2009 Reflection : How you should improve

Abstract

This article is intended to give some advice to traders who have just started or who have failed to make progress. The advice is based on my own trading experience in 2009, which actually is my first year with live trading experience. Although my own experience is very limited, there are nevertheless four things that I consider very important for any trader to acquire, if they want to shorten their time of learning trading. These four things are: the determination to succeed, an experienced mentor, good trading companions and the discipline to your method.

Introduction

It's just a few days after 2010 has started. I hope that you will all be reloaded after a year full of financial surprises and turmoils from last year. As the year is just at beginning, I think this is a perfect time for reflecting my own trading experience last year and comtemplating for possible improvement. In this article, it is intended that my very own experience may provide insights for beginners who wanted to learn more about trading, so that they can take a short cut by avoiding the mistakes I have made this year.

My Brief History

It may come as a surprise to you that this is my first year I actually started trading. As a matter of fact, I only graduated from university 2 years ago so that I could barely accumulate any capital for trading. The reason I started trading was because, when I left university, I couldn't imagine working with a job forever and dreamt about retiring early. I had a fantasy to accumulate enough wealth so that I could get rid of a job as soon as possible. This is pretty much how we all got into this business.

Just like most other novices, I had gone through many mistakes at the start. Most notably, I fell prey to the marketing wizards who promise you the moon with zero experience and committment, who usually claim that they have a secret system or robot that will make you millions of dollars without any action on your part. All you have to do is just to push bottoms and follow the signals. Although I was naive enough to look into their nonsense at first, I was also clever enough to quickly realise that they stuff won't work. Why don't they keep it for themselves if it is as good as they claim?

Most of the people would give up at this point after an exhausting search for the Holy Grail system, as they realise trading is not as simple as it first seems. If you really have a job, a family and other hobbies, chances are you won't really bother with trading anymore as you've really got a life. But for me I was lucky to be a little different. I am still young and I am free from obligations from families, relationships or whatsoever. I am also willing to sacrifice some of my enjoyment in life to make time to study this damn thing that nobody will appreciate. It is a very lonely thing. You have to be really serious about it and not to bother how other people think about you.

Be serious

Yes, you have to be really serious about it. By "serious" I mean you either: a) keep going until you make it, even if the cost is your money, your youth AND your ego, or b) realise that it is not for you and give up as soon as possible. Like any other profession, it takes you a lot of time to study it before it makes it work for you. No one can read a book on tennis and sign up for the ATP tour and dream about winning Wimbledon. Yet this is exactly the sort of attitude people have in trading. They want magic formula that makes them rich overnight. Be sure you do have the time and energy devoted to make it work. Put it in another way: you have to really feel bad if you can't make it.

Find a Mentor

So, how can you start your journey and make progress in your trading? The best way to improve is to find a mentor. I was lucky enough to bump into the right material that allowed me to find a mentor for myself. One day I found myself obtained a book written by Dirk du Toit, who happened to be a professional trader as well as a teacher who runs a mentoring program. It caused me quite some money to join his program. Remember, I only started working less than a year and my savings isn't that spectacular! But so far I can say this is one of the best decision I have ever made in my life. I gained a lot of understanding about the forex market. Even better, Dirk also does what he calls the Daily Briefing where he provides his daily comments about the market, which is invaluable to someone like me who want to "think like a grandmaster".

I am not trying to advertise for Dirk or recommend you to join his program. In fact, I consider his mentorship unsuitable for complete novices for a number of reasons. Firstly, some parts of his approach, like the median grid and multiple entries, may seem too advanced to understand if you have never traded before. His program also demands you to do a lot of homework which you may not find time to do. Moreover, you may get a bit annoyed by his constant criticism of indicators, chart patterns, wave theory, systems and small time frames. Therefore, if you are not sure whether you can make the committment, you will be disappointed because his style of mentoring places a lot of emphasis on you instead of the mentor.

Therefore, for those who are really new to trading, I will recommend someone else. Bill Williams' Home Study Course is great material for those who are really absolute beginners in this business. Not only that Bill talks about his methods, he also talks about the psychology and philosophy of trading, and offers a mental training programme (on a psychotherapeutic method called Autogenic Training) that is invaluable in both trading and life in general. Although it is quite expensive, it is really worth the price.

A word of caution: you should be aware that Dirk and Bill have completely different styles of trading. Bill believes in a mathematical law behind market behaviors and endorses the Elliot wave theory, where Dirk is a follower of Nassim Taleb (author of The Black Swan) and believes in the unpredictability of the market. Also, Bill uses a single trend following system for whatever markets from ETFs to commodities, where Dirk advises to focus only on one or two forex pairs and emphasize the difference between stocks and forex. You will have to decide which one suits you better by reading their material (Bird Watching in Lion Country for Dirk, and Trading Chaos for Bill) before deciding whom to ask for mentoring, but my advice is to look into both. Personally I am closer to Dirk but I also learnt a lot from Bill as well.

Find Good Friends

Other than finding a mentor, there is another very effective way of learning trading, and that is to stick with good trading friends. The Canadian Psychologist George Sabongui once did a research to search for the hidden quality that makes some people succeed and some people fail. Out of the 600 questions he has asked to hundreds of participants, there was only one question that actually predicts success, and that question is, "Describe your friends back home." When you have great friends, you will progress much smoother than anyone else, and vice versa. In trading it means if you have friends who are also keen and honest about trading, you are much more likely to succeed.

Therefore, you should be aware of who you are sticking with on your way to learning trading. Unfortunately, 99% of the people you can meet are unlikely to help. Those people include your friends and relatives who blindly follow tips from "experts", and also forums members who fiddle with one technical system after another. Think about it: if you are serious about trading, and you have been losing money with tips and indicators, how on earth you are willing to repeat it over and over again?

The answer is simple: They are NOT serious about making money in trading. Think about all the expert worshipers. Why would they be still following tips without winning money? That is because they are more interested in the latest gossips of the market instead of the making money itself. For them, their benefits in trading are social (talking about the markets) instead of financial (making money). Similarly, the indicators fanatics are more interested in collecting technical gadgets than making money, so they are not serious traders either. They are merely collectors. Note that I am not saying you should not study programming or listen to experts, but if you are not making money as you expect, you should acknowledge the fact.

The great Ed Seykota once said famously that you get what you want out of the market. If your focus is not financial gain, if your goal is not making money, you are unlikely to profit in this game. So not only you should focus on making money, but you should also make friends whose focus is on making progress as well.

The Three Biggest Secrets of Trading Psychology

Although it is important to find a mentor and good friends, you should also remember that you are the most important part of your trading adventure. It is known that success in trading is at least 90% mental, so you shall be aware of the psychological pitfalls that one will encounter in his own trading. Below are the three biggest secrets of trading psychology I have ever come up with in my experience. If you can understand them, you are 80% done with your trading education.

Secret 1: When one day you find trading as boring as any other job, you have succeeded.

This is a indirect way of saying that you are always following your plan instead of trying to be interesting or to show off. When you have the discipline to stick with the plan, you have already succeeded in this game.

Most of the time you lose is either the fault of your plan or "manipulation", but your relaxation of mental attitude that you don't follow your plan anymore. How I combat this problem is to imagine you are trading for a boss, an unforgiving boss that will be on you heavily when you make a mistake, as if you are working in a typical job. Thinking in this way will help you to reduce your mental laziness by a huge margin, because you are thinking as "doing a job" rather than "playing a lottery". This is why I say when trading seems even worse than having a job, you are super successful.

Secret 2: The hardest thing in trading is to kill time.

You really have to admire the insights of the great Jesse Livermore: "After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!" It means two things. Firstly, don't enter a trade when you shouldn't enter, and more importantly, don't exit a trade when you shouldn't exit. Overtrading is the single most important reason of why many people fail in this business. Learning how to prohibit yourself from doing something harmful is the single most important prophylaxtic measure to trading disaster.

Here is a remarkable quote by Bill Williams, "I spent many decades looking at the markets every moment of the day. In fact, one time my wife challenged me to eat lunch away from the screen. For 12 years or so, she brought me lunch every day [while I watched] the screen. If she didn't bring me my lunch, I didn't eat. And what I found once she got me off the screen was that the less time I spent in front of the screen, the more money I made."

Therefore, the more time you look at the trading screen, the more temptation you face to break your discipline. My trading made a huge improvement when I realised that I only have to look at the chart ONCE a day to make huge gains. I suggest you to do the same.

Secret 3: Day trading is for dummies.

The famous "X for Dummies" series once published a book called "Day Trading for Dummies". And there is a joke about the book: if you want to know the secret of daytrading, simply assert the word "IS" into the book title.

No offence to those professional day traders. It is true that some people make money from day trading, but there is a much larger number who lose. The reason is that most people tend to get lost in short term fluctuations and lose sight of the bigger trend, which could be going up, down or sideways. Intraday price movement is largely affected by business and political activities that may not have anything to do with trading or manipulation.

I had this painful experience of focusing to close to intraday price movement. On 24th March 2009, I had some short positions in EURUSD, and to my surprise, the pair made a huge surge of more than 150 pips in five minutes out of nowhere. There wasn't any important data release, so at that time I couldn't understand what was going on. It is only the next day I realised that the US Treasurer Tim Geithner made some foolish comments about the reserve currency role of the US dollar, stimulating an unexpected plunge of the dollar. Such events are hardly foreseeable. So you see, betting your money on intraday movement is a really dangerous thing to do.

You may actually realise that these three secrets are actually refering to the same thing, just put in different ways. That is: follow your plan and keep an eye on the big picture. If you can do it, you have solved most of the problems that many amateur traders face.

Conclusion

To summarise, the above content has suggested 4 important points that any student of trading should be aware of, if they want to avoid the pitfalls I have encountered during the year of 2009. They are:

1. Be serious,
2. Find a mentor,
3. Find good companions, and
4. Stick with your plan and the bigger picture.

I sincerely hope that my experience in 2009, which is my first year in trading, can help you to improve your trading skills for the betterment of your financial situation.