First, the academic requirements of trading are probably not as rigorous as you might expect. Much of this discipline is behavioral and psychological. The market is not a math problem—it’s a behavioral puzzle. (But it looks like a math problem because it speaks to us in numbers!)
The basic principles of how price moves are not complicated. Once you dig into it, you’ll find that the predictable edges are, as I said, very thin, but also very real. When you understand that, it’s not excessively difficult to build a trading system around those ideas, to add risk management parameters, and then to figure out how to trade it. None of the steps is difficult, but doing it all together and then executing in the market—that’s very difficult.
Last thought: remember the Matrix movies? When I was writing my first book, Joe, a good friend who is also a trader, read my drafts and argued points with me constantly. One of Joe’s observations was, “there is no spoon.” There’s powerful truth here, and it points us to some important realizations as traders. There is no spoon.
Thank you for the great question. To summarize: you’re early in the learning process, but are asking the right questions. Think about how to structure your learning so you don’t risk a lot of money early on–keep those losses small until you develop and verify a system, and only increase your risk in the market when your results justify doing so.
This Post Has 7 Comments
Thank you Denys for the great question and thank you than for such a great and meaningful answer. I can totally relate to Denys, I’m very systematic, I want to know alwayThank you Denys for the great question and thank you than for such a great and meaningful answer. I can totally relate to Denys, I’m very systematic about learning, I always want to know everything (or as much as possible), before jumping into anything that is important to me; but in this case I have never faced such an ocean of information. I’ve been studying for over year and a half and I also feel I know very little. I have lived by the saying “Standing in the shoulders of giants” but it is getting too hard to reach the shoulders of experienced and savvy people
At some point I felt I needed a break and I stopped reading books and blogs and news. But it is an obsession I have with trading, that I even dream about. I know this is gonna be a long journey I just hope I can endurance it.
Denys > do not quit learning
Adam > do not quit sharing (and learning)
Thank you to both again
Really good answer Adam. Like Deny, I tend to be quite introverted and I often expect to be right (despite the realization I’m frequently not). For me, a big milestone was when I started to see being right, not as forecasting the right outcome, but as being able to estimate the probability of an outcome. For various reasons, my profit target and stop tend to be about an equal number of pips from my entry. In this case, my job is to be able to take entries where the probability of a win is about 60%. In intraday trading, I think it’s hard to get much higher than this, unless you are scalping. The tough part of this approach is that I won’t know if I’ve got edge until I’ve made a large number of independent trades. In summary, don’t get hung up on any particular trade, and bet very small until you have made enough trades to have confidence that you have edge.
well admire ur blofg along with NO BRAINER TRADES blog…….2 the point …Dear Doc…….read what i learned losing a million dollars first. then Albrooks anything….the book by the guy called ADAM GRIMES…….that TAKES CARE OF UR TECHNICAL EDUCATION ……then learn to swing trade…FIRST…..google .ALAN FARLEY…. NEXT….use PRICE ACTION & MACD on say 15 or 30 min timeframe…….watch the charts over weeks 4 MAX 5 scrips……….nothing else………bet only half of what u plan 2 and last exit quarter or half the position if price goes 3-5 points away from your entry……monitor ur good vs bad trades….and finallly drill in ur bones what risk reward .means……..VAN THARP………..thou shall b successful ……be a good soul & DOC….cheers.
Thank you for answering my question, I really appreciate your time and effort. You actually nailed it by outlining two key problems with learning to trade. There is no point to run fast if you running in the wrong direction. Also you made me to watch again Matrix “there is no spoon” bit. (Van Tharp is keen on Matrix however his ‘Trade your way to financial freedom’ is a more constructive read.)
I am now at the stage of not making big losses but not generating any meaningful profits either. Everything I learned make sense but putting it all together is rather challenging. Adam’s talk regarding a difference between amateur and professional is very true. In my opinion intuition is a shortcut between cause and effect which developed through years of practice. Being a doctor I can often narrow down differential diagnosis to two or three options even before I see a patient. Simply because I have seen hundreds of similar presentations before.
I am also grateful for all replies. First, it shows that there are people out there. At present I have no one even vaguely interested in this subject. Second, I appreciate any advice from traders making money from trading and not from just talking about trading.
Agree. Great question, great answer.
“Yes, everyone thinks they are above average in most respects, which, of course, is not mathematically possible.”
Seems like an odd statement, in several respects, for someone whose mathematical knowledge is way above-“average” and who appears to strive for both accuracy and precision in his writing. But yeah, we know what you meant, and I’m just feeling snarky today. 😉
Seriously, though — always appreciate the way you generously share your knowledge & insights with us.
Trading is dynamic , you cannot look at it as if it is static , a web with a million moving parts . It seems (stealing form the title of adams book) You are mastering the science while neglecting the art
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