There is no magic in trading

ituglobal

Master Trader
Apr 17, 2013
468
20
59
THERE IS NO MAGIC


“Your trading methodology has to make sense for you even if it’s the opposite of what makes sense for other people. Choices made in developing your approach to trading should suit you personally to minimize internal conflict. Only then will you have the confidence to remain true to its development and its execution during tough times. The long-term advantage of developing your own system from scratch (rather than trading someone else’s system) assures you of high compatibility with your beliefs, personality, edges, and objectives. That compatibility becomes one of your sustainable edges. As Curtis Faith of Turtle fame noted: “It’s not about the system, it’s about the trader’s ability to execute the system.” – (Source: VanTharp.com)



LB and I have just wrapped up the final in our series on full time trading. For the most part they have been enjoyable except for one twat who complained that it was unprofessional of LB to not present when she was suffering from severe laryngitis. Presenting for the first time in years is an interesting thing as the expectations of those you present to also change over time.


This particular series could be summarised as all the mistakes I have made in trading and the solutions I have found such as they are. One of the things I have learnt over the past few decades is that there is no magic. Trading is a grinding profession where your central tenet is not to go broke waiting for the next big move. I think in part some attendees were waiting for the magic.


That point in the seminar where you do a grand reveal of your magic strategy that never has a losing trade which means you can quit your job tomorrow and start trading full time with nothing other than a credit card because CFD providers will now in their wisdom allow you to fund your account with credit and earn frequent flyer points.


Regrettably the field of investing has been tainted by endless shonks who have polluted the thinking of people before they even set foot in the market. Before writing this piece, I Googled trading bitcoin for a living and got 35,900,000 returns. Certainly not all of them relate to trading bitcoin or any other crypto full time but if even 10% do then then that’s a staggering 3.5 million sites promising people that they can give up their day job and start trading overnight.


The central theme of these sorts of sites and it is not limited to cryptos is that you can trade full time with very limited capital. And you can do this because you will never have a losing trade. Your equity curve will be a linear trajectory that soars from the bottom left hand corner of the chart to infinity without ever breaking stride. I can understand why this sort of thing has permeated the thinking of new traders.


Whilst this sounds seductive it ignores many of the key realities of trading the foremost of which is that trading does not produce linear returns. We encounter a feature of equity curves called drawdown. All trading systems generate drawdowns – in a very general sense if you are a trend following you expect to have a drawdown of between 15% to 25% once per year. As an example, consider the equity curve below.


This is the equity curve of Dunn Capital a money manager that uses trend following as its basic tool. You see decades of outperformance punctuated by drawdowns. There is an inviolate relationship between performance and drawdown, if you are swinging fr the fences you need to expect to be struck out a lot. Irrespective of the trading system drawdown is a fact of life for traders – it can only be avoided by not trading. If someone tells you that their equity curve never draws down, then they are a liar. It really is that simple.


The implication for those seeking to trade full time is that your first drawdown will coincide with your move to full time trading. This is a natural feature of systems, they cut their losses and then let their profits run. There is a timing dislocation between these two events that results in the account value immediately slipping. The problem is that this occurs at a time when you are most economically and emotionally vulnerable, it is also a problem because most new traders are undercapitalised. They simply don’t have enough money because they have not thought their transitions through and they may or may not have been infected by the thinking that you can give up your day job and earn 100k a year on a bank of 50k. It is at this point in a seminar that I can see how people begin to sag because it begins to dawn on them that they need much more than think to survive as a trader.


However, I think they are missing the bigger picture since the move to full time trading does not have to be an all-in proposition. The move can occur gradually over time as your capital grows and you acquire more skill. And along the way your life begins to change in small but incremental amounts. You may even reach a point where you stop believe in magic and start believing in your own ability to slowly and inexorably change your own life.


Author: Chris Tate

Article reproduced with kind permission of the author.




I end this piece with the quotes below:



“Just coming back from vacation where we’ve been doing a lot of hiking in the mountains, here’s an analogy. You’re standing on a peak of a mountain looking at an even higher peak. But to get there you first have to go down that small valley…no way around it!



It's the same in trading, so as long as the size of the drawdown is within your expectations, you can and should relax when you’re in a drawdown. It's just a necessity you have to endure to get those profits. So understanding and accepting Drawdowns as part of this business will make your life as a trader much easier!” – Marco Meyer (Source: Tradingeducators.com)



“Having said that drawdowns are still making me uncomfortable. I don't like them at all and each time I'm in a big one I'm having the same doubts and troubles most of you probably have too. But knowing that actually nothing is wrong helps a lot to make it through these times. Without that knowledge and understanding, you not only have the doubts but you allow them to win over, follow them and then probably stop trading at the worst time possible.” – Marco Meyer (Source: Tradingeducators.com)

Tallinex wants you to make money from the markets
 
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37riched

Trader
Dec 26, 2018
117
21
24
33
There is indeed no magic in forex trading, just the same way there is no luck in trading. You have to have skills, adapt and master a winning strategy, and put your ego aside and use stop loss for your trades. Also, if your money management is poor, no magic can make you win.
 
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Helloyees

Trader
Mar 8, 2019
98
7
24
True. There is no magic whatsoever in trading. I also don't believe in luck as far as trading is concerned, but there are times when you can consider yourself lucky or unlucky if the market moves favor you or not. You can no win magically, you have to read and analyse charts, build your strategies and practice. It takes patience and determination
 
Oct 18, 2019
2
3
6
23
I think that adaptation is the only and the best trait that a trader must have or develop. I've been trading Forex for years and I know how important it is to adapt to the price. From all the assets, the currencies have the most unpredictable price in my opinion and a lot of the currencies trading in made by luck. There are too many unpredictable factors involved in one asset. I heard theories that you should be part of the crowd and vice-versa - that you shouldn't be, or that you should be for a limited period because the big banks know where most traders go and they enter the market in the opposite direction. I also heard that the traders win just enough money to keep them inside the game, like in a casino. These are some of the reasons I quit trading currencies. Now I'm trading CFDs at [REDACTED]. I'm not trading all the assets but only stocks and commodities. On these assets, I'm sure that no luck is involved but my analysis. Good luck!:rolleyes:
 
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Shamano

Trader
Oct 19, 2019
3
0
7
30
I think that adaptation is the only and the best trait that a trader must have or develop. I've been trading Forex for years and I know how important it is to adapt to the price. From all the assets, the currencies have the most unpredictable price in my opinion and a lot of the currencies trading is made by luck. There are too many unpredictable factors involved in one asset. I heard theories that you should be part of the crowd and vice-versa - that you shouldn't be, or that you should be for a limited period because the big banks know where most traders go and they enter the market in the opposite direction. I also heard that the traders win just enough money to keep them inside the game, like in a casino. These are some of the reasons I quit trading currencies. Now I'm trading CFDs at [URL deleted]. I'm not trading all the assets but only stocks and commodities. On these assets, I'm sure that no luck is involved but my analysis. Good luck!:rolleyes:
That's a post that opens minds. I found it very interesting and useful. There's no magic in trading, it's just gambling.
 
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bistwood

Trader
Oct 24, 2019
2
0
7
34
I think that adaptation is the only and the best trait that a trader must have or develop. I've been trading Forex for years and I know how important it is to adapt to the price. From all the assets, the currencies have the most unpredictable price in my opinion and a lot of the currencies trading in made by luck. There are too many unpredictable factors involved in one asset. I heard theories that you should be part of the crowd and vice-versa - that you shouldn't be, or that you should be for a limited period because the big banks know where most traders go and they enter the market in the opposite direction. I also heard that the traders win just enough money to keep them inside the game, like in a casino. These are some of the reasons I quit trading currencies. Now I'm trading CFDs at [URL deleted]. I'm not trading all the assets but only stocks and commodities. On these assets, I'm sure that no luck is involved but my analysis. Good luck!:rolleyes:
“Empty your mind, be formless, shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot it becomes the teapot. Now, water can flow or it can crash. Be water my friend.” - Bruce Lee
 
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atlasmckenzie

Trader
Mar 3, 2020
22
17
9
United Kingdom
I think that adaptation is the only and the best trait that a trader must have or develop. I've been trading Forex for years and I know how important it is to adapt to the price. From all the assets, the currencies have the most unpredictable price in my opinion and a lot of the currencies trading in made by luck. There are too many unpredictable factors involved in one asset. I heard theories that you should be part of the crowd and vice-versa - that you shouldn't be, or that you should be for a limited period because the big banks know where most traders go and they enter the market in the opposite direction. I also heard that the traders win just enough money to keep them inside the game, like in a casino. These are some of the reasons I quit trading currencies. Now I'm trading CFDs at [REDACTED]. I'm not trading all the assets but only stocks and commodities. On these assets, I'm sure that no luck is involved but my analysis. Good luck!:rolleyes:
This is very true
 

pippin

Trader
Jul 16, 2019
39
1
9
29
Magic is in our head, we want to find some correlations and relationships in the random world of financial prices and when we can't explain something, the notion of magic comes at hand!