After spending years getting sucked in by marketing hype surrounding the Forex trading industry, I finally decided to overhaul my approach to trading education by starting a podcast.
The idea was simple, spend a full year interviewing successful traders from all around the world (one a week – hence why I called it “The 52 Traders Podcast”). All in an attempt to find out what makes them tick and what I had to change to become one of them.
Last month I met that goal (my interview goal that is, not my trading one) and today I’ve condensed a year’s worth of trading insight, from some of the best in the game, into 52 points every trader should read, digest and apply. A modern day Market Wizards if you will.
So without further ado, here are my 52 reminiscences of a trading podcast operator.
Does your introduction to trading directly correlate to your chance of success?
1. Does having an industry background help?
I initially thought I was onto something here; it seemed the majority of my traders had their start in the industry (prop firm, investment bank, trading floor or broker) or had become friends with industry insiders who led them down the right path. In later interviews this didn’t seem to be the case – although it did seem to help.
2. What about using a trading mentor?
Similar to above. Some of my guests had reliable mentors taking them under their wing, sometimes for very little in return. It seemed like free mentors were almost better than paid ones. But there was no sure fire way to find a free trading mentor, other than by pure chance.
3. How about stumbling onto trading by accident?
If you want to call it luck or something else, some very successful traders started out through clicking internet ads or via chance encounters with the right person (be it at an institution or with a mentor). Or does it have nothing to do with luck and it’s more to do with destiny? Nicola Duke tells how a company decided to teach a bunch of Air Traffic Controllers to trade – what are the chances of that!
4. What if your parents traded and sparked your interest early?
Strangely enough, a number of my traders were introduced to the markets at a young age after a parent decided to help them place their first trade, followed by mapping the progress of the trade as part of a bonding exercise.
If anything, this helped these traders get a head start on the rest of us who are having to balance time spent on trading with family and work.
Is education the key to success and what exactly should you be learning?
5. If you spend more on trading education will that make you a better trader?
Ironically “No” would be the resounding answer. That said, some of my guests did spend into the hundreds of thousands on trading education, but in most cases all their education taught them was what not to do. The real lesson they learnt was where they should actually be getting an education from.
6. Is a trading mentor the way to go?
Most of my guests now provide trading mentorship in some way, shape or form, so the answer to this is somewhat inconclusive. Going back to the points above, the trick to finding a good mentor is a sprinkle of luck (right place, right time) and a bunch of determination. Or you can take your chances and pay as per point 5 above.
7. Can books be your sole source of trading education? And, if so, which ones?
In every interview I asked for a book. And I’ve compiled a complete list of all the trading books mentioned in the show for everyone’s benefit. So, if you want to know which ones, these are the ones.
But do they work as a cheaper source of reliable information? Well, I haven’t read them all so I can’t say. What I can tell you is, books will give you a good base to start from to look for further research, instead of starting out on the internet. Saying this, some of my quests have never read a trading book and have done ok. So don’t feel books are a necessity.
8. Talking about education on the internet… How do you do it successfully?
In my interview with Peter Davies he talks about sifting through the crap on the internet to uncover the gold. The key to successfully navigating the internet for trading education is to verify everything for yourself. So if someone tells you price will trend if “this” happens, go and check it out first before accepting it as valuable “advice”.
9. How long should you spend on your education before throwing in the towel?
First up, you’re not going to pick up one book and become a good trader. It’s a combination of education, practice and experience. And it’s not going to happen over night or over many nights. In fact, at best, you’re looking at 6 months of hard work. The other end of the scale is 20 years, but the average I would say came in at about seven. So set your time horizon accordingly.
How much does attitude play a part?
10. Do you have enough determination?
One thing that came across loud and clear was the ability to overcome obstacles and persevere through the hard times before finding success. There are a couple of sayings that fit nicely here “the obstacle is the way” and “success consists of going from failure to failure without loss of enthusiasm”.
When you hit these roadblocks, remember these sayings and know that it’s a critical part of your journey.
11. How do you deal with failure?
Trading is all about how you deal with failure – a losing trade, blowing your account, wasting time on a poor strategy, wasting money on education that doesn’t work… I could go on.
To be successful in this profession you need to take the positive from all these minor setbacks. And sometimes major setbacks like Vladimir Ribakov had when he lost all his parents money. Failure is a part of the trading experience. Solution: Accept it.
12. Are you a realist or a dreamer?
If your answer to this was “A realist” and I told you I have a system that can turn $100 into $30,000 in 5 months on autopilot – would you want a copy? If you said “Yes”, then you might actually be sitting in the dreamer camp.
It’s easy to get sucked into the dreamer mentality. I think us humans are just built that way. But almost all of my guests have a very realistic view of what’s achievable. The returns they expected, on the whole, are below 100%p.a. So set your goals and expectations low and you won’t be disappointed.
13. Passion, passion and a touch more passion
If anything is going to add to your determination it’s your passion. Passion for the markets, for the tools, for the methods, for the education, for the data. Whatever ignites your passion for trading, it’s what will keep you on the straight and narrow when those inevitable failures hit. I don’t think I’ve had a single guest who wasn’t passionate about trading.
Do I have the right approach to trading as a whole?
14. Am I taking an abstract view of my trades?
What does this mean? Well, Nigel Hawkes talks about is the ability to distance yourself from the act of trading. Reason being, it helps with fear and greed. It works like this: if you take out the dollar sign then you’re left with up and down movements which can help detach you from any fear or greed that may make you do something stupid.
15. Have I entered in the shallows instead of jumping in the deep end?
If you’re spending your time where the day traders live you’d better be “on game” because they are. You’re basically up against some of the best minds in the world. It’s like having a seat at a poker table alongside the best poker players in the world. So why not let them get on with it and trade on higher timeframes looking for bigger moves and spending the rest of the time with your family.
The key point is, if you’re a newbie, approach the market that way. When you’ve learnt to swim you can venture into the deep end and see if you like it there. You might actually prefer paddling in the shallows.
16. Is your approach methodical?
At a holistic level, most of my guests end up piecing the market together a bit like jigsaw puzzle. They take a bit of knowledge here and a bit there, then methodically verify it themselves and see if it fits with everything else they have learned.
Ernie Chan spoke about how someone would give him an idea and how he would then take that trading concept and see if he could make it work.
So, come up with a methodical way to construct your trading puzzle, and use this as a filter for… umm… “everything”.
17. Trading’s like a business, not a game
Some guests approached trading as a business. The underlying reason I think they did was simply because the act of trading is too easy to do. I’m talking about the fact that it’s a click of a mouse and you’re in, and no one can tell you otherwise.
Whereas in business you have process and people to deal with, so the act of doing something is much more difficult. The trick is to put some process around your trading (or even people if you can) to stay in business and away from gambling.
18. Review what you do. It’ll keep you accountable
Keeping a trading journal was one of the key factors of success. Larry Williams actually had it as his recommended “must read” trading book. And I bet most of you reading this already know about this tip. But I also bet almost all of us (including myself) are not keeping a trading journal. Why? Who knows? Probably because it’ll feel too much like a business and that’s where we have just spent the past 8 hours. Put this one on your JFDI list.
19. The money would be great now, but do you have the patience?
Yes, one of the reasons you started trading was for the money. You can see it there, you can smell it, touch it, but, remember for the first seven years you most probably won’t actually get to keep any of it. So, you have to be patient. Play the “long game” as they say.
Knowing this will probably reduce your seven year wait, as it eventually did with one of my first guests Serge Berger.
20. Does trading have your sole focus, or is it lumped in with 3 other things you’re trying to do to make money?
Right alongside determination lies focus. Focused determination will put you in a position to overcome the obstacles trading throws your way and, more importantly, distractions from your goal of trading full time. Almost all of my guests spent years focusing on trading over and above almost everything else. This is one area I need to work on as I write this and produce weekly podcast episodes… Something has to give if I want trading to be my sole focus. What you’ll struggle with is the same thing I struggle with – giving up everything else.
Good books to help with this are Essentialism by Greg McKeown and The One Thing by Gary Keller.
21. Do you know when to pivot and can you pull the trigger and actually do it?
Nothing is set in stone, everything changes. If you accept that trading is no different and a system that worked 3 months ago may not work today (because of an underlying change in the market or some other reason) then you’ll have a much better chance of success.
All of the Algo traders I interviewed would churn strategies that started to fail, even though they had been thoroughly tested historically.
Being able to recognize this and doing something about it can help your ability to succeed as a trader. Almost to the point where you have to expect a strategy to fail at some point and have a plan to a) get out of the situation you become trapped in and b) alter the strategy or retire it completely.
What makes a good trading strategy and which one is right for you?
22. First, understand what is at the heart of every price movement and you can come up with better strategies
Although price movement looks robotic and electronic there is one single common element behind it – human emotion. The number one finding, when it came to strategy development, was there was always a human emotion behind every price tick up or down. Yes, they may be working for an institution, but those institutions are run by humans and institutions are made up of people. People with emotions – shareholders to please, targets to meet, etc.
And the same goes for robotic trading, even though robots are placing the trades, a human or team of humans are behind the creation of the robots and their fear and greed is played out electronically.
So, when constructing a system, understand the emotion behind why the price is moving and you’ll be better off for it.
23. With so many strategies to choose from what type of strategy is the safest bet?
Just like poker, the players who have lots of chips have an emotional advantage over those without. So, we as traders need to factor that into our strategies. Can you afford to go up against the big boys or with them?
Going with them seemed to be the side of the fence the majority of my traders sat on. This is evidenced by the number of trend following traders I met.
Stick with the trend and it’ll be your friend, until it ends. As the saying goes. So don’t be friends too long 🙂
24. If Price Action is the King what is the Queen and is there a Jack?
Now, the importance of volume eluded me for a long time, but now I see why it is so important. It’s where everything originates from. If there were no volume there would be no price action.
If it’s not Peter Davies using Order Flow Software, Nigel Hawkes using his own volume indicators or Nick with his “IV drip” into Forex Liquidity Providers, you should look to use volume in your strategies, or at least learn how it works.
And is there a Jack? Well, my guess would be, Money Management is our Jack.
25. If you want an “edge” with your strategy only one thing can keep you on the “edge”
The “edge” I’m talking about here is price action. So if you want to be as close to the edge as possible, look at price patterns, candlesticks or whatever else you can determine from it. Just remember that it tends to works better when you have a zoomed in view of price along with a wider lens.
26. Following the footsteps of giants will keep you out of harm’s way
By combining price and volume you can start to see big footprints in the charts. These footprints are where the big institutions have come in and “stamped” their authority. Thomas Barrman based his entire strategy around identifying and following these footprints to keep himself out of trouble.
27. Can you trust indicators? Don’t they lag?
Are indicators complete nonsense? Even the simple ones like Moving Averages? Well, it appears not. A good handful of my guests were using indicators to either support price action or, in some cases, that’s all they used.
The recommendation here is to use them as a secondary or tertiary confirmation if you need to. But always start with price as a lead over and above an indicator.
Leonardo Baratta’s strategy is based on volume spread analysis but he also uses indicators to support his entries and exists.
28. How many markets is too many?
If you have a system that works on one market it’s more than likely it will work on another (with some minor adjustments). The more markets you trade, using the same system, means you can have more trades, without compromising your system or forcing it to pick up more trades on a single market.
There are 1,000’s of Penny Stocks and Timothy Sykes scans them every day, as does Jared Wesley for Stocks.
29. How many strategies do you need?
While there are an infinite number of strategies out there, on average my traders would have no more than three they would call upon. And in most cases it was just two, and some just one. So when I asked them for a strategy it was usually one of the two or three strategies they traded.
Andrew Mitchem was a prime example of keeping things simple with one system that was flexible enough to accommodate different situations.
That said, on the Algo side, they each had 80+ strategies on the go at once. Go figure!
30. How much detail does your strategy need?
“The devil’s in the detail” as they say. Make sure you factor in the cost of trading, as highlighted by Nick Radge. Be it spread, slippage, commission or something else. Do everything you can to reduce the cost. And then factor that into your strategy. Because your strategy needs to turn trading from a “zero sum game” to a “positive sum game”.
31. What timeframes should you focus on?
By far the most popular suggestion was to start out with higher timeframes and when you’ve mastered that, start to look at the lower ones. This sounds great but a lot of traders, myself included, find it hard to make the jump to the higher timeframes. It comes back to patience. Higher timeframes means less setups, so you need either a lot of patience or more markets to make it worthwhile and to feel like you are progressing in the right direction.
32. Start with a philosophy and build a strategy from there
The strategy you try might not work every time, but to keep yourself on track and to not deviate until you have proven otherwise is the critical thing to note here. He Shuhan put it best in his interview “So it beings with the philosophy and then with a philosophy you must have a hypothesis… Then after hypothesis it becomes theory, tested with real data. And after it becomes theory, it becomes rule which forms into the trading system.”
33. The “rule of large numbers” should be used if possible
Now, this wasn’t specifically spoken about in the show but I came across it when researching Nick Radge who I interviewed. This rule holds true when you cross check it against others I’ve interviewed.
The Algo traders will run tests over 10+ years on multiple instruments giving their strategies robustness which in turn produces a high level of confidence. The more you can prove a strategy will work the higher your confidence and willingness to persevere through difficult draw downs or big losses.
34. The market could go up or down, it’s completely out of your control
This is probably the most important thing to consider when building a strategy, but the hardest thing to fathom and apply. But when you understand it you’ll start to see things a little differently and make changes accordingly.
The way I see it is like this. Even if someone gives you the most perfect strategy that has a 70% win rate with 1:2 risk to reward, at some point it will fail. Why? Because the market is unpredictable. And one day/week/month you will only have a 30% win rate. How do you combat this? Take a break. Stop trading for a while (day, week, month). Then start again with the same strategy, because it will work, but not like clockwork.
The best strategy shared on the show
I ask every trader to give me a strategy or part of one that my listeners can try out at home. Here are my top one:
35. Jared Johnson’s EMA strategy
I like this strategy because it can be applied on pretty much any timeframe and is easy enough for anyone to learn. Here’s a quick overview of how Jared Johnson explained it to me.
On the 15 minute chart, count the number of bars since it last touched the 200 Exponential Moving Average indicator. When it’s 400 bars away there is a much high chance historically that the price will head back to the 200 EMA. So, when you hit that number of bars draw a trend-line above or below price, depending on a buy or sell trade, and enter when price crosses the trend-line. Set your stop loss at the most recent swing low/high and exit when price hits the 200 EMA (see chart below):
Money Management, the forgotten secret to trading success
36. Hitting a home-run is for the ballpark, not the bull and bear park
If you have a small account, the chance of you making big money is also small. Use a small account to practice and validate before playing with the big boys. And don’t think you’re going to take your small account into the big leagues overnight. It will take time. Not only to grow your account but to give you confidence in your system. Remember, we want to stay in the game to trade another day versus making a fortune in just one day of trading. This is so important.
37. Go for a percentage stop loss and you’ll be a happier trader
It might be more to do with psychology over and above anything else, but a lot of the traders I interviewed preferred using a percentage stop rather than a fixed stop.
In my opinion, this allowed them to endure bigger draw downs without the mental anguish or being concerned with how many pips or points they were away from their entry. They could only ever lose a percentage of their account and they were content with that.
38. Go for a set dollar take profit and you’ll win more often
Similar to the percentage stop loss, setting a dollar amount for your take profit target can help you exit the week up instead of down.
Another approach was to exit the week at a set dollar amount, e.g. when your combined profit equals $500 (combined profits minus losses) close all your trades and shut down your terminal until the market opens again on Monday.
39. Scaling out of trades or protecting one’s profit might “feel” better but not “be” better
This again doesn’t make a lot of sense, but trying to protect your capital by moving a stop loss to breakeven, trailing a stop or scaling out of a trade, although it works well for some traders, the majority preferred a fixed take profit target and found it worked better – especially the algo traders. When I’ve tested this in the past I tend to agree it’s the better approach.
40. Are you trading using Probability or Stupidity?
Don’t try and get, or think you’ll get, 90% winners and a risk to reward ratio of 1:3. It’s just not going to happen anywhere in the long term. Sure, you might get lucky a couple of times, but in general you’re better to understand that a 90% win rate is more likely to come with a 7:1 risk reward ratio and vice versa. Probability is your friend, “Stupid” is how you’ll feel when you ignore it.
Psychology is the most important thing, but most traders don’t want to believe it
41. Not trading can be a good thing
What I think the likes of Dale Pinkert and a few others are talking about here is taking a mental break from trading. Letting any fear or greed dissipate and stepping back to reassess. Hitting your target for the week or month early and closing your terminal is another approach that supports this “not trading” approach.
42. It’s all about risk and what you can tolerate
When you start playing with big money, even the big boys can find it hard to deal with what they have at risk in a trade. Watching Nick put 25 Lots on a single trade was beyond my comprehension, but his intention was to be 100 Lots in. And 100 Lots was beyond his emotional well being, so he scaled in at 25 Lot increments. Trade what you can handle and not a cent or penny more.
43. Finding a way to trade that fits your personality is highly important
While we all might like the idea of diving in for 1 hour a day and making $5k, then relaxing, playing golf and having fun until we do it all again tomorrow, that may not fit well from your emotional standpoint. You need to find something that does. It also means you may need to go through a number of mentors to find someone or something that works for you.
44. What you can’t see won’t hurt you
Turning off or removing yourself from your trading terminal and access to your accounts was something Alfonso Moreno did every day. Placing his trades and walking away until he checked the next day, was what worked for him.
It may not work for you, but it’s worth a try.
45. Be like a Picasso painting
Another way to do what Alfonso does, is to turn your P&L off when you’re at the screen. So trading becomes abstract (up and down movement) rather than an emotional rollercoaster attached to dollar signs. I mentioned this tip earlier but it’s a good one so warrants repeating.
46. Appropriate signage might be your answer
Put reminders on your screen or beside your trading station. Mantras that keep you on the straight and narrow and fix persistent problems with your trading. A good source of these is to review what you’ve written in your trading journal (you know, the one you haven’t started yet but should start immediately).
47. A very strange approach to trading psychology, but it might work for you
The weirdest approach was told by Anmol Singh who would pay someone he didn’t like $50 every time he would break the trading rules he had set himself. It eventually became so painful that he stopped breaking his rules.
48. Finally, building some good old confidence will always help overcome those mental barriers
Ultimately, you first need a level of confidence in your strategy. The best way I found to do this is to back test thoroughly on high quality data and with your broker’s trading platform settings. Then forward test to make sure your system can accommodate slippage, spread fluctuations, commission and any overnight interest. When you are happy you know your system is profitable historically and performs the same on a live account, your confidence will improve immensely and your emotions will fade away.
I’ve found this works best by building your own trading robots.
Ok, But that’s only 48 points, you’re missing 4. And what’s the real secret to trading?
My last point is worth 4 of the above, because without it the insights above won’t help you make money in the market. It can actually be distilled down into 4 words “What’s Holding You Back?”
When all’s said and done, everyone can learn from the guys who are trading for a living but where it falls down (and keep in mind this is only my opinion) is that we will take 60-70% of what they tell us we should be doing and do it as instructed. The other 30-40% of what we should be doing will either be ignored or done half heartedly. Why? Well, it’s simple. Because we don’t think it’s necessary or we don’t like the sound of it. We know better!
One example I can refer to is a conversation with a struggling trader just the other day. I told him about at trader I interviewed who was making $1000 a day. He was very interested in learning more and how it could replicate this success. So I sent him the relevant links and then mentioned that he may, at times, hold a 700 pip drawdown.
My struggling trader didn’t like sound of that so decided to proceed on his current path.
So which of the above do you know you should be doing but probably never will?