In the previous article, we discussed two factors that contribute to failure in trading. In this one, we will look at an equally important factor, that the popular means of self-learning that most new traders turn to in their attempt to learn to trade.
I am an autodidact myself and am grateful to the various self-learning mediums I have turned to over the years, but I have also learnt that while they are valid at times, there is a lot more that is required to become a profitable, professional trader. I will list out some popular self-learning options that new traders turn to below.
Books on Trading
Most new traders, in an attempt to learn more about the process, assume that merely reading books on trading by established traders and market professionals would be a good enough training ground for them to begin actually trading. This brings us to the point:
“In trading, everything works sometimes and nothing works always.” – Ed Seykota
Reading trading books is a good start, but the objective should be to assimilate as much information as one can and try to enhance your learning by continuous learning. In my fifteen years of experience and after having mentored and discussed trading with hundreds of traders, I have noticed that the primary objective of the new trader is to learn the author’s Holy Grail system that he or she has shared in the book.
It is important to understand this simple fact: THERE IS NO HOLY GRAIL IN TRADING.
“The markets are the same now as they were five to ten years ago because they keep changing – just like they did then.” – Ed Seykota
New traders make the mistake of looking for the perfect trading system with the perfect entries and exits that work every time. Unfortunately, there is no such thing. If there was a 100 percent winning system, someone would own the world pretty quickly through compounding.
I am also reminded of something the legendary Victor Niederhoffer said. He said and I quote, “It is inconceivable that anyone will divulge a truly effective get-rich scheme for the price of a book. There is ample opportunity to use wealth in this world, and neither I nor my friends, nor anyone else I have ever met, has so much of it that they are interested in putting themselves at a disadvantage by sharing their secrets. There is a lot more learning to be done, and this needs to be done across mediums.”
So, while reading a trading book, stop looking for the non-existent Holy Grail and try to understand the process behind the system shared in the book because trading is a process and formulas are only one part of the process. When you try to broaden your knowledge by reading trading books and understanding the process, in the end, you yourself have to assemble the jigsaw and make sure all the pieces fall in place.
Webinars and Seminars
One has to be absolutely clear that there is no quick rich scheme at all. Trading is one of the toughest professions, where every day you battle between extremes of emotional swings, ranging from elation to despair in a single day, sometimes in a couple of hours depending upon how the market behaves or misbehaves.
Coming to webinars and seminars, the person conducting them may share some trading strategies which may have worked for them. But please do not forget there is no ‘one size fits all’ strategy in trading. You need to develop a strategy that suits your individual trading personality (I will discuss this in my forthcoming articles). Therefore, do bear in mind that you must backtest to be assured whether what they advocate works in the markets, before adopting their strategies.
As new traders, we all have been bombarded with various tips, news, and insider information and more likely than not, would have fallen prey to these at some point in our trading careers. I don’t need to mention the outcome of the same. One of the most common statements one hears is, “A client at my broker with a portfolio of X crores bought XYZ stock and he never goes wrong.” The next thought that comes to mind is that you should buy it and sadly, while the said client might make money at times, you could end up losing money, simply because merely tail coating someone else’s trade will not work for you.
The reason being a difference in trading personality between you and the person whose trade you have a tailcoat. The client might have bought XYZ stock for long-term investment while you bought it based on his buying of it, for a quick gain and could end up losing money on the trade when the stock corrects itself. This reminds me of a statement by Rakesh Jhunjhunwala, the oracle of D-street. He says, “You can never ever get rich at the cost of someone else’s knowledge.”
And finally, we come to Twitter and social media. These are full of ‘superstars’ who keep posting various charts and levels, but sadly most of these are based on analysis in hindsight and one does not trade in hindsight but in live markets.
“That a rise/fall was coming is known to everybody, post the event has happened,” says Victor Niederhoffer, renowned hedge fund manager. And the less said about the conversations about trading on Twitter Spaces, the better. But there is no denying the fact that there are some good handles to follow and so is it with Twitter Spaces about trading, but the challenge is to find a needle in a haystack to zero in on the ones that will be worth your time.
This might seem very different from the rosy picture about trading that has been painted to you over the years. But despite this, there are still three percent odd traders that are profitable on a year-on-year basis, right? I, myself, have been through this and happily admit that there’s not a single mistake that I have not done in my trading journey.
But over time, with the constant analysing of my mistakes and trying to improve on the same, my error levels started going down and that’s when the transformation began. Do always remember, that trading is one of the toughest jobs and you need to put in your learning hours. It is also a losing business, where you may have more losing trades than winning ones and the only way you can stay afloat is by letting your winners run and being ruthless about cutting your losses.
In conclusion, I would like to say you can never eliminate error levels, you can only keep reducing them and this is a process that takes time and effort. And for that, you need to keep continuously learning.
Follow the entire series here.
Kirit Manral is a professional trader, and has been running a mentorship program in trading since 2019, with mentees from around the globe. He can be found on Twitter at @KiritManral