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Personal Costs and Trading


This question was sent to me from one of our students:
"Hey Joe! I’m struggling. My home life is not conducive to trading, and I’m not sure whether to continue. I’m not even sure of which things are important."

Almost anyone who wants to succeed needs to ask themselves certain questions before beginning to trade. Essentially, it is a matter of counting the cost BEFORE, not after you decide you want to pursue trading as a serious part of your life.

What time period trader are you? How long do you feel comfortable holding a trade and how much financial risk can you comfortably assume on a one contract basis? How much money would you need to lose before you quit trading? How much would you need to win to quit? You should know the answers to these important questions before trading, and review them frequently. Your money management skills are the most important tools you have to trade the markets. With good risk averse money management skills, and even a mediocre trading approach, you will be successful. With a great trading approach and poor money management skills, you will lose money. Remember, a winner will find a way to win with a losing trading system and a loser finds a way to lose with a winning trading system. No man with a failed home life truly achieves any success.
quote:
Originally posted by Joe Ross

...a winner will find a way to win with a losing trading system and a loser finds a way to lose with a winning trading system.

I agree and can easily understand the second part of that statement, that a loser will lose with a winning trading system. However, how can a winner win with a losing trading system? That seems counter-logical to me...
In trading, consistent profitability is difficult in the best of circumstances. Making the transition from failure to success in trading is exponentially more difficult if the work environment, financial resources, or home life are under constant stress and pressure to "turn things around".

There is an old saying... "weak hands never win"

Mark Douglas talks about this with his "carefree trading" mindset concept.
quote:
Originally posted by day trading

quote:
Originally posted by Joe Ross

...a loser finds a way to lose with a winning trading system.

I agree and can easily understand the second part of that statement, that a loser will lose with a winning trading system. However, how can a winner win with a losing trading system? That seems counter-logical to me...



I view this from a rational perspective.

An edge is a mathematical advantage, nothing more.

A consistently profitable trader has an edge. Conversely, a losing trader has no edge.

Take away the edge, and the profitable trader will no longer be so.

A serious trader, when taught a winning system with the correct money management strategy, as well as careful mentoring, can make the transition into a winning trader. I am not saying 100% will succeed, but at least 50% can when given a true edge and are carefully taught how to best use it.
However, pt, do you agree that a winner will not be able to win if they have a losing trading system? No matter how good you are at being optimistic or successful or whatever other trait you measure a winner by, the winner will still not be able to turn a profit with a system that does not have an edge - i.e. a losing system.
quote:
Originally posted by day trading

However, pt, do you agree that a winner will not be able to win if they have a losing trading system? No matter how good you are at being optimistic or successful or whatever other trait you measure a winner by, the winner will still not be able to turn a profit with a system that does not have an edge - i.e. a losing system.



yep I agree... using a system with no mathematical advantage will very quickly move the winning trader into the losers camp... good money management can help slow the descent some, but the math of the situation will eventually overwhelm even the best money management strategy and lead to failure.

One problem many (most...perhaps all) traders have is that of our internal self esteem versus objective reality. We tend to make the cognitive mistake of thinking (wishfully) that our trading skills are better than they actually are. In so doing we lead ourselves into the belief we can, through our will and desire, overcome a mathematical disadvantage. The point I am making here is there is a very fine line separating success from failure in trading. Even the best edge is a thin one which can evaporate instantly with the slightest misstep. Once we slip across that boundary into failure, the psychological demons are ready and waiting for our sensitive egos.

In the fun math facts thread, we showed the math behind making $40,000 per year trading only 2 ES contracts and making a net profit of just 2 ES ticks per contract per day. Anyone looking at that would say well that's simple enough, trivial even, certainly any trader can do that... just 2 ticks profit per day ... yet we see statistics indicating 95% of all traders are never profitable... the eternal dichotomy of trading ...
Yes, that's exactly what I was thinking. A bit like a gambler trying to beat roulette or any other game of chance in a casino where the edge is in favor of the casino.