Walter and Darren dig into a trader’s question about confidence issues with support and resistance trading. They talk about trading beliefs, the dangers of tweaking your system to fit what other traders do, and using your emotions — such as fear — as a tool in trading.
They also share some tips for keeping your confidence up and how some successful traders use support and resistance in this episode.
Download (Duration: 22:51 /26.1 MB)
In this episode:
00:10 – not your goal
02:18 – an interesting trader
03:06 – fantasy versus reality
06:17 – trading robots
08:27 – one path fits all
10:05 – “if’s” and “but’s”
12:30 – risk management issue
14:38 – unique occurrence
16:33 – worst than you thought
18:10 – focus on the reward
20:06 – not just about money
Darren: It’s not just about money and if you can, if you do make it just about money then it’s probably not going to work for a lot of people…
Announcer: Two traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.
Walter: In part two, you will learn how our goals determine our outcomes when it comes to trading. You’ll also see how your trading fits into your life and how you can make that fit in more comfortably.
Darren gets into this idea of the questions you’re asking and how these really determines whether or not you’ve explored what trading really means to you and what you’re going to get out of your trading. It’s a fascinating discussion.
We also talked about the no loss trading system. This is something that you should definitely pay attention to. What you must be comfortable with to succeed at trading over the long haul.
Finally, we also looked at ice cream businesses and forex trading, their differences and similarities.
If you haven’t listened to part one of this discussion, I would definitely suggest that you go back to episode 49 and listen to part one but, if you have, then you’re probably ready to go and you’re ready to listen to part two so, here we go.
This is part two of discussion about trading Success.
…These are things that people forget about. Why aren’t you flying around in private jets and driving Ferraris to the grocery store? One reason could be because that’s not your goal. That’s not what you want.
Another reason could be is because you’re not the kind of person that just compound accounts. You like to take a salary, so to speak, from your trading — maybe a little bit risk reverse like I am. I’ve known too many people who’ve lost their accounts or lost a large chunk of their accounts from brokers that have gone bust.
People may not remember the brokers that once existed but many of them have totally just evaporated. Those people who are listening to this are new to forex and had considered — this is something to really keep in mind — that your money is not really yours.
What happens is in most cases, your broker will put your money in a big pool with everyone else’s money. All the other traders that have a live account, all the money basically goes into one account. If something happens to that company then that money may be spent elsewhere and may not be available to you. Something to keep in mind for sure.
I supposed one of the things that we’re basically trying to highlight in this episode is that one: Your trading is going to really fit into how you see your trading life. If that means that you’re going to be traveling around the world, taking trades here and there as you can to fund that travel then that’s the kind of trader you’re going to be.
If your trading is set up because you want to build up an account size to a certain amount so you can put your kids through college, or private high school or whatever it is, and that’s going to be what you’re going to do.
If it’s just the salary, if you’re taking your trading so you’re moving away from your job, or let’s say you’re pulling in salary to a trading lifestyle where you’re still pulling in that salary, you can be pulling money out.
It’s not gonna be growing as fast because you’re using your trading capital to basically fund your life. These are the sort of things and a lot of people aren’t comfortable trading huge amounts of money.
One of the stories that I like to tell is the one about our friend Collin. Collin was an interesting trader. When he got his first job at hedge fund, they didn’t tell him how much he was trading.
When he found out how much he was trading, it changed everything for him because literally every pip, every time the market went up or down against him or for him with his trades, it was like the price of a Ferrari.
They didn’t tell him that he was trading the economy of a small Eastern European country. These are things that make it to him, these are the sort of things that happen. You’re not aware of all these factors that go into how quickly are you going to build your account.
Certainly, it’s one of these things that you should think about. The idea about trading and what people think about trading versus what it really is, I think is there’s disconnect there. People think that you’ve got butlers and drivers and private jets and all these things because you’re a trader.
The reality is, last night, I didn’t get any sleep because I took my little kid to the hospital. You know what I mean? Like, my butler didn’t take my kid to the hospital. I’m a trader and I didn’t have a private nurse taking care of my little girl.
We we’re in a foreign country and she’s really sick so last night we we’re at the hospital until three in the morning or whatever. These are the sort of things so it’s really just like any other life unless you’re in that sort of little tiny bubble of being the owner of a hedge fund where you’ve got a lot of deposits and that’s sort of thing and you live in Singapore and you’ve got a lot going on.
I think a lot of people assumed that because you’re a trader.
Most of the traders I know, they’re just normal people. They ride the bus, they go to the gym, they go on holiday. They go to the pub, they go and eat fast food. They’re not always eating in a five star restaurant and all that sort of thing.
It’s interesting that you bring this up, Darren, because I think it’s a really important topic. People forget that just because you’re a trader doesn’t mean it changes who you are in exactly sort of your trajectory. I think it just gives you a little bit more freedom, really.
Darren: If the questions that pop into your head that you want to ask are very one dimensional and think in that very one dimensional view of what trading is, then you probably haven’t explored your relationship as a trader with trading fully yet.
When you do, then those sort of question jumped into your head so often. What I mean by that is just don’t accept what your first gut reaction is about how you should trade and what you should be trying to achieve.
If you can’t really find where you fit into the whole trading thing and where you can find a place to make it work for you, you’re not really going to find that by doing some self-examination and looking at yourself and what you really want to achieve.
For instance, if you’re working a full time job and you’re trying to trade a sixty-minute chart Monday to Friday while you’re in the office and you want to be a millionaire, then you’ve got to ask yourself, “Am I into trying to achieve sort of this actually achievable here?” I think you just have to be open minded and be realistic in your expectations.
Walter: This is why I think this era in a forex retail world is sort of has passed us by and it’s in a rear view mirror. This is why historically, in the 90’s — or started out in the ‘90’s but in the early 2000’s, — there was a bunch of, basically, “BS” about this trading robots.
Trading robots were sold and they were basically sold this idea where you could buy this black box, download it on your computer, click the green button and then just walk away. Come back and in forty five days, your account has grown, you’re over at one point three million now.
These sort of things that hay day has kind of left us and I think most traders now are savvy enough to know that those things typically don’t work. If they do work, they can work for sometime but they can also completely milk your account. They’re the kind of things where it’s just like the no loss system.
This is a no loss trading system. The trading system completely blew up your account. You have no more money because you have a margin call but there was no loss. You didn’t take a losing trade because you’ve just got a margin call.
These sort of things are over with but that’s why they appeal to so many people because people didn’t really want to play the game. The game is, as you’ve identified is, you really have to sit down and think “Okay, how am I going to do this? What’s going to make sense to me?”
Does it mean I’m going to sit down and trade the four-hour charts, the daily charts, the one-hour chart, the five-minute chart? How much time am I going to focus on this? This is my job, you have to approach it as a job and so it’s not really about the system.
This is one of those things that people think. They think they can find a million dollar system and just plug into that and do what so and so is doing because he’s got a million dollar system and you’re on your way.
It’s not really that simple because you’re the one who’s pushing the button. You are the one who’s really going to determine the outcome of your trading. It’s one of those things that I think it’s good that it comes out in this session.
It’s something that people don’t think about a lot and it’s also the reason why some traders are trading really large accounts. Other traders are trying to compound a small account. Still, other traders are just pulling out money every week.
These are the sort of things you have to keep in mind when you look at this. It’s not one-path-fits-all, it’s really kind of an individual thing. That’s kind of, in a way, what’s so nice about trading and most of the traders I know are pretty unique people.
They’re not sort of persons that says “Well, I’m going to Oxford”, “I’m going to go get a job over here”, “I want to make a bunch of money and I want to retire”. These people actually have a little bit more creativity in their approach to life.
Not always, but many traders who want to be self employed traders, this is their approach. This is their path because they want that freedom.
It’s a great question why aren’t all traders flying around in private jets? Really, it comes down to the trader. Doesn’t it, Darren? It’s really about the trader and what’s his or her goals are and how he’s going to approach this. That determines where you want to be.
Darren: Definitely. It’s about knowing yourself and understanding what you want to do, what you’re capable of. Then using your abilities to find your way to be consistent and successful in your own route.
Walter: Let me just ask you something because this is something that I think a lot of people, if you’re new to trading, something that you might be thinking about. If someone would come to you, Darren, and say “Hey, Darren, I really like the way that you trade system x, y, z. I’d like for you to show that system and I’m just going to do exactly what you do”. What do you say?
Darren: I can show them the system for sure but there’s a lot of if’s and but’s in there, not going to be black and white and you can’t really write down — before, I used to write system rules down. I don’t really write system rules down anymore. I write guidelines for what my approach is going to be and what’s the difference in that.
Let’s say, for instance, my rule is to take every valid entry. Sometimes, I’ll miss one, sometimes I’ll decide I don’t want to trade one. How can the system work? How can I believe the system work if there’s rule but I break them sometimes and I don’t other times?
It’s because I believe that has as much possibilities of being successful as a system that’s rigid in black and white with very strict rules that you follow all of the time. There’s no simple or one answer to the question.
It’s questions like if someone asks you what was your worst month? Or, what was your worst drawdown trading the system? I don’t like to answer that question because it’s completely irrelevant. My worst drawdown might be one percent but that doesn’t mean that next month I could wipe out my whole account with any system.
No system or strategy is going to protect you from that. The sooner you appreciate that, or you’re quite welcome to disagree with it completely. For me, once you’ve completely accept it, that uncertainty and that risk, then you can become comfortable with trading and you can make better risk decisions.
Darren: How do you feel about that? I mean, that’s just how I see it. You can have the best system in the world that’s got the most amazing track record but that could be, at the same time, it could just carve for you a really bad run. Where the market conditions just like as fallacy could possibly be for that particular system.
A little bit of luck when against you as well and you could lose everything.
Walter: Absolutely. That to me is a risk management issue. I think the larger issue or the more likely issue, I should say, is that when that happens the trader lose his confidence and throws out and gives up. That, to me, is the big problem with the drawdown or as you say… Let’s say that we agree the market has changed. The market has changed from June to August. It was weird and we lost all these money. We have this massive drawdown from June to August and so what are we going to do here?
What will sometimes happen — like in a normal business — in a normal business, you say “I’ve got this ice cream business and I’ve got this competitor who’s coming, who’s moved in and he’s selling these ice cream that everybody loves. Totally different flavors to mine. They’re a little bit cheaper than mine and my business is going down the tube. What am I going to do?”
I’m going to change my business. I’m going to change my menu or put a clown out front so people will look and say “What’s in there?” I’ll do whatever I can to make sure that I can recover because this competitor is coming in and he’s really handing it to me.
In trading, I don’t necessarily think that normal sort of business thinking fits. I don’t think that’s the right way to go. A lot of times what will happen is people will go on these drawdowns. They’ll really get beat up and then what happen is they give up. They’ll say this system doesn’t work anymore, the market has changed.
What they don’t know is that they might be at that almost the perfect place when they throw their hands up and say “That’s it and I’m done, this isn’t working anymore. I’ve got to move on to something else”.
That could be the one spot when the market completely changes and goes back into face with that trading system and now they’re making money again. To me — you know what I mean? — that’s the real worry.
Darren: Definitely. It’s not having those realistic expectations. People do that backtesting and they see bloody all March, in 2011 was terrible. Back then, when it’s happening right in the moment, they seem to think that it’s some sort of unique occurrence.
Even though they backtested it and seen it happened from time to time, it happens and you have bad periods and the thing to do is to stick to your guns. When you’re actually in the moment, the pain is too much and it’s frozen, of course.
It’s amazing how quick that happens. It can be, literally, Monday afternoon at the start of the week and it’s gone really badly and people are absolutely crashed by it. Whereas, when they did their testing to see how the system performs over different market conditions, it’s completely in line with what they should expect from the strategy.
We have too high expectations of how our strategy is going to perform. We spend a lot of time getting these figures and going really deeply into them to see what the performance is like. When the system is actually performing in that manner, the bad elements of it, people can’t live with it.
Walter: That’s right. You’re absolutely right. A lot of traders, I believe, are looking toward the reward and they forget about the risk. The reason why they’re getting into trading is because they want the private jets and they want the butler and all that and the big house and everything.
They forget about the risk. The risk is something that, to me, is really where you’re going to make your career. If you can get that piece down, you can understand that, “okay based on this, based on taking this risk with this system, I expect to see this happen.”
It’s always going to be different in real time when it happens in the future. It’s always going to be, most likely, it’s going to be worst than you thought it was going to be. These are the things that people don’t really… you know, they’re looking for the reward. They’re looking forward in the way out of their job, they’re looking at the big pile of money and the big house. They forget that the risk is the reason why you get paid that.
You’ve got to understand that risk, you’ve got to handle on “Okay, if I lose thirty percent in my account, so if I’ve got a two hundred thousand EUR account and I lose sixty thousand EUR. That’s a lot of money for a lot of people. Am I going to quit?”
“If I lose sixty thousand EUR, is that something that’s going to send me to thinking maybe this trading thing isn’t going to work?” These are the sort of things that people have to consider because if you can’t handle a risk, there’s no way that you can play that long in the game. You’re not going to survive. You’re going to be one of the statistics.
If you ask any old trader, ask a really old trader — this is really a good thing to do actually. If you can seek out an old trader, somebody who’s got the weathered face and a big long resume, ask them, just say these: “I want to get into trading, what’s the one thing that you think I really need to understand in order to make this a career?”. See what the old trader tells you.
I don’t see any really honest answer other than something along the lines of understanding the risk. That’s really what it comes down to. It is why most people don’t do this because they don’t want to take the risk.
Sometimes we’re focused on the reward. We’re focused on the reward when we say to the trader “hey, how come you don’t have a hundred and fifty million dollar trading account and you’re not mincing with models and running private jets and driving Ferraris?”
That’s the thing. We’re focused on that reward. Again, it’s a reason why we get into this — for a lot of people in the beginning, anyway.
Alright, Darren, in summary you bring up a good question. This is a great topic to cover and for me the reason why a lot of traders aren’t at that level because one, that’s not their goal. It’s not what they want. Two, is because they’re using trading as an income so they’re not compounding their account necessarily.
Three, it could also be because they’re a little bit risk-reverse. They understand that there are risks in forex and you have to be careful where you place your money. Even if you move from retail forex and you go and opened up an account somewhere else outside of forex, you’re actually accessing the real interbank trading market.
You still have to choose your broker carefully because, as we’ve seen through the GFC, some of these brokers go belly up too. The risk might change slightly but they’re still involved in this process. It doesn’t matter where you are.
To me, it’s important for people to understand that, what you’re really looking for and how you’re looking at the risk of this. That’s going to determine what’s your trajectory is like as a trader.
Those are my thoughts on this. Darren, what are your thoughts? In sum, what are your thoughts in terms of this idea of why isn’t every trader a million dollar trader? What are your basic thoughts on this, to sum it up?
Darren: To sum it up, it’s not just about money and if you can make it just about money then, it’s probably not going to work for a lot of people. You need to find where you’re comfortable with and how you can make trading fit into your life. How you can find that place where you can be consistent.
You might touch close to it a few times and then falter. The point is it’s not always going to be your strategy that is messing you up. It might be your relationship with the money that is affecting how you trade.
Walter: That’s a really, really good tip. Thanks for your time, Darren. I really appreciate it. I hope you guys enjoyed this episode. If you did, please take the time to rate us on itunes. That’ll be awesome. That helps us out quite a bit.
So, we’ll see you in the next episode, Darren.
Darren: Cheers, Walter! Bye.