Do You Want to Make Money From Trading?

…Or Do You Want To Have Fun?

Because you can’t have both.

Many traders spend most of their time throwing money at the markets without a long-term plan or strategy to actually make money. They think that if they keep taking trades with large position sizes then it’s only a matter of time before they catch The Big Win.

This is common with rookie scalpers and day traders in forex and crypto trading.

Many scalpers and day traders think that putting huge positions on and catching small moves gives them an edge over the markets. But in my experience, most traders who trade this way (who don’t have a time-tested trading plan) are really just chasing excitement.

And their bottom line usually shows it.

Taking large risks without a real plan or strategy is the fastest way to lose all your money. Trading is not just about taking on risk – it’s about managing your risk. Taking risk is only half the picture – the other half is defending yourself against catastrophic losses.

But that’s not sexy, is it? That doesn’t generate clicks or book sales. And yet, it’s the most important part of successful trading.

Anyone can take risk. Not everyone can keep what they earn.

Real Trading Is Boring!

If you are having fun when you trade, there is a very high chance that you are doing it wrong.

I’ve never met a consistently profitable trader who referred to their trading business and routine as “fun”. Stimulating, maybe, but not “fun”.

Traders don’t have fun in the markets. They are controlled and disciplined. Fun is something you do after your trading session, perhaps sometimes with the money you earned from your efforts.

But if you are trading for fun or excitement then there are only three possible explanations.

  1. You’re trading far too large and the equity swings are triggering endorphins and adrenaline, just like in gambling.
  2. You are experiencing an abnormally profitable streak and you’re taking personal credit for it and associating your personal worth with your trading system’s results and feeling euphoric, which is bad for your focus.
  3. If you don’t fall under either of these two categories and you’ve been trading for longer than three years, then you’re eccentric and not a “normal” trader!

The reality is that new equity highs are not the norm for most traders. Most traders spend the majority of their time under water in terms of equity drawdown, with only occasional leap forwards in equity growth.

The key to their long-term success is their conservative risk control. Most professional traders don’t risk more than 1-3% of their capital on any trade, and 3% is seriously pushing it. Only the best traders risk that amount on only their best setups.

So that means that huge wins that get your adrenaline rushing are few and far between. Most of your time as a trader is spent taking and managing losing trades or small winners to keep your equity curve as steady as possible.

There’s nothing exciting about that. There’s nothing glamorous about that. That’s the cold hard reality of trading.

Don’t Focus On Just Making Money

Have you ever in your life heard an extremely wealthy person talk about money the way your average trader does? I doubt it.

If you didn’t already know that Warren Buffet was one of the richest men on earth and you ran into him at McDonalds, you’d have no idea that he’s a multi-billionaire.

If you saw Jeff Bezos out at dinner with his family and you had never seen his face before, would you have any clue that he’s one of the most powerful businessmen on earth?

If you came over to visit Bill Gates at his multi-million dollar mansion and saw him washing the dishes, would you be a little confused?

If you are, it’s because you don’t understand human beings. We are not driven by money. Despite what popular culture might tell you, focusing on money will not get you there.

At least not on its own. And in fact, focusing on money can induce anxiety in such a way that makes it even harder to make, which is an ironic catch-22 that The Secret never warned you about.

Positive visualization is not enough. The “Law of Attraction” doesn’t work by just focusing on something. You must combine your vision with action if you want to see results. And if you want to make serious money as a trader, then you need to drop your focus on your profits and returns and instead focus on what is in your control: your systems and processes.

Some people will disagree with me here, but that’s either because they already have plenty of money and they forgot the path they took to get there, or they don’t have any at all.

Process Over Outcome

The secret to making money is not to want money. Everybody wants money!

What separates those who have money from those who want money is their process. Wealthy people focus on the process of making money, not the money itself.

They know that if they continue to make the right decisions and allow those decisions to compound over time, then the money will come.

If Steve Jobs had focused on what sells instead of the process of invention, then he would never have created the iPhone or the iPad. What would have been the incentive? Because up until then a touch phone had never existed. No one knew what anyone would pay for one. Certainly no one knew that it would one day be in the hands of nearly every person on the planet.

Instead of focusing on what would make him the most money, he worked hard at applying good ideas into action, and the success soon followed.

Obviously not all of us are creative geniuses like the pioneers I’ve mentioned in today’s article. But we aren’t that dissimilar, either.

When it comes to trading we are all operating on an equal playing ground with equal opportunity.

Maybe some people are better at their niches than others, maybe some people have more information than others, maybe hedge funds have better technology than retail traders etc.

But you don’t have to play the same game as others as a retail trader. Unless you work for a hedge fund (in which case I’m surprised you’re reading my blog) then you don’t need to constrain yourself to the rules that the Wall Street elite have to.

You can trade however you want to, in whatever market you want to, using whatever techniques you want to. And there are thousands of ways to be profitable in the markets.

All you need to do is find what works for you and suits your personality, and then have the discipline and confidence to stick to it until you make it work.

How Traders & Investors Make The Big Bucks

Successful traders and investors don’t make big money by taking big risks.

In fact, taking big risks is the fastest way to blow up and lose everything.

Instead of taking big risks, successful traders take lots of controlled risks in high-probability high-reward opportunities. They make their money through compounding their returns over time.

You’ll never hear of a large trader or investor bragging that they just made a few million dollars on Bitcoin by putting their entire equity in without a conservative exit plan if things don’t work out.

But you’ll hear plenty of stories of rookie traders and investors who lost everything by doing that.

Some of the most successful traders and investors in history have a track record of rarely risking more than 3% of their entire account balance per trade. Most of them risk 1% or less.

Peter Brandt, one of the most widely known and respected veteran discretionary traders of the modern era, is an exceptionally profitable trader with a track record of profitability stretching back decades.

I read his book Diary of a Professional Commodity Trader recently – and in that book Peter reveals some of the intimate details about his trading strategies. And one interesting thing to take away from that book is the fact that Peter rarely risks more than 1% per trade on any given opportunity, no matter how “good” it looks.

In fact most of his trades start with a position size equating to just a fraction of 1% of risk.

And yet he is one of the most profitable discretionary traders of his era.

There are more stories of this from highly reputable traders as well. Another great example is Bill Lipschutz.

Bill Lipschutz is a famously successful American trader and has gained hundreds of millions of dollars throughout his career and now has a net worth of a very modest two billion or so.

He told his story to Jack Schwager in the excellent book New Market Wizards. Bill started trading while at college and managed to turn a $12,000 inheritance from his grandmother into $250,000 over a period of about four years.

Pretty impressive, right?

Well, sadly, it didn’t take him long to lose ALL of that money on one bad trading decision. In a matter of days he blew the whole lot!

After this happened he didn’t quit trading like most would. Instead, he turned his focus to better understanding and managing risk – and he went on to become one of the most successful traders of his generation.

If you want help making money from your trading then you’re going to need to find a good mentor. If you’re not sure where to start, I’ve written a detailed guide on what I think the best steps are to Find A Trading Mentor.

Hopefully everything I’ve written here inspires you to take your risk more seriously in trading. Managing risk truly is the key to successful trading. Don’t focus on the potential rewards, don’t focus on the money, don’t focus on getting rich quickly – focus on protecting your profits and growing your capital over time.

Do that, and you’ll attract wealth faster than you think possible not through big risks and big wins – but through the magic of compound interest.

But don’t take my word for it. I’ll leave you here with a few quotes from some of the most famous and respected traders in history:

If a trader is motivated by the money, then it is the wrong reason. A truly successful trader has got to be involved and into the trading, the money is the side issue… The principle motivation is not the trappings of success. It’s usually the by-product – simply stated, “the game’s the thing”.

Bill Lipschutz

I’m only rich because I know when I’m wrong. I basically have survived by recognizing my mistakes.

George Soros

Don’t focus on making money, focus on protecting what you have.

Paul Tudor Jones

Losing is extremely important. Winning’s easy. Losing is the key to trading.

John Moulton

I know where I’m getting out before I get in.

Bruce Kovner

In trading, you have to be defensive and aggressive at the same time. If you are not aggressive, you are not going to make money, and if you are not defensive, you are not going to keep the money.

Ray Dalio

The market can stay irrational longer than you can stay solvent.

John Maynard Keynes

Amateurs think about how much money they can make. Professionals think about how much money they could lose.

Jack Schwager

Don’t worry about what the markets are going to do, worry about what you are going to do in response to the markets.

Michael Carr

Never average losses.

Jesse Livermore

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10 months ago

One of the best articles I`ve read. Truly appreciate the wise words.