Although I was invited to write an article about myself, I initially thought I didn’t have much to offer. After all, I’m not profitable in my trading, nor have I been around the block as often as many of the more senior members.
But thinking about it, my initial struggle to figure out a method and persevere through sometimes painful mistakes could serve as a cautionary tale for anyone starting out. I thus dedicate this article to anyone who is looking to get into trading. Hopefully, those who walk the walk will appreciate what I have to say as well!
So who am I? Probably unbeknownst to many T2W members, I was actually born hard of hearing. The struggle of dealing with my hearing growing up and going through public school likely instilled a sense of perseverance and an analytical thought process that has served me well in my trading.
Learning to understand speech and figuring out what someone just said is, to my mind, actually quite similar to defining a trading method. Initially, you ask yourself questions such as “how do I figure this out on my own?” and “how do I begin to understand an entirely alien concept?” Basically, what the heck do you do? You have no idea what’s what and, more often than not, you’re going to have to piece things together on your own.
But slowly and surely, you get somewhere just through experience. In the course of learning to hear (or trade), I would watch body language (price action), and determine several possibilities based on the context of a conversation (setups). Then you offer a response (put on a trade) and hope you got it right, which often still isn’t the case (stopped out)!
Aside from that, hobbies include photography, motorcycles, and travelling with said motorcycle. I also graduated last year from university and I’m looking to start a career, so trading has taken the backseat to that lately.
Trading – the early years
My parents instilled a sense of fiscal responsibility in me from a very young age, which has served me well since. I have also always had an interest in puzzles of any kind with the necessary patience to see them solved. And so, I partly got into trading as a general interest in money management and puzzle-solving! Moreover, I’ve always been very frugal and the idea of making my money grow on its own was naturally very appealing. Best puzzle ever!
As you can imagine, I first started out with buy-and-hold strategies in stocks. But over time, my time-frame shortened and I began to experiment more. Around this time, a guy I knew seemed to have a solid method and I gave it a shot. To cut a long story short, the method did not work for me, though I at least lost nothing for trying.
Prior to trying his method, I had never put more than a few hundred dollars in my trading account. But thinking his strategy would work, I pumped my account size to several thousand dollars. As I would later find out, this was a severe mistake. I started experimenting with this money to develop strategies I’d never thought of before and went beyond stocks into options and other derivatives. Needless to say, I stupidly lost about 80% of my account over the course of about four or five months and almost had a nervous breakdown subsequently.
Even so, I consider that experience invaluable. I went far beyond my zone of comfort into experimenting with entirely unknown methods and I gained a far better understanding of the market than my prior risk-averse self. I must have read about 50 or more trading books and tried more than half a dozen market instruments, on top of at least 20 or more hours of screen time per week while still holding a full-time job! Despite this, the lesson still could have cost about half what it did had I simply held back a little.
Through good fortune, I subsequently met many excellent people on T2W who helped me set my bearings and develop a proper trading mentality, one of whom I am eternally indebted to that shall remain unnamed. You know who you are!
Following this initial hair-raising baptism through fire, I was ready to learn how to trade properly with proper risk management. Here I am about two years later, and only now do I believe I may have something that works.
Coming back to my initial discourse about finding a method, I had established several things that go into making a sound plan. I am not interested in “believing” that something can be done through sheer force of will; you need a method, and this method needs to be rigorously tested through experimentation.
Following this, I established a few things that were true to me, at least within the bounds of the tools available to me as a retail trader, through non exchange-traded instruments. If I had to resume my search for a method in a few questions, it would be these:
- What is it about price that is objective in any time frame?
- Where is the point of lowest risk in any trade?
- Which patterns in Technical Analysis (or price) are the ones that work?
In brief, I tried to determine the foundation of a sound method. What would work regardless of my subjective observations as a trader? If I showed these things to anyone else, would they recognize it too and be able to apply it independently?
From there, I established a few simple things, some of which are probably of no surprise to anyone here who knows anything about trading:
- Support and resistance are very real.
- The only TA patterns I have found to be consistent are Pullbacks and Breakouts.
- The point of lowest risk is a turning point in price. The above patterns are directly related to this concept.
And so, my method now revolves around Pullbacks and Breakouts, which, quite frankly, offer ridiculous Return : Risk (R:R) if you nail the entry. Further development of my method refined the criteria for trade entry, which eventually allowed for a high number of winning trades. Combined to the aforementioned high R:R, I had a pretty low-risk/high-reward method I am now quite happy with.
Some may now be thinking “why let some cats out of the bag?” Indeed, why reveal some things that may work for everyone as I mentioned earlier?
I have three reasons: the first is that better traders than I likely have more developed and customized methods, and the above would only, perhaps, confirm what they already know. The second is that I believe the act of becoming profitable requires more than a sound method, so knowing the above is highly insufficient to making money. Finally, I am leaving out a lot of peripheral information that goes into making a trading decision. There is a lot of knowledge about market structure that one needs to know prior to understanding the above concepts.
Furthermore, while I am of the opinion that having a strategy that works is your most integral element to successful trading, one’s method as a retail trader likely incorporates a good deal of subjectivity and decisions made through sheer experience. Some methods such as arbitrage work whether you “believe” in them or not. Unfortunately, these methods are very unlikely to be available to the common retail man.
To that effect, I am actually break-even for the year of 2013. Why is this, despite apparently having a winning strategy? As it turns out, I am inconsistent and prone to emotional slumps after losses. I lose interest after too many losing trades and I have to work to regain my edge once I pick it back up. I seesaw between long win streaks and short, painfully large losses that lose any gains made, the latter of which can be quite deadly for anyone’s account.
Fortunately, I have learned from this and now attempt to cut losses regardless of whether I still believe in the trade or not. In the long run, this simple act will probably be what limits my losses the most.
And so, becoming more consistent in my trading would be top priority once I get it back on track. For now, getting a career going and stable cash flows are more important to me. I can always trade in my off time and dedicate a small amount from my pay check every month towards my account. Focusing on being more emotionally stable should go a long way as well.
Tips to pass on
For any prospective or aspiring trader, I would recommend the following:
- Do not move beyond your practice account until you have a winning strategy. If you ever do go forward with a live account, keep your stake low.
- Watch prices move until your eyes bleed. You will eventually “get it” and figure out natural patterns in price.
- Don’t over-leverage. If I had a choice, I would not leverage at all. Through much experimentation, however, I have found myself comfortable at around 5x leverage at most.
- Get as many opinions as you can about the market and various strategies, but know that in the end, only you can develop your winning method.
- Don’t forget that managing risk and minimizing losses is #1. This includes your “market dues”. I paid dearly for my “education”; be smart and you might not have to shell out as much as I did.
- Be consistent despite the highs and lows, and keep at it!
Finally . . .
Trading is not for everyone, nor is it something I would recommend if you’re in it purely for the money; the subject is too difficult to learn and too personal to be a gold mine for most of us. While it can be a fascinating study in many ways, it can also be quite emotionally challenging, going from mind-numbing boredom one moment to pleading to the trading gods that you do not lose your stake. I’ve certainly experienced both ends of the spectrum.
But that said, if you ever do get to make profits consistently (hopefully with minimal stress) and you love trying to figure out puzzles, it can be quite rewarding to know that you’ve found your own way to “beat the market”. While I’m not there yet, I certainly hope to be in such a position someday!
Good trading to all,