First of all, I completely and totally discourage people in general from pursuing trading as a hobby, past time, part time, after work kind of activity. You know those warnings “Do not try this at home?” Well here it is, be warned. Trading is for people who can commit all their time to figuring this crazy ass profession out. Let me put it this way, what chance does a part timer have against a trader like me who has worked 10-15 hour days at my craft, honing my skills for nearly half of my 39 years on this planet, never mind all the other traders who are better skilled than me, smarter, and hungrier. You want to trade? Become a professional and go get a job learning from a market professional. The odds are simply not in your favor if you go it alone. The stat I’ve heard (whether you believe it or not is up to you because I have no source for it) is that 10% of people make it through their first year on their own, and of that 10% that make it to the second year, only 10 percent of them will be around at the end of the 2nd year. Make it to the third year and only a fraction fail after that. So if you are in your third year, great work. The rest of you average joes (ironically in general 78% of people think they are above average—go figure) better just give up—odds aren’t in your favor. With that bit of happy advice in mind, if you are a trader or a trainee, or just curious or are trying to figure it out (god help you) here’s some of my best advice for you in no particular order except the first one—that one is always first. I’m not a writer, so please forgive my rough use of the English language.
1. The three most important rules in trading: 1. Cut your losers. 2. Cut your losers. 3. Cut your losers. Nuf said.
2. Calm down. Be in control of your emotions. If you get freaked out, depressed, overly excited, this profession probably isn’t for you. Trading is filled with situations that will make you want to jump out of a building. If you are on meds for emotional control, are bi-polar, easily excitable or chronically depressed this career will eat you up and spit you out. If you are level headed, cool under pressure, you might have a shot.
3. Run the pants off your winners. This is an old classic. For a reason. Just do it. Then do it some more. Get a trade on side, just sit on it until it doesn’t go no more. There is a quote in Reminiscences of a Stock operator that goes something like this “I make tons of money by sitting on my trades and doing nothing” or something like that. The point is, you get a good one, hold on til it don’t go no more.
4. Work hard. There is no substitute for hard work. Some people have talent, the rest of us need to work hard. I’ll take a hard working talent-less person everyday over a lazy talented person. So get ready to work hard. If you don’t like hard work, forgeddaboudit!
5. Stop gambling and find some edge. Without edge you are just flipping the coin. You need to develop a system, find something that happens in the market through observation and research that you know for certain creates high probability trades, otherwise you are just gambling and your career will be as short as….I can’t think of anything short except mini-me…fill in your own short lived clever metaphor/simile here.
6. Live your life like a professional not like a pimp. This job is crazy hard in the best of times. If you think part of being a trader is sex, drugs, drink, rock-n-roll, and all those other sterotypes from movies like Rogue Trader, Switching Places, and Wallstreet, guess again. Those are all the opposite of what you should do. The most successful guys I know go to bed early (boring I know), get up early (god I hate mornings), meditate, drive their kids to work in mini vans/SUV’s or Toyota hybrid mini-van/SUV things, eat healthy, work out, play a sport, go to bed early, don’t drink mid week, definitely don’t touch drugs (ok one trader I know smokes a ton of pot—but he’s an exception), swim, ride bikes, and go to bed early. Its hard enough being a trader in top form in the morning and then all day long never mind if you are nursing a hangover from hell, are tired, or still drunk (I’ve seen it happen—not to me of course…ok maybe once when I was 25—I think I traded like a rockstar then fell asleep at my desk with no positions for the next 5 hours—but that was a one off—as far as I remember). But by in large, clean living is the best for professional traders.
7. Love to Lose. One of my favorite all time longest trading career dudes I know named Chico says this to me all the time. Love to lose. Love to lose. It means love to lose small before a small loser becomes a day ending, month ending, career ending trade. Love to lose small and often.
8. Plan your trade and trade your plan. I’m not sure what genius said this first but it wasn’t me. Have a plan for what you are doing in each trade and stick to it. Most people can’t come up with a decent plan. Even fewer people can stick to a plan. It’s an absolute must in trading, and to be honest in life. When you aren’t following a plan, you do dumb shit. It’s happened to me before in a new product or a strategy I hadn’t prepared a decent plan for. When I don’t have a plan or don’t follow my plan, it always leads me to an ass-kickin! Plan your trade and trade your plan.
9. Don’t listen to other people. Want to get tips, go to the horse track. Want to be a lazy bastard, go ask Uncle Billy which horse is coming in first at the track and then be ready to throw away your money. If you want to trade, you need to ignore the noise from other idiots. Other idiots means everybody, especially magazines, CNBC reporters, news, brokers, Uncle Billy. If they had a decent idea or clue about trading, they would be trading and making millions right!? Right. So don’t take tips, do your own research, follow your own plan, and make your own decisions, otherwise get ready to empty your pockets into my bank account. Thank you.
10. Pick up a book or ten. I’ve picked up tons of advice over the years, but I always go back to a few different books which I find filled with awesome advice and insight.
Here’s my list:
Market Wizards 1, 2, and 3, although the third one isn’t as awesome as the first two.
Reminiscences of a Stock Operator (not a happy book—dude kills himself in the end, but gives tons of great advice at what not to do along the way—thanks dude)
The Trading Athlete. Not as awesome as the first two but pretty good none the less.
And lastly I love watching this video, gets me excited about possibilities:
That’s all I can remember right now but they are the main ones I use and most people follow in this crazy profession called trading. Its crazy hard, but crazy rewarding. I guess that’s why its so popular with people. Everybody just sees dollar signs, not the failure rate. So I still recommend wholeheartedly not trying trading on your own (go do it on somebody elses dollar—it will be better training, cost you less dough and less personal anguish and torture—trust me), but if you must trade who am I to tell you not to, just let me know what market you are going to trade first.