There is no magic in trading

analyst75 · November 25, 2018

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.

Source: https://www.tradinggame.com.au/there-is-no-magic/

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)

www.tallinex.com wants you to make money from the markets

Zelethale · December 21, 2018

Absolutely forex is not a magic nor some sort of statistical probability for winning as in gambling. Forex trading is a well developed strategy, based on long time spent learning.It takes hard work and dedication to become a really successful traded who makes significant profits

tradesprint · January 4, 2019

No magic., no holy grail.. only hard work analyzing the market, checking trends and making some bold decisions. Also don't forget to add stop losses so that if the trade went against you, you might be able to cut your losses earlier rather than ending up loosing the entire money.

April 27, 2019

Forex is controlled by humans and so work is required to outsmart others and make money. Only the smart ones make money.

Intcatekin · May 9, 2019

I believe in luck, but trading does not rely on luck, and you can not perform any magic to be successful. All you need to do is to identify and build your winning strategy, have a trading plan and follow it well, develop your analysis skills, manage your risks properly and be patient

7bledin · May 11, 2019

True, there is no magic whatsoever in trading. For a trader to be successful and remain successful, one must learn fundamental and technical analysis and how to manage risks. You must first practise on demo and build your strategy before going live. It is not easy, but its also not difficult, so long as you are dedicated, patient and disciplined in following your trading plan

Dean Headley · May 14, 2019

It’s not about magic or miracles, it’s about common sense. And any successful trader has a lot of it. We just need to make sure that we trust ourself and the ability. If we do that then we will achieve a lot more than we normally do. There are so many opportunities if we are willing to be dedicated.

One such opportunity is this Fidelcrest, a truly remarkable creation. It’s based upon very realistic setup allowing people the opportunity to join big league. With their unique system, one can eventually get chance to handle accounts with initial capital up to 200,000 USD! So we just got to trust our ability and be dedicated with things.

Dalton33 · July 8, 2019

I would say that common sense and experiences are the most required assets which each trader needs to possess if he wants to make success on this market. Instead of relying your trade on luck, it is much better to rely on knowledge

Dalton33 · August 31, 2019

If you are following brokers marketing campaigns, you really might think that there is sort of magic in Forex trading, which will lead you to instant and high profits. However, this is far away from the real truth. Would you agree?