The learning cycle for a newbie trader - PART 2

[Soul-Trader2004]

Hello everybody.
Can't believe that it's 18 months since I wrote that thread - Jan 2005 it was.


Well, as they say 'you never stop learning in this game' and that's certainly true.
I thought it was time to add to the original thread with a new one - my last 18 months have been very interesting and many things have happened that I thought I would share with you that you may find useful.


At the time I wrote that thread I was an intraday trader and had been making money consistently for about 18 months - I thought that was it, I had made it as a trader and was at the end of my learning curve.


How wrong I was.


I don't think that this series of threads will ever end, I expect I will be writing another update in 2008.


When I look back at the last 18 months I cant believe how much ive changed from what I thought was the end of my cycle.


At the time I was daytrading several strategies which made me money. In the ensuing months I just kept on testing new ideas - reading systems on here and other forums and testing them also.


I got together with a bunch of traders in voice rooms and again started working on systems and testing. - again day in day out testing and trading - making money yes but never really getting closer to that dream that we all have of trading /easily, without emotion/ and having that millionaires lifestyle.


Systems development started to become easier when I looked at the market holistically - I.e. not tying myself down to a single timeframe and watching at a macro level as well as a micro level.


This resulted in the several screens I now have in my office so I could see all the timeframes at once - I was still specialising in GBP as to have more meant yet more screens and I thought that the study of cable would make me more than enough money.





I did what many of you will do in the future. I developed systems, gave some away and sold some also - The Hilda system was in my opinion my crowning glory - a system that I could trade on any timeframe on any currency. I spent the time and sold my system to many people.


When the fun of selling that and helping others died down I again started improving on it etc etc etc.


But then the realisation started to hit me.


All of this system work, selling etc wasn't getting me any closer to my goal of actually enjoying the money I was making.





You see a journey to a goal is a weird thing. all of the fun is in the actual journey to the goal and when you get there its very easy to start moving backwards to do it again.


what i'm about to explain to you is I think the final cycle in the journey to be a great trader and realising your ambitions. I may be wrong and find a Eighth step within the next two years lol - but for now this is the best I can offer you.


*Step 6 The wake up call


When the newbie trader reaches step five he/she thinks that's it. They now make money well, look back on the forums and chat rooms they've used for so long and with a smile see the struggle they have been through repeated day after day as new people begin their journey.





They see the highs and lows that they experienced, the heartache, the 'head in the gas oven' moments and the movement from sheer despair to brilliant exuberance.


They continue to design systems to test - spend hours upon hours of hand testing with a smile - they know that no amount of computer testing is good enough to give you the confidence to trade the system properly.


They test and test - still believing that there is a system out there which beats the one they are using now.


They continue to get the latest designer indicator - hell, they even pay for them now as they know that a few hundred bucks for an indicator is worth it if it increases the take.


Trading becomes a real chore and the rot starts to set in. Here they are watching charts all day long for that setup which pays the mortgage and buys the new car or house.


The system they are using is still indicator based, still needs a shedload of charts open and still relies on a good charting feed.


Even though they don't realise it for the most part, although their system is mechanical they still have decisions to make - when to close a trade, when not to trade, avoid the news etc etc.


One day they wake up.....





*Step 7 - Learning NOT to trade





Yep, you read it right.


what happens to a trader in this cycle is that they get so wrapped up looking for improvements to their trading that they forget what they started trading for in the first place - for freedom.


Yet here they are every day sat by the pc, still after 4 or 5 years testing new stuff, taking trades and even though they don't realise it making discretionary decisions on their trading.


If they want to go out for the day of course they can - and they can enjoy their money. but whilst they are away they make no money because their systems main component is themselves.


Here's what's happened.


The definition of success according to Earl Nightingale is the realisation of a worthy goal. however success isn't all it's cracked up to be.


The journey to this point in the traders life has been exciting, exhilarating, despairing and all of those things we call emotional.


This emotion is like a drug and we get used to it - it takes so long to reach our goal that the highs and low's become a part of our personality.


when we reach the goal - we can't stop.


until the wake up call of course.





At this point we realise that the answer has been staring us in the face from every book we ever read, every forum we visited and in reality every trade we ever made.


In stage seven the trader realises he needs to work on one more system - the last one he will ever work on. (I think!)



It will be completely mechanical. No user decisions to make, no worry about news, no worry about what the 'experts' say or what's happening in the news.


Now some traders will pooh pooh this - many city traders work on fundamentals etc etc - but ask yourself the question - if they are so good why aren't they trading their own accounts?


Anyway, this is my experience and not theirs - these two extra steps are what's happened to me and that's why I did it in a new thread as opposed to tagging it onto the first one which is kind of generic.





so in stage 7 the trader starts to work on this totally mechanical system and after a lot of backtesting by hand and parameter changes etc etc he finally has it.


he can now work for a few minutes a day or even automate the system and not work at all. if he wants to go out then he makes money whilst he's out.


This is the stage I'm now at and happily enjoying the money I'm making and I may be wrong but I think that's what the majority of people who come into this business would like to happen.


This stage will make me rich beyond my wildest dreams. but what you reading this have to realise is that you MUST go through all that shit to get here - it's like going from being a teenager to being an adult - there are no short cuts.





That's why I laugh when I see people posting that they are consistently profitable after a few months or even a couple of years - they may be, but it wont be for long. I think that even if you say this in chat rooms and on forums like this you know the truth yourself.





So that's the last two stages at the moment - might get bigger with more steps in the future though cos I don't know what I don't know yet.


you may be at this stage and you may be wondering how you will know if you have a truly mechanical system - well if your system is truly mechanical you should answer the following questions with a yes.





1. do you have a clearly defined entry point that wouldn't change no matter who was trading the system?

2. Do you have a clearly defined stop level that would not change no matter who was trading the system?

3. If NFP or a similar high volatility news item was due in 3 seconds and your system signalled an entry would you take it?

4. Do you have a clearly defined way to close your trade that would not change no matter who was trading it?

5. could you tell your 12 year old son what to do to trade the system and his results would be no different to yours?


If you answered truthfully 'yes' to each question then congratulations
you have a truly mechanical system - now you've got to make sure it makes
money - that bit is up to you.

Hope this helps some out there who are struggling away. Know that there
is a light at the end of the tunnel, but it's a bloody long tunnel!
see you at the light end

From The Desk Of ...

Soultrader

.

[Dae]

Thankyou for your sharing.
It is an valueless experience which costed more than Time, Money, Emotion & Health.

Good trading!
See You in Monte Carlo, may a few years.

[CajunJay]

Well done mate

You have been through the the struggle of being a newbie trader to a very sucessful one, it hasnt been easy and has clearly taken alot of blood and sweat but you have come through shining.

Now you have a truely mechanical system you now have all the time in the world to relax and enjoy yourself, but with a personality like yours will you be able to stop testing new ideas etc... or are you finished with trading and have mastered it to a point you can go no further?

[domfos]

Thanks for sharing your knowledge. It's interesting to read about going beyond the success of achieving your goal.

------------------
TraderKnowledge.com

[andypandy]

Quite simply, brilliant

One of the best and most genuine posts I have read in ages and so true,,so very,very true.

[cornellj]

I have read the first thread on this subject and find this one as good as the first.

I am now in my sixth year of active trading Spotforex and have had a similar experiences to what Soul-Trader writes about.

I too believe there are no shortcuts. You do not start trading before you have successfully negotiated three major trends of 700-1000pips without wiping out your demo accounts, and showed a profit in the process.

Contrary to what others believe I also maintain that backtesting a system is of no use. The history is fixed and will show any reasonable system as profitable. Whereas realtime is not and will affect the efficiency of the system. If you want to test your system the only successfull method is doing it with live feeds forward and not historical data. This takes time and is where the old virtue of patience is most needed.

Develop your own strategies or understand 100% why a trade was called for by the signal service. If the signal service is no longer around or the strategy fails where does it leave you if you do not have ulternative strategies in place.

Strategies should include entries, exits ,stops, take profits, trade management, money management, withdrawals, drawdowns, budgets,hedge strategies and a host of others. These strategies you should develop for yourself so you know them by heart. You must become machinelike in your execution because of the rigid application of your strategies. The marketprice is uncertain so your strategies should not be changed to accommodate this, but be pre emptive and know what action to take in any eventuality.

Finally after all this has happened for a number of years and you become very successfull you mechanise the system and look at it a few minutes per day.

My visits to my dealstation is limited to a few per day during which times I spend a few minutes adjusting existing trades.

[initialsBB]

Soul-trader i find your idea of freedom somewhat troublesome. Are you implying that you wanted to get rid of trading by trading?
For me "freedom" usually means that i am free to do what i want-which in my case is trading. I assume that every "wannabe" trader has to have at least small amount of passion for this business that would carry him through the tough times. He has to like to trade. I will probably never stop to test new ideas and systems, no matter how successfull i am

[Soul-Trader2004]

funny you should mention the idea of 'enjoying trading' initialsbb - i had this conversation with someone the other day and below is a post i wrote about it on another forum- you may find this interesting even if you don't agree.



yesterday i had a conversation with a friend of mine who will remain nameless.

He's been a trader as long as I have although he had an 18 month gap of no trading inbetween.

We began talking about when you really know you are a trader.

If you enjoy trading and when it gets to your end of day you can't wait till tomorrow .....

you arent yet a trader.

Yep, thats what i said.

You are enthusiastic yes, you enjoy trading yes, you live and breathe trading yes. Until these things leave you then you will not (in my opinion) be a 100% trader consistently making money.

So, why do I say this, well first of all let me address those who are saying 'that's bollocks'

When you are new into trading (ie, the first 3 years) you are like a teenager and experienced traders are your parents.

When your parents tell you to do something, you don't do it. and think about this - when you parents said to you 'in a few years you will feel much differently' you thought, no i wont, i won't end up like that, ill keep on enjoying myself'

Nevertheless you did change and your parents prediction came true.

the basic thing is that when you are a teenager - you dont know what you dont know - you are totally unaware of what you haven't experienced yet.

So when i said to my mate, who is an experienced trader - that if you 'enjoy' the experience of trading, then you aint there yet - I fully expected him to come back and say, 'no, i will always love this job, it rocks my boat and that will never change'. he didnt dissappoint me and said exactly that, as i am sure many of you are saying now.

like i said - you dont know what you dont know.

When you can really call yourself a trader is when you look upon trading as purely a means to an end. A job, a way of making money. Much more than youve ever dreamed possible maybe, but a way of making money all the same.

You dont get the old buzz you got from placing a trade and watching the charts all day long, minute by minute.

You dont spend every spare minute testing new strategies or testing out the latest indicator. You actually take some time out to chill away from the markets and you are glad for it, not itching to get back.

You still get a buzz, but only when your end goal is realised - ie, a new account high or a good payday.

Entering the world of trading is an exciting thing to do. In the beginning you love it, get obsessed, tell your friends proudly that you are a currency trader and its that drive and determination that gets you through to the end when you finally can trade profitably and without emotion.

Rob booker says you need emotion to trade - i say that's bollocks and that emotions are the one thing that kills off 99% of new starts. (sorry Rob)

but you still have to go through it.

When you learn to swim the first thing you have to learn to do is not to drown. when you learn to drive a car your very first lesson teaches you how to stop the car so you dont hit anything.

Trading is the same - just that a driving lesson last an hour and your trading lesson that teaches you to drop emotion lasts about 4 years

so, to put this into a nutshell for you here's what to do to get yourself to be a proper trader (by my definition).

Be excited by the markets, get obsessed with trading, get obsessed with testing strategies. get the market in your blood and really enjoy it - sometime in the future you will begin to realise that your work has paid off - you have your methodology and it's making money.

continue to try and foster that excitement day after day.

One day you will realise that it just does not excite you anymore, and no matter what you do to get excited it won't work. - you wont hanker to take that risky trade setup you see and watch the 1 minute chart for every twist and turn in the market and you wont give a toss about the latest umphadoompha indicator.

You'll realise that you are actually now, five years on since you started, a trader.

you got there - is it exciting anymore? can you still not wait for the next day to start?

No, you couldnt care less, just go through the motions of making money. Now it's time to get excited about how you are going to spend it when the pot gets bigger

The fun in anything is the journey to your destination - the key is realising when you have arrived and when you have that it's ok to stop and look around a while.


Truth of the matter is if i want to i can daytrade and make money with hilda or edgefinder but i choose not to - i choose to enjoy the fact that my job now gives me the opportunity to do whatever i want and at the moment, thats just to relax and bum around forums and take the long trade

Now I may be wrong - after all I also 'dont know what i dont know' - if there is a trader on here thats had more time than me in the markets as a daytrader then please, i'm very interested in finding out what i dont know and would love to hear from you.

If you have an opinion that's against this but have less than 5 years in the game then please - just wait till 5 years and then tell me i'm wrong.

My experience is, and it is only my exerience, that you reach a point where you try to find ways not to trade.

initialsbb said that im saying i trade so i dont trade. well, it all depends on your definition of trading. 2 years ago i wouldnt have called what i do now 'trading' - to me trading is the fastidious study of the market - the use of numerous indicators, knowing when the news comes out and what the result is likely to be - taking trades north and south when my system gives me a perceived edge and living the highs and lows of the market - to me that is trading.

That is not what i do.

I never know when the news is due nor do i care. I don't study the charts trying to predict future moves, in fact i could do what i do without a single chart open with just a telephone to my broker. - (havent got that far yet that i dont have a chart open but i see it coming). So, i dont watch news, dont watch indicators, dont 'sweat' the action.

I place 1 trade a day and it wins or loses. i dont care if it wins or loses and feel no pain or pleasure from either.

The only time I get what you would consider a buzz is when i have a record breaking day for the amount of £ made - this happens about once a month as i compound winnings. - I suppose i could get excited if I broke my record of 280 pips in one trade or my record of 1850 pips in one week (dec 2004) but very little else would 'excite' me.

So what's left to be excited about or enjoy? - you just go through the motions.

Think about this - you would train for about 6 years to be a lawyer - all that time you would be excited to learn the job. you would be excited with your first cases for a year or two - but then it's just a job like any other.

6 - 8 years to train as a lawyer and i reckon 4-5 years to train to be a trader - anyone who tells you different is talking out of their hat and most likely has not had 5 years.

for those of you with a few months under your belt or just one year - take heart - you training period is less than that for a nuclear geneticist - they train for about 8-9 years and at the end of it earn around average wage - £23k in the UK if they are lucky.

In four years you could be on your way to earning that in a day.

Two weeks ago I had another highest day - it was £13,689. Yesterday i did £13,245 and it didnt buzz me as it was not a new record, next year if my current rate of growth continues i could be earning the equivalent to the annual wage of 5 nuclear geneticists in 1 day.

Is the pain and confusion for your next 5 years worth it - you bet it is

but there are no shortcuts,so stop looking for one and knuckle down- sorry.

I hope you enjoyed this post and that you take it in the spirit in which it is written