Walter and Darren jump into your questions in this episode. How do you know you are ready for “real trading?” Darren stresses looking at the process, rather than the end result. Walter encourages new traders to look at trading as a job.
From this episode you’ll get the three simple questions you must ask yourself before trading real money.
Another listener’s question about trading frequency is covered in this episode. Is it possible to take three trades per day? And if so, why would you want to? Darren and Walter both agree that the key to successful trading lies in doing this one thing well and is completely unrelated to frequency with which you take trades.
Download (Duration: 19:27 /22.2 MB)
In this episode:
00:54 – practice before jumping in
02:34 – take plenty of time
04:22 – liquidity to the market
05:37 – “get-rich-quick”
07:12 – practice to get confidence
09:03 – what is going to happen next?
11:03 – three trades per day
12:43 – what’s going to be successful for you?
14:13 – expand your horizons
15:41 – in the wrong spot
17:38 – get your hands dirty
18:34 – new traders with no system
Trading is about learning about yourself. [Click To Tweet].
The best path to getting confidence is to just practice. [Click To Tweet].
Get into that groove where you are comfortable to accept expectations. [Click To Tweet].
Walter: A lot of what you are going to come up with as a trader, and your sort of take on something, is going to happen when you get your hands dirty and you start looking around. I think that’s …
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: Welcome to the Two Traders Podcast. Walter here and we’ve got Darren on the line. Today, we’ve got a series of questions that we have coming from listeners. I thought, what we can do is take time today to go ahead and tackle each of these four questions. How does that sound?
Darren: That sounds good. I like the questions and comments from the listeners.
Walter: Excellent! The first one that I have here is: I need to take time to practice before jumping in right away with real money.
This trader’s issue is that he/she is, essentially, feeling like he/she does not have the right background in the trading system before jumping in and trading real money.
It does not sound like it is going well. What would you say to this, Darren?
Darren: It seems to me like the person, perhaps, wants it too much. Something I am aware of with traders, usually. If you’ve got to the end of your table with your particular life set up at the moment or there is some things you feel you need to achieve, it is difficult to take your time with that especially, when on paper trading looks like such quick, easy way to make those changes.
I get quite a lot with traders who want to know specifically how much money are they going to make. I think, basically, they are focusing a bit too much on the end result and the money rather than the process.
If you think about it rationally, if you are going to start any business the people who tend to be successful in that have done a lot of background work first. They really delve into their business plans and look at all the pros and cons before they’ll invest any money in a business.
I suppose, you could think about it, if you are going to make an investment with your money, the people making the best investment will take plenty of time and look at all of the details really carefully before they went into an investment.
Like, imagine if you are buying a property. You’d be a bit foolish really just to sort of “go it work”. Working to a flat is the first one you like and just say “okay, I will buy it” without really doing any research.
That is what it sounds like to me. It is really bad frame of mind to get into because when things do not work out the way you are expecting it is likely that you are going to make mistake.
If your money is already on the line there then it can aspire a lot of control very quickly.
Walter: Absolutely. I think you nailed it when you say the reasons why we get into trading, we are attracted by the lifestyle and perhaps the money, or I think it really comes down to freedom.
The point is, you want to get out of your job, you want to go to work from wherever, which you do quite well, I should add. Right?
Darren: Still doing okay, so far.
Walter: I mean, you are able to get away and stuff like that. Every time I talk to you, you are “oh, I am going to here and am going there or wherever.” I like to break it up, too.
The point is it is really like any other job. I think you nailed it, Darren. What I think people missed when they first get into trading is they look at the reward and they forget to look at the risk side, which is really why you get paid as a trader.
You will get paid to take risk. You take risk that other people would not take. That is essentially what the job is, to be in the market that a lot of people do not want to be in. Or, be in a market where a lot of people do not want to be in that market at this particular time.
The traders, they add liquidity to the market. They essentially create markets that are easy to get in and out of because so many people are participating in them. Those are usually traders, they are usually not people that are hedging or investing or whatever. Usually, people are getting in and out in some sort of timeframe.
That is what we are paid for. In the beginning, we do not have that in our minds. What I would suggest that this trader does — I am a big fan of backtesting. Most people know I will say “look, try to see if you can make it work in forex tester first then try and get a little mini accounts, see if it works in a little mini account.”
You can wrap your — or demo account and a mini account — then wrap it up to standard account if you can. You do not have to go from “this looks like a good idea, scroll back on the charts a few times.”
It looks good to trade live money. I would really encourage people to become proficient at the trading system and approach this like a job.
What is your risk going to be? What are the chances that you are going to blow up your account if you trade this trading system with this amount of risk per trade? What is the likelihood that you are going to have a drawdown of x percent.
All these things are things that people who approach trading as a job, they look at these. People who just jumped into it because it is a “get-rich-quick”. This is not to call anyone out because we all start out this way.
It looks so easy. It looks so tantalizing and really the deeper you get into this, the more you will learn that it is really about self-discovery. It is about learning about yourself. It is really a job like any others.
I would encourage this trader to definitely set goals with your practice. It sounds like you are doing some sort of practice; maybe it is with a demo account, maybe it is with forex tester too or something else, I do not know.
It sounds like you need to spend time practicing and try to go towards a goal. Double your account or triple your account is what I like to say. Try and get enough trades to triple your account.
Probably you are going to need a lot of time spending in forex tester or whatever you are using to get to that point and build up your confidence. Then move to demo account then move to teeny, tiny account, then move to a live account. You are kind of graduated to each level.
That would be my suggestion and I know people heard me say it before. I think the goal is to get to that point where you have so much confidence in what you are doing and you have a sense of what is likely to happen. What drawdown is likely going to happen.
All these things you can calculate. It does not mean that they are going to unfold exactly that way because something like a black swan could happen, your broker could go bust or the unlikely could gag a thousand pips.
All types of things could happen that are not really going to be reflective on your statistics but, the point is, it sounds like you need to get confidence. The best path I know to getting confidence is to just practice.
Set some goals and graduate up to a live account. That would be my suggestion for that one.
Darren: I agree, Walter. It is a time thing. A good indication of what you have given enough time is when you do not really have anymore questions about the trading strategy and certain scenarios.
I think that you have got into that groove where you are comfortable and you accept the expectations of what your trading strategy is going to bring. Also your own personal, the way you interact with that trading strategy.
Walter: You bring up a good point here when you say, “You get to that point where you have got no more questions.” I think that is a great point. The other side of that is something that when I work with traders, I talked about this idea and making it boring.
I guess, what you are really saying is: it is just the other side of the coin where you are at that point where there is not really much that is going to throw you for a loop.
You are at the point where “Yeah, okay I will do this now” and it is almost like you feel like you have an answer for everything. You might not really have an answer for everything but you feel that you do and it is fairly boring executing the system.
It is to the point where — I think you won’t get to this point — where it is no longer exciting because to me, if it is really exciting when you are placing a trade then that is no different than placing your money on a bet on a roulette wheel. You do not know what is going to happen.
The reason why it is so exciting to bet on a horse or a number on the roulette wheel or whatever it is is because you do not know what is going to happen. You have no idea what is going to happen.
Although we do not know what is going to happen on any individual trade, we should have a pretty good sense on what is going to happen over the long haul, like the casino does.
That would be my suggestions; to get to that point where it is boring and you get to that point where you feel like you have an answer, you do not really have anymore questions about the system.
I think that is a great point, Darren. I agree with that. It almost sounds like — in the question, I need to take time to practice before jumping right in real money — almost sounds like this trader knows that the deal here is that, here she is not taking that time to practice.
It is almost like the answer is built in to the question but I guess, one way to refocus is to be just set yourself out to accomplish goal. Try to get to that point where you can make x percent on your forex tester account before you move up to the next, next, to the next.
That would be my suggestion. If you want to refocus on the goal of getting to certain place in your practice testing rather than practice testing going “Yeah, yeah, I ‘ve got it.” Great question.
Darren: The other thing is, in the question, the trader already knows they should not be risking real money, by the fact that they are asking this questions. They are saying “Look, I am having this feeling. I know it is wrong but I am not reading into that feeling. I am just deciding that the strategy works and going with it.”
Where by asking that question, they should be able to recognize that they have a feeling of uncertainty still and they should not really be trading real money yet. A bit more personal work, really.
Walter: Alright, excellent! Let’s move on to the next one. This question comes through from a trader and it says “I need a system that offers three trades per day”.
There is a lot going on here. I would like to get your thoughts on this, Darren, that says “I need a system that offers three trades per day.”
Darren: It is like missing the second part of the question, isn’t it? Because, it really needs a “because”, doesn’t it? Why do I need three trades a day? Is that because if you do one trade a day, you make an average of twenty pips and you need sixty pips? In which case the obvious answer is to just find another two instruments to trade.
It tells us a lot about people and how they think about trading because just by taking extra trades, that does not necessarily make you more consistent. What are your thoughts?
Walter: I think you are right. Reading into this question, to me it sounds like, this trader has set a goal of x number of pips per day or something like that. That is what it sounds like to me. I agree with you.
The focus here is on trading a volume or taking lots of trades. Obviously, the question is “why?” Is it because you want to build your account to one point seven million before Valentine’s Day? You know what I mean?
What is going on here? What is the thinking here? It is probably something like that. We do not know. We are just reading into it here. We have no idea. I think there is a couple of issues here.
Number one is, like the first question, the focus here is probably on the money and the return. For a lot of traders, this is the reason why we get in trading but it is not really what is going to be successful for you.
One of the things that I have noticed in my trading — I do not know if it is the same with you, Darren — but the longer I do this, the more I understand. It is really about taking the time to understand “Okay, I have seen this before. This is what I am going to do.”
This maybe different for me and this for you. Maybe I am talking more about entries and for you it is more about exits. Over time, we get to a place where we feel comfortable enough understanding when we are in the group.
Like, for me, it maybe looking at the chart going “Yeah, this chart is definitely not a chart I am going to want to trade. I am going to stay away from that chart.”
In other times, I see a chart and I say “I cannot believe that this opportunity is here. There is no way I can miss this opportunity.”
That only comes with the experience. This trader is focusing on the returns, focusing on getting enough pips or trades to ramp that account as quickly as possible.
Probably not looking at things like the risk of drawdown. Risk could have ruin all these things that are going to basically stop you from trading. They are the real issues here.
I would suggest that if you really want to do this, first of all, like Darren said, take a look at different markets. Let us assume that you have done your homework. You understand your system and if you are not getting enough trades, expand your horizons.
Look at multiple time frames, your multiple markets. Get your hands dirty in different time frames. If you have not tested those and basically open up your universe, that is the really easy thing to do.
Forex brokers, they offer like “you can trade bitcoin now in this season stuff”. I mean CFT is crazy. There is so much out there, so many markets out there. I would not be really concerned about the number of trades.
I would be more concerned about why it is that you feel like you need to take three trades per day? That is the real issue here and also the other side. The other thing about this, Darren, is three trades per day? What that is going to add to the bottomline of your account?
Your equity curve as a whole, that is going to depend on things like your win rate, your reward/risk ratio, all that stuff. That is not even really being considered here in this question.
Which is, what is your risk/reward? What is your win rate? How much are you risking per trade? All those real critical questions that need to be defined by your system. It is not really even being considered here.
For example, if you have a seventy-five percent win rate, three trades a day might mean two winners and one loser but if you’ve got a thirty three percent win rate, it is two losers and one winner.
Then, of course, the way the reward/risk ratio works in there will tell you how will your accounts going to build overtime? I would definitely say the focus here is probably in the wrong spot.
Instead of being on trading volume, you might want to focus on figuring out a system that you can trade on multiple markets or figuring out a way that you can trade, maybe you only have time to take one trade a day. Is there a system? Is there a way that you can tweak that system so that the risk/reward is good enough? So, you feel like “that is okay”.
There are lot of things here that I think are being missed by this question. Part of it could just be because the question’s so brief and we do not know the whole background here. We are just speculating but the focus is on being active. It should be really on execution and that is basically the issue I have with this one.
Darren: It is like, he is going to stage two before he’s done to stage one. I would always suggest just playing around and finding a style of trading that suit yourself, then consider your goals and how you can make that trading system fit in on what you have to do in the day. Generally, sort of the return that you won.
Trial and error on a specific trading style. Find something you are comfortable with then look at your results and say “Okay, well this is like my average win rate. This is what I am average on winning, on losing” and from there you can then make the system fit your goals rather than doing it the other way around.
Walter: You remind me of a good point. The trader that I know — we we are working with this trader — and he was saying “Look, I need a backtest but I do not know what to backtest. I need to find a system.” It was like, everything had to be a placed before he even press “go” on forex tester.
The point that we made for him was a lot of what you are going to come up with as a trader and your take on something is going to happen when you get your hands dirty and you start looking around.
It sounds like, that is what you are getting at, Darren. Where by getting in there, testing things out and having a look at the market, you are going to define your beliefs. That is really going to direct you toward the system that you need to be trading.
That is something that I would recommend for the new traders out there. You just do not know where to start. One place is just get in there, start taking trades and figure it out.
You will get to the point where you will say “Okay, this does not make sense. This market is totally taking off without me and I do not like that feeling so I am going to use the trailing stop or whatever it is” or “Whenever I see this pattern, it seems like the market does this”. So, you will define what you are going to do as a trader because you’ve got in there. You are taking some trades and you see what you see.
We all see different things when we look at the charts but I think that is one thing that needs to be made clear for those new traders out there who do not have any system. Just because you do not have a system, does not mean you cannot define one by doing some testing.
Might only just be taking a seed of an idea from another system and using that in your own testing. Something that I just want to point out for those traders who do not know where to start.
Alright, that is the end of part one, you will see in part two all about spearfishing, fishing with the pole and the big problem that institutional traders have — those traders that face in hedge funds — that we probably do not even think about as retail traders.
Stay tuned for the next episode where you will that and more at the Two Traders Podcast.