Friday, October 05, 2012

A traders' development

The vast majority of successful traders have suffered knocks in the early stages of their trading career, even to the point of blowing up one (or more) of their trading accounts. What they have done though is changed their thought processes and perceptions about the market, as well as their methodology and risk control.

In a lot of cases this also meant switching from a trend or momentum style to counter-trend (or vice versa), changing their preferred timeframe or holding period, and their attitude to risk, so that they become truly compatible with their own method. Once they have done that, then it has simply been a question of having the commitment and disclipline to stick with what works. A true 'A-ha!' moment, as Ed Seykota would say, is to acknowledge when you are not thinking about what you are doing - you see a signal, you act on it. You are on auto-pilot.You are responding in the correct manner to what the market and your method is telling you, without any second guessing. You are in the flow.

Reading a book like Jack Schwager's Stock Market Wizards again bought this home to me - a number of the interviewees in the book had struggled early on, but identified what needed to be changed regarding their approach to trading, changed it, persevered and turned their fortunes around. They put the hard work in, and were able to reap the rewards of that labour, making their subsequent success all the sweeter.

The good thing is that these people are just ordinary like you and me - if you have the patience, the desire, the ability to find out what works for YOU, then you too can succeed.

People I meet for the first time are always surprised how quickly I can run through a list of charts and identify good trading opportunities from those to avoid. But, as I tell them, I've looked at the same setups day after day for a number of years. It's a skill that's been developed and honed after looking at tens of thousands of charts. It has become second nature. But if I can do it, then so can you.

Once a trader reaches that point in their careers, they would almost certainly have travelled through the following four stages of development:
  • Unconcious incompetence (they don't know what their doing, or what truly suits them, losing along the way);
  • Conscious incompetence (they know what they're doing doesn't work, and are resolving to find out what DOES work and suits them, while having up and down swings in their equity);
  • Conscious competence (they find a method, and think it suits them, while having to work at it to resolve not falling back into bad habits);
  • Unconscious competence (they know what works for them, and it has become second nature, generating good profits, almost running on auto-pilot).
The majority of people I talk to about trading are generally at the second stage - they've probably tried a number of different methods after finding out that early hopes of making fortunes from the market have been dashed. They know of trend following, have maybe read about people like Ed Seykota, Larry Hite, Richard Dennis and the Turtles, and want to know more. All I ask is that they are open to learning the method, and the psychology involved, and try to give them the benefit of my experience.

The mentoring programme is geared to helping people move from the second stage, through the third stage to the point where they too almost don't have to think about what to do - they just do it. It is a big commitment to those traders, particularly in learning the necessary mindset that goes with being a trend follower. Of course, people can (and will) make trading errors - it's part of the nature of the business. However, those in stage four can quickly identify any such errors and correct them. If I can get anyone into stage four, then I've done my job.

Trend following does not suit everybody. However, if you are 'lost' in your trading and want to know more about a robust, historically profitable method of trading, regardless of whether the market is moving upweards or downwards, then get in touch. Who knows, you too can get to that state of unconcious competence.

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