10 Untold Truths About Trading
1. It’s Not Easy
Perhaps the most enlightening realization I’ve had about trading is that it is a journey.
Like music, painting, writing, athletics and every other form of human accomplishment, you can improve your craft and skill every day for the rest of your life – but you will never attain ultimate perfection.
There will always be something you can do better.
As I said in a previous blog post:
This is a competitive game of perpetual personal evolution with uncapped reward potential. Only those who are genuinely enthralled by the opportunity will succeed, and anyone with false or weak motives will fail miserably.The Importance of Discipline
Trading requires determination, commitment and sacrifice just like any other professional endeavor.
Of course, once you master your niche, trading can become excitingly simple and even fun – but don’t expect it to ever be easy.
2. It’s Not Exciting
Another popular misconception about trading is that it’s exciting.
Well, I hate to burst your bubble if you thought that, but it couldn’t be further from the truth.
Of course, there are times when you get excited over your progress, or a good week, or a particularly good trade. But the reality is those moments are few and far between, and they are usually followed either by a period of boredom or pain.
Day-traders and scalpers may disagree with me here, but I still suspect that if they are any good at their job, then excitement rarely factors into the equation.
As the remarkably cool-under-pressure free-soloist Alex Honnold says:
If I get an adrenaline rush, something’s gone wrong.Alex Honnold
Excitement in trading is typically a sign that you’re either doing something wrong (like trading too big), or you are focusing too much on your results and not enough on your process.
3. Elite Traders Are Elite Spreadsheeters
This is probably the most unexpected realization I had when I first began trading.
You will be spending most of your time as a trader staring at spreadsheets and statistics.
I know. It sucks. But it’s what is required for professional performance. If you don’t spend more time journaling and testing than you do placing and managing trades, then I can guarantee that you are not performing to your full potential as a trader.
During a Joe Rogan podcast interview with retired U.S. Navy SEAL Andy Stumpf, Andy said:
Probably greater than 95% of my career I spent training, and 5% I spent in combat… Our normal planning cycle was 24-72 hours – sitting in front of PowerPoint, considering whether or not I should hang myself or blow my brains out.Andy Stumpf, Joe Rogan Podcast
The reason why he is alive to tell his story is because he spent more time planning than executing – and he knew how to adapt when things didn’t unfold according to plan.
As the adages go – failing to plan is planning to fail, and you can’t improve what you don’t measure.
4. You Don’t Need To Be Right
There is a popular misconception among new traders that you need to be right on a lot of your trades to make money.
The truth is, most professional and even elite traders do not win as often as you might think. The typical win percentage for some of the market’s greatest prodigies is between 20% and 50%, with a very small minority getting anywhere beyond that.
Their edge is the result of their ability to quickly admit they are wrong on their trading ideas – and take a small loss – not their ability to be correct in their analysis all the time.
Obviously you need to be right sometimes to make a profit, but as I mentioned in a previous blog post about the mystery of technical analysis – that alone is not what will make you a successful trader over time.
It is the combination of solid risk and money management with a solid strategy that leads to stable growth of your account. Being correct in your analysis is just a bonus.
5. You Need Money To Make Money
The average trading strategy cannot handle more than 1-3% of your entire account balance at risk on any given trade without opening the potential for catastrophic drawdowns. Which is a euphemism for “losing all your money”.
If you want to be a successful trader over the long-term then your focus needs to be on protecting your capital more so than rapidly expanding it.
The average annual return for most professional traders is in the 20-40% range – and that is considered outperforming.
My trading mentor Steven Hart has made over 100% on his account for the past two years running. But in my experience that is wildly unusual, and he has a particularly phenomenal talent for reading markets that few people naturally possess – and it took him a decade to develop.
It also took the endurance of multiple double-digit % drawdowns that lasted weeks at times.
So realistically, unless you land a job on Wall Street at a P&L firm like SMB Capital, or until you get good enough to manage large amounts of investor money (and have the necessary skills to persuade people to give you money), then you will need multiple sources of income in order to become a full-time trader.
Of course, you can absolutely trade part-time without lots of money and still be successful.
Just don’t expect to pay your living expenses through trading unless you have six figures to work with and the skill not to lose it.
6. Trading Is A Mind Game
Most traders spend their lives searching for and developing the best trading strategy they possibly can.
The truth is, there is no holy grail system in trading. You will be a better trader and make more money if you put that time into developing your self-awareness and self-discipline instead of your toolbox.
I could literally give you the rules to my trading strategy right now. I reveal every single trade I take in my public Trading Journal with no censorship whatsoever. I am not overly protective of my edge, because I know it is not going to be other traders copying me that eventually leads to the negation of my edge.
When my strategy inevitably stops working someday as markets change, I will be forced to adapt to a new strategy. But in the meantime, I am perfectly comfortable showing people what I do and being open about my experiences and trading approach.
The reason is because I know that there is a very slim chance that any large number of people will be able to copy my strategy profitably.
It took me years – perhaps a lifetime – of hard work on my own personal psychology before I became mentally equipped to execute my plan consistently and with discipline.
And that’s not even including the time I spent back-testing, which most people can’t even be bothered with. The moment someone copying me runs into five losing trades in a row, which has happened to me several times – they will think my strategy sucks and they’ll move on to a different strategy.
If you want to be successful, then don’t just blindly copy me or anyone else.
Put in the work on yourself and build the foundation you need to be successful, not just in trading, but in life.
Develop extreme self-awareness and mental discipline. Neutralize your ego, be humble, and be open.
Do that, and I promise that trading success will come naturally to you over time.
7. You Can’t Trust Trading Educators
This is a heart-breaker, I know, but it is extremely important that you are aware.
Almost every trading educator you come across on the internet is an internet marketer and product salesman, not a trader.
They market their trading business, not their trading success. It is important that you find educators that don’t just have good marketing but also have a solid public trading record or at least demonstrate some degree of transparency.
What are their motivations for teaching you? To make themselves money, or to give back to the trading community like their mentors did to them? What is their reputation in the trading community? What do their client testimonials say?
I was extremely lucky when I began trading and came across some rock-solid trading educators early on. My main mentor was Steven Hart, who I have mentioned several times in my blog posts because he was the final piece of the puzzle for me to break through, so I will forever appreciate his work.
But there are a handful of other great educators out there if you know what to look for. Just be wary of their motivations. Look for educators that have a rapport with the community, like Akil Stokes and Jason Graystone, Rayner Teo, SMB Capital and their like.
Do your homework, and don’t fall for the traps. You want a real trader to teach you the ropes – not some twenty-year old jackass who is good at social media marketing.
If you are in need of a trading mentor and you aren’t sure how to go about finding one then my article How To Find A Trading Mentor might help give you some ideas.
8. Signal Services & Trading Bots Don’t Work
This one should go without saying, but it’s probably important to mention given its notoriety.
If you see an ad for a trading system or a signal service that offers either a set return (ie. a set $ return per day, or a set % return per year), then don’t even think about clicking on it.
You will lose your money at best, and never achieve financial independence at worst.
The markets are not predictable to any degree of consistent certainty. No one can promise you a fixed return. If they could, then why would they be giving it to you and not multimillion-dollar investors on Wall Street?
I’ve spent hundreds of hours trying to code a profitable trading algorithm in MQL5, and even though I don’t mind sharing my click-trading strategy to the world, I would never share my MQL5 bot with the public if I found a way to make it profitable.
It’s far too valuable; I would hold out for larger investors.
In any case, even if you find a signal service or a trading bot that works, which I can guarantee you that you will not, then you are still setting yourself up for disappointment.
The key to trading success is having conviction in your own ideas and decisions. If you are following someone else’s trading decisions blindly, or you are using someone else’s trading tools blindly, then what happens if the person responsible for that system dies, quits or loses their edge?
If you ever find yourself tempted to try a signal service or trading bot, do yourself a favor and invest that money into a reputable trading education site.
Don’t buy a fish; learn to fish.
Some of the best courses cost up to a few thousand dollars, but I swear on my reputation as a trader — it will be a significantly better investment over the long-term.
9. You Don’t Need Financial Experience
When I first started trading, I was a financial embarrassment.
I was a broke musician still living with my parents and racking up university debt. I readily and openly admit that I began my trading journey as an absolutely clueless idiot. I still have a long way to go, but I have also come an extremely long way.
Now I know more about finance and economics than I ever dreamed of and I am much more confident in myself and my own financial decisions both in trading and in life.
So don’t think that you need a degree in economics or an understanding of fundamental macro data or anything like that in order to begin as a trader. You don’t even need any experience.
In fact, I would go so far as to say the little experience you have the better, as you’re free to make your own mind up about things.
All you need to begin trading is a computer, a spreadsheet, some money and a hell of a lot of patience and perseverance.
10. There Are Thousands of Profitable Strategies
As I mentioned earlier: there is no holy grail in trading.
It is of the utmost importance that you fully understand this fact.
Once you understand that the key to trading is not finding the perfect strategy, but rather finding the perfect strategy for your psychological make-up, the journey to success gets much, much easier.
It’s tempting to think that whatever you are doing right now, maybe there is a better way to do it. And often that’s true, which is the hardest part to reconcile as a trader, especially if you’re a perfectionist.
But that doesn’t mean you should drop everything you’re doing and try something new right now.
A huge part of trading success is consistency. And consistency requires a certain amount of time to play out. If you are changing variables in your strategy too frequently, or worse – hopping strategies altogether – then you will never reach the end of the rainbow.
Trading is best approached with a Kaizen philosophy: small but permanent changes.
The Kaizen approach avoids radical change, which is not only difficult from a cognitive perspective (as our brains naturally resist radical change and find it anxiety-inducing), but also dangerous from a functional standpoint.
For example, if you start changing where you put your stop-loss without taking the time to determine if that improves or damages your long-term expectancy, then you’re never going to make it as a trader.
The problem for traders is not that it’s hard to find a profitable strategy. That’s the easy part.
The hard part is finding a strategy that suits your personality, then going through the work to test it so that you can develop the confidence to trade it.
Once you do that, most of your trading career is spent improving your mental edge, not your technical edge.
Put more energy into developing your mental edge and you will not only succeed as a trader – you will excel.