The Right Way to Embrace The Uncertain Path to Consistent Trading

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“First ask yourself: What is the worst that can happen? Then prepare to accept it. Then proceed to improve on the worst.” – Dale Carnegie

In my experience, very few aspiring traders actually think about the worst thing that can happen to them. I’m not talking about drawdowns, lack of confidence or anything more advanced. I’m talking about the basic impulse I see in many aspiring traders which goes something like this:

I hate my job! I want to quit and become a full time trader!

This is, in my experience, one of the wrong ways to embrace the uncertain path to consistent trading. Even this week I confronted the same attitude, which has various degrees of madness:

  • I have a job I enjoy, that I chose, and it pays the bills…but I’d like to spend more time with my family.
  • I have a job that I like, but cannot stand office politics…and so I am looking to become a trader and just tell everyone off.
  • I’ve got a job that I enjoy, but it’s not paying all my bills and I need a supplementary income. So I’ll trade and make the extra cash I need.
  • I’ve got a job I hate…it pays the bills but I’d really like to trade instead.
  • I don’t have a job, and it’s hard to envision any future unless I can trade well.

What I’m going to show you is that the rationale that pushes someone towards trading is not the main concern. The main concern is the personal situation the person finds himself in. Let me take you back many years, when I too made this very mistake and attempted to pull a salary from the market on a budget. Then, we will explore what I believe to be a solid way to approach the uncertain path to consistent trading.

My (Very) Uncertain Path

“Face reality as it is, not as it was or as you wish it to be, and be in control of your own destiny or someone else will.” –  Jack Welch

It’s tough to face reality, especially when reality is tough. So here is the ugly truth: it’s almost impossible to trade your way out of a hole, if you are under pressure to perform. I learned this the hard way. As I say to my coaching students: learn from me, because I’ve most likely made every mistake in the book.

When I set out to trade:

  • I had experience in the sector, having been a sales trader and technical analyst
  • I had issued proprietary intraday trading signals for clients
  • I had personally helped various clients stay out of trouble

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News article cutout from “Borsa & Finanza” which I wrote back in the broker days.

So on the surface it seemed like I had good chances right?

Wrong!

I was young, a tad arrogant, and totally underestimated the psychological impact of attempting to pull a salary from the market on a budget.  Please don’t think I was totally out of my mind. I very distinctly recall my feelings from back then.  There was one week in August when I was assisting one of our High Net Worth clients. I was feeding him trade ideas (which he was trading in a very leveraged way) and we were working well together, and made something like 20% in a couple of weeks.

Yet I can tell you that each time I executed his trade – which was ultimately the clients’ responsibility, and it was his own capital at risk – I was quite tense in the stomach. Why was I uber-tense?

  • I knew very well I did not have a robust, backtested method
  • I knew very well that bad trade ideas on my part would reflect poorly on the firm
  • I knew there is always a component of luck in trading which I could not control
  • I knew that at the end of the day, we were making decisions based on my best guess

But I did have a decent feel for the market; I very much respected our clients’ capital and treated it like my own (which is why after all these years some clients still  seek me for advice). Moreover, I was very clear on which days I believed there was an opportunity and which days to stay flat.

But one feeling I also recall clearly, tended to appear after losing trades or during the days when there was nothing to do. I would say to myself “good thing I have a job and I don’t depend on trading”.

So there you have it. I had already understood everything there was to know about the perils of trading. And yet, I still made the cardinal mistake of attempting to pull a salary from the market on a budget. Why?

  • Desire to prove myself worthy (of respect from peers & family perhaps?)
  • Arrogance (“where 90% fail, I will make it!”)
  • Job insecurity (“I only make XYZ and will never save enough to buy a house with a pool”)
  • Being convinced that, if I had the time to dedicate to the market, I would be able to put my feelings of uneasiness (that appeared each time I entered a trade) to sleep.

Here’s what continued to happen for at least 2 years, each and every trade (and I made around 300 trades in the first 2 years so you can imagine what I went through):

emotional-challenge

I was on VERY fragile terrain…hence my VERY uncertain path towards consistent trading.

Learn from me…don’t make the same mistake. It’s really NOT worth it.

A (much) Less Uncertain Path

So what would I say to my former self, with the knowledge and experience that I’ve gained over all these years?

  • Be disciplined and prove to yourself you can in fact trade profitably before leaving your day job.  I honestly tell this to anyone who approaches me for coaching. I personally know some very successful people that learned how to trade while having their own businesses and work commitments, that made it happen. Where there is a will, there is a way.  Two of my current coaching students are working full time jobs and yet are equally successful in the markets. They have my total respect because they are avoiding one of my main mistakes.
  • Be well diversified and do not depend on trading for your income. Period. What kind of diversification is possible, to people that are not born into a wealthy family? Simply, have a spouse or partner that has a steady income stream. Maintain your day job while learning how to trade. Attempt to help other people, perhaps as a freelancer on sites like UpWork, depending on your speciality. If you have the opportunity and some property, rent it out. Write a book…basically, think laterally and explore new ways to use your talents.
  • Do not put a time limit on the learning curve. Personally, after the first 4 months I was at a point where I seriously doubted my capacity to trade (given all the pressure I was under) and I went back to full time employment for a year. This also goes back to having diversified income streams. The better your personal situation is, the less stress and pressure you will be under.
  • Stay healthy and fit. I sacrificed much of my physical and mental health in order to trade. Once again, it’s not worth it. Furthermore, studies have demonstrated how the brain is more capable of absorbing and digesting new information in a safe & secure environment. Not in a stressful and pressured environment.

Learn from Me

Learn from all of us here at FXRenew. Learn what pitfalls to avoid, and learn what works. One of the best kept secrets in trading is that the famous fund managers, for example Bill Lipschutz, worked in the industry (and that’s where they made the big money and built up the contacts that helped them open their funds) before starting up their own funds.  This is also true of those retail traders that have made the transition to bigger & better things: they learned to trade while in a comfortable personal situation. A comfortable personal situation allows you to maintain peace of mind, and losses remain “the cost of doing business” and nothing more – nothing personal.

Capitalization is key. You need to be in a place where you can calmly grow your account, without taking money out of it to pay the bills, until the account has six digits in it (at least). Once you get to that place, you then will likely have a track record in place to solicit funding from external investors and never put your personal situation or your family’s quality of life in danger.

Rarely (if at all) is wealth built via trading. Wealth is built by saving up. Once you have savings, you can start to diversify. Wealth is built through a relatively small number of concentrated positions. For example, your career or your day job along with that of you companion or spouse. In trading, most of your profits come from a few quality trades that you compound into. Something like the 80/20 principle.

Then, once you have a comfortable situation, you can start to diversify and thus protect your wealth. Life insurance, fixed indexed annuities, real estate, investments in other business ventures, and also trading.

Think about your personal finances like a portfolio manager thinks about his positions. Don’t think about trading as the Holy Grail that can solve all your problems. Most likely, if you don’t solve your problems first, the inherent uncertainty of trading the markets will only exacerbate them and slow you down even more.

Good Luck!

About the Author

Justin Paolini is a Forex trader and member of the team at  www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

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