What Makes Learning Trading Truly Difficult

Posted by jmot in Thursday, May 28th 2009 under: Psychology, Trading Strategies Tags: trading

I have been pondering over this for the last few months. So just thought I will share my thoughts and seek some comments and feedback.

Information Overload

With the advert of the internet, web 2.0 and so on, we can find trading knowledge all over the place eg, blogs, forums etc. There are specialized websites that show us thousand and one trading strategies and even which candlestick patterns work better! And if we also look at the number of books, courses and seminars on trading available, we are really spoilt for choice. End up, i believe most of us have spent a hell lot of time reading and testing but yet to find THE working formula.

Teachers teach what work for them only

In Post Image - Surprise Then we begin to think: “Hey, perhaps I can spend some money (or a lot of money) to find someone who is already good in the trade to teach me.”. Recently, I realized that most, if not all, of the teachers teach what work for them as individuals, isn’t it? The chances of fully replicating a teacher’s trading style and strategy is near zero due to our unique up-bringing and cultural influences. Chances are one will need to attend a few courses and if he were lucky, he would be able to mix and match, and improvise what he had learnt to find THE WAY. What is needed: more time.

Rogue information

Some of our time are also sucked up by articles or teachers that teach rubbish.

Too many parameters to tune

I truly believe what’s underlying that makes trading difficult is simply because there are too many parameters to tune. By parameters I am talking about:

type of instrument - options, stocks (local or overseas) , futures, forex, CFD, warrants etc
timeframe to trade - 5 min, 15 min, 30 min, hourly, 4 h, daily etc
lot size - a couple of position sizing techniques are mentioned in Dr Van Tharpe’s book
entry strategy - which timeframe to enter, what and how many indicators to use, which candlestick/chart pattern to look out for?
exit strategy - we have the same amount of choices as for entry strategy

If you were to mix and match the above, we have unlimited possibilities! Not to mention there are over hundred types of indicators and candlestick/chart patterns! Now, how much time do we really need?

Difficult to discuss

When aspiring traders come together, we usually talk about what work and what don’t. However, because of the short acquaintance, traders usually don’t spell out the entire context. For instance, a aspiring trader sharing with his friend may say: “The MACD indicator works for forex.”. But… in what timeframe, what parameters, which currency pairs etc. I think you know what I mean. And those who are listening to him may take his “recommendation” and go back to do their own testing and wasting time as a result.

When something doesn’t work it is normal

In my personal opinion, this is the most challenging issue to tackle. Let me illustrate with the following scenario:

I backtested a system, and it worked for historical data. And when I traded it live, things don’t turn out as well. Explanation: Well, past performance don’t gaurantee future result, market condition changes, anyway, best traders only have success rate of 60% at best, etc

If I come to think of it, we can’t have a clue to what’s working what not!?!?

Do you have any personal experience to share?

in post image by bensonkua

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11 Comments Already

Brendan Said,

May 28th, 2009 @7:40 pm

Different currency pairs have different behaviour. So quantitative tests have to be done to find out which indicators work for each currency pair.

According to my quantitative analysis, MACD works well for EURUSD.
I had made some profits on EURUSD by using MACD, see my videos below:

1. http://tradingeducationprogram.org/2009/05/26/how-do-i-profit-us480-from-eurusd-trade/

2a. http://tradingeducationprogram.org/2009/05/28/learn-forex-how-do-i-earn-us877-from-eurusd-trade/

2b. http://tradingeducationprogram.org/2009/05/28/learn-forex-how-do-i-earn-us877-from-eurusd-part-2/

I think Chris has asked me to show some videos and here it goes..

Nixon Said,

May 29th, 2009 @9:08 am

hi jmot, agree with you. Trading is akin to learning kungfu. First you go round trying to find a master to learn from (trading style). Some suits you better than others.

Then when you thought you found one that is for you, you find it so difficult that you begin to have second thoughts. Maybe I should look for another master (trading style/system). You may start jumping school and be hit with the same problem… again and again.

Until you realise that the other part of the training is in yourself (trading psychology). You’re lucky if you meet a master that can help you with that and steer you in the right direction, else we better hope we realise it ourselves sooner than later.

My thoughts would be:
1. Choose a market that you have “feelings” for. whether its forex, stocks, options. Its not the market that makes you money, its how good you are in the market that makes you money. So better stick to one and be good at it. Even the best professional traders don’t trade more than 2 markets.

2. Choose a style that suits your schedule and personality. Whether its long or short timeframe, price action, indicator based or even astro based…haha. Focus in that area of study and try to master it before trying to “explore” more. I know its tough as I go through that path myself… but do keep the big picture in mind so that you don’t loose yourself too much. And enjoy the learning process.

3. The first lesson I learnt from my teacher in trading is patience. And the last lesson is still patience. Patience in learning the ropes of trading and patience in waiting for that “AAA” trades to invite you in. If you have less patience, try trading shorter time frame. If you have more patience trader longer time frame. That’s one way to look at it. But whatever ever type of traders you are. You still need patience to be successful and to last in trading.

4. The real test is putting real money into the real market. That’s when the “real” learning starts. Just like you spent 5 years learning kungfu, now is the time to go to combat. You might (and likely) to get hurt the first few rounds. However your training would have kept you out of too much injuries to make sure that you can fight the next duel. This is street experience. Just like trading the market. The objective is to not get hurt too much (risk management) so that you can continue to fight again and again. After 10, 20s, 30s… fights. You’ll get better. Your trading gets better. Less losses, smaller losses and you begin to see bigger wins coming in… hey…you’re on your way to being a successful trader

Just my 2 cents….:)

Brendan Said,

May 29th, 2009 @11:07 am

Nixon, are you a successful trader now?
My definition of a successful forex trader is earning 200 - 500 pips per month consistently.

jmot Said,

May 29th, 2009 @3:39 pm

thanks for sharing, Nixon i second you on the patience part. really, some things just cannot be rushed. no overnight millionaire!

Brendan Said,

June 3rd, 2009 @9:15 am

Heard of good buying by hedge funds, macro funds and central banks on EURUSD yesterday.

jmot Said,

June 3rd, 2009 @3:02 pm

thanks for the tip, Brendan…

Brendan Said,

June 3rd, 2009 @3:13 pm

Jmot, dont mention. These are news that I provide to my subscribers.

I have been working in the financial sector for a long time so I have gathered connections from banks in Asia, Europe and USA. We share order flow and other juicy news.

This way we will know who are the big buyers and big sellers. Since we know that huge institutions like central banks and hedge funds are buying EURUSD aggressively for the past few days, we do not want to end up on the opposite side of the trade. We want to buy with them and ride up the trend.

I just heard of more buying on EURUSD by Asia Sovereign and Russian traders.

coconut Said,

June 11th, 2009 @1:44 pm

hi there,

quote: I backtested a system, and it worked for historical data. And when I traded it live, things don’t turn out as well. Explanation: Well, past performance don’t gaurantee future result, market condition changes…

that is a valueable lession u had learned.

trading is difficult becos u are learning the wrong thing. being technical or fundimental or who knows what trader, beg able to reason with yourself with logic is the most important thing you got to learn as a trader. money/risk management cames in 2nd place.

i once read from a famous trader quote : being bullrish n not being long is illogical.

i fully agree.

best wish

coconut Said,

June 11th, 2009 @2:09 pm

hi there again,

quote: If I come to think of it, we can’t have a clue to what’s working what not!?!? Do you have any personal experience to share?

u had just sum up all the experiences i’ve gone through, so what?

it happen to all traders at all time in the market place. if u ask me, i know all my losses that i’ve made, but i have no clue where n how my profit came from.
anyway i’ll take it.

best wish

Nixon Said,

June 11th, 2009 @2:16 pm

Hi Brendan, sorry for late reply… piles of email as usual…haha.

Me still in the ‘learning’ phase so afraid not consistent yet. Hope to be soon…hehe “)

Good Trading to all!