Hi
To be successful in trading, what does it really need ?
Tim: Hello everybody and welcome back to TraderInterviews.com. Thanks for joining me for another special episode. I've done something a little bit different today. Today, we're speaking with a gentleman named Brad Taylor and he is a trader, but this interview is a little bit different. A few months ago, Brad inquired about sending out an email to our list, to you, you may have gotten it, with a survey about traders. He was interested in knowing what -- so what data there was out there about trading success and what led to that, and what led to traders not having success as well. He's gotten the results back and we wanted to get him on the phone and talk to him about that and see what the results were. So, Brad, first of all, thanks very much for joining me on the phone today.
Brad: Thank you, Tim. It's great to be here today.
Tim: All right. So let's go through just each of these results and we can kind of start by asking basically, what was the reasoning behind wanting this survey done? What were you interested in finding out?
Brad: Okay. There were several things. First, we always hear that figure, 5% of traders are successful and 95% fail. So, I thought it would be great if we could get a handle on that and see where the truth is. And then secondly, are there some things that we do as traders that we could be more aware of that relate to the profit. So, is there a way we could become part of that 5%. You know, obviously we've heard lots of other trading coaches and psychologists and things tell us various ways that we can become part of the 5%. But what I wanted was to get numbers behind it so it's not just a theory; it's actually something that we can observe. A behavior pattern that shows us the difference between the guys who are consistent in winning and everybody else.
Tim: Right. And you do hear that anecdote a lot. You hear that story about 95%, I've heard 99% of traders fail and 1% is successful. We do know that it's somewhere greater than 50%, I think, we can all agree on that at the very least, that do blow out their accounts for whatever reason. And, you know, a very small percentage of traders probably make the majority of the money like anything else in any other industry. But let's talk about that. First of all, you on that first slide -- and traders we've uploaded the slides to the site so hopefully you've downloaded them to follow along here. But you had 700+ traders respond. You know, I was a Pol. Sci. major in college, but I did take a statistics course. Is 700 --first of all, we should probably talk about, is that statistically relevant in terms of getting good data on the overall landscape of traders?
Brad: Yes. 700 is a great number for us to work with because not only is it a good representation of traders generally relative to the population size 'cause that's always the trick with the sample sizes. Is it big enough because we're not asking every trader, we're only asking a few traders and then taking that information and making it apply to everyone. So, the 700 is more than enough. Usually for a countrywide study, you'd only need about 250 people per cell. So, we've got more than that. So, we've really got a great base to work with and we can cut it up in some ways, which we'll see in the following slides, and know that the answers are still rigorous. And it's also important is, is who we interviewed. You know, we didn't just ask successful traders, we didn't just ask unsuccessful traders. We didn't ask people who only had an account size of a certain amount, it ranged from $100 to more than $50,000. And people's trading goals from just 50 pips or points a month to more than 800. So, there was quite a nice broad spectrum of traders. It's not looking niche. If anything, the fault of the study would be that it's erred slightly on the side of having a few more Forex traders in it than futures or stock options, or other markets traded.
Tim: Yeah, I was going to ask you about that. You mentioned pips as the goal, that assumes you talked to Forex traders, but there were some stock and futures traders in here as well.
Brad: Yeah. And quite a number here trade multiple markets as well.
Tim: Okay. All right. Well, lead us through that kind of first slide and the things that you learned and then we'll just go down the road.
Brad: That's basically who spoke to. An interesting thing is that it doesn't matter how much money you got, it seemed the goals didn't change. They all stayed in proportion. So it could range from the goal of $100 to the goal of $50,000. They might all have the same goals, 10% a month or 20% a month, which is odd. Because usually when you start a new venture, the goals are scalable. But it seemed like in trading the goal is not scalable relative to the capital. Ninety percent of traders though did say that they believed that they had the skill or that they could acquire the skill over time, which would make them successful traders. And that's very interesting. So, there's a mindset out there amongst the general trading population that they believe skills are acquired over time, which is quite significant because if that proves true then throw time at trading and you'll become successful. If that proves false, there's something else.
Tim: All right. Well, it's good to know that you don't have to be born with the skill. Well, these traders don't think so and I agree with that. I think for the most part, 90% of the people out there probably can learn the skill and there are 10% out there that for whatever reason just don't have what it takes, whether it be ego or anything else. So that is interesting.
Brad: Quite interesting that 10% would say, you know, they don't have the skill and they don't think they can get it. Kind of like, well, why carry on? But anyway
Tim: [Laughs] Well, they're taking the survey for some reason so I'm glad -- there has got to be some of those folks, I guess, out there.
Brad: Hopefully, we can just shed some light on some thoughts that already help traders out there. I know the study for myself has backed up a lot of my thoughts that I had beforehand and also crossed some out. So, it's been really useful.
Tim: Right.
Brad: Eighty-five percent of traders said, you know, they believe they have what it takes to succeed mentally and emotionally. It was very specifically worded around that you have the mental capacity and the emotional capacity. I think any of us who have been trading for a little while realize, well, this isn't just about trying to figure out a strategy, there seems to be an emotional component to it. But most people are again saying, "Look, we believe that we can do it" so traders, we're a really positive bunch of people I think.
Tim: So somewhere between that 90% and then 85%, 5% we may have caught on a bad day. [Laughs] Who had big losses that day and said, "Nope, I don't have what it takes." Who knows what they felt the next day, but on that day, we got them on a bad day maybe.
Brad: If we got them on a bad day, yeah.
Tim: All right. So that next slide, the profitable trading, that was interesting one. Talk about that.
Brad: Yeah. Profitable trading, this is quite nice. Large losses and small losses, 50% of people fall into that category, which seems to make sense. And then we're looking at about another 25% of people that are more or less break even. So, you know, lose some money this week, make some money next week. We know in market research and, I think, also just as traders, generally people tend to exaggerate a little bit. So probably, the more or less break even is probably less break even and not so much about break even.
Tim: You think they skewed to the losing side a little bit probably?
Brad: I think they skewed to the losing side.
Tim: Okay.
Brad: But they're close enough that they're comfortable that look, it's almost there, it's almost there. In terms of small profit, we've got another 20% of people fitting in there. And this is a very interesting category because the next one up is consistently meeting target. So, small profits are still saying that you're inconsistent with your trading. So maybe you have three good months and then a really bad month and that wipes out most of your profit. So, there's still a sense of inconsistency coming through.
Tim: I guess, if we're going to read something a little more into that, that kind of tells me that maybe people are not setting discipline stops all the time. Because if they're, you know, profitable with little profits for awhile and then get all that wiped out, either they're doing mental stops and then backing off of that when it comes down to them. It sounds like those people are still having a little trouble with discipline. That's extrapolating a little bit, but that's what it says to me.
Brad: Yeah. And I think definitely, we'll get a bit more into those reasons and one of them is definitely about a stop loss, but how we approach a stop loss really does affect the whole ball game. The next set of people which is just under 5%, which is really interesting 'cause I think that's where the 95% to 99% of traders who make money comes from. These are the guys who consistently meet their targets whether it's a 5% target a month or a 25% target, it doesn't matter. They are consistently meeting their target. I think that's quite significant because it means that they've managed to master whatever skills are required in order to succeed at this game of trading. And it's not that they're in here, it's not we actually found some because if we only had answers on the side of small profits or large losses or small losses then we wouldn't have anything to contrast against. But now, we've got a sample size, which is big enough that we can contrast against these consistent traders and see what they do differently, which is quite exciting. I just threw in a little thing. One broker they disclosed their figures as 28% to 33% over a period of time of people made money. Now they didn't say how much they made or if they continued to make money, but they made money. In the survey, we're picking up about 23% of people so it's really close and it means they're literally heading in the right ballpark to this one broker --
Tim: Great.
Brad: -- this last broker which is nice.
Tim: Great.
Brad: On the next slide, we looked at the whole question of time. Does the amount of time that you've been trading for change whether you're profitable or not. And this is quite amazing. Those lines are almost on top of each other, which means it doesn't matter if you've been trading for six months or five years, it seems that time is not what's changing. If time actually changed our ability to be profitable as traders, we should see that brown line of more than five years really getting up more and out of line with the rest of these guys on consistent targets. It should peak on consistent targets, but we don't see that.
Tim: Does that mean that then the people who are profitable are pretty much profitable right from the beginning?
Brad: That's pretty much what this survey is telling us. Is that guys who are making consistent targets seem to know something or understand something from the start, and the length of time is not really affecting it. It's not saying that, you know, like I became profitable after a certain amount of time or it took me a certain amount of time. It was just, like, how long have you been trading for and then, you know, what is your profits. So when we put those two together, we get a snapshot in time. So, it's not saying that these traders didn't transition from being unprofitable to profitable. It just means that you get traders who've been trading for six months who are consistently meeting their targets, 12 months they're consistently meeting their targets, 2 to 5 years and so on. So, right at the gate, there seems to be a different attitude or a way of thinking that comes across or maybe it's a strategy but, you know, we'll see that as we go on. So, it's interesting that time -- that we don't have to be bound by time. We don't have to say, "Well, in five years' time, I'll be a profitable trader" or "Two years' time, I'll be a profitable trader." Actually, it seems like within six months, you can be a profitable trader. And I think that's really great news because, you know, -- I mean I struggled with trading for many years to become consistently profitable and then it almost seems to change overnight.
Tim: Right.
Brad: I think that's quite encouraging news. You don't have to be an old dog to get the bone.
Tim: And the next slide talks, I guess is even more encouraging, about being able to do this and learn this skill. But there was a pretty important key to this.
Brad: The important key here, as you're saying, is profit increases over time, but only if a post trade analysis is done. Everyone else who's maybe, "No, I don't do it" that red line is up and down and looks pretty random. You know there's no real nice progression. The green line has a really great progression from being large losses are really minimized to consistent targets, which are quite up there.
Tim: So keeping a trade journal, understanding what you did wrong, making corrections, all that goes toward becoming more profitable. Make sense.
Brad: Yes. So, I guess, it's how we use our time as a trader or we just keep trying new systems or are we bolding on something gradually, as you say, with the journal and the making sense of it and trying to understand and learn from what we're doing.
Tim: Well, the next three slides are, I guess, the downer part of the survey about what went wrong when traders had losses, right? Take us through those.
Brad: Interesting, 40% of traders said they don't know. [Laughs] I think that probably speaks to a lot of us. I remember at the time of my own trading, I didn't know what was going on. I was just losing money hand over first. I was using the system that I was taught and it wasn't working. So, I think we can relate to that too. But 40% of traders sitting in that category, that's quite a lot. Twenty percent of traders saying, "Well, I'm not sure. I think I've got an idea of what's going on". And then, 40% really saying, "Look, I know." And although it's good that we might assert that we know, sometimes it can be quite dangerous. 'Cause we can say, "No, my problem is this," but there might be several other things, which are causing us trouble so it doesn't really help to have such a fixed yes.
Tim: And knowing what's wrong is only half the question then fixing it is the other half.
Brad: I think the fixing it is the real struggle we have as traders.
Tim: And then you have some real concrete answers about -- in the next slide about what is it that they thought was going wrong. And I assume those are answers from the people that said they knew.
Brad: Yeah. These are answers from people who are willing to say, "Look, I think it's this." So, either they know or they think they know. Interesting that the biggest problem people say is having too many systems. From a psychological perspective, that's very interesting because they're still blaming something outside of themselves.
Tim: Is that -- do you think that also means using too many indicators?
Brad: Yeah, too many systems, too many indicators, hopping from one system to the next never really settling down. I think that hopping from system to system is what Mark Douglas calls random trading.
Tim: All right. And then you've found that once they determined what they thought was going wrong, that there were some commonalities between these things on the next slide.
Brad: Yes. So the next slide gets a bit technical, but it's run from a cluster analysis. Very simply a statistical procedure and it looks for patterns in the data, where it finds patterns, it'll group things together and the tighter the patterns, you know, the closer everything is. And then, I just overlay enough summary on top of this so you don't even have to worry about too much of that. But what it's saying is that fear, greed, trying to make unrealistic profits, not stopping trading after you've met your targets, overtrading, all kind of fall into the same category of what we call going after money or expectations. So, on this slide, we see that our expectations are tied into the fear and the greed and making unrealistic profits. The second class of arrows that we can make is with discipline. So around our trade entries, our exits, our risk and money management, understanding money management in the first place and understanding risk. And then there's a third category, which is all around strategy problems. And I think a lot of blame in terms of traders go to strategy problems. Like on the previous slide, we saw that the number one thing which people said was, "I trade too many systems," i.e., a strategy problem. It's interesting to note that all of those would cause losses, but they're not necessarily the root cause. So, moving on to the next slide, profit proportion to trading stress. Now, this is very interesting. Because on the previous I tried to get profit to relate to one of those categories and I couldn't do it. It just keeps sticking out there by itself. Which is telling me that none of those categories produced patterns consistent with making money or losing money, which I think is quite different. Because a lot of us think, "Well, it's because I don't have the stop that I lost money." But the statistics is telling us actually it's not necessarily that you didn't have a stop that you lost money. The current slide that we are on now, profit proportion to trading stress says that large losses come from having too much stress. So, whether it's a system problem, a discipline problem or an expectation problem whenever we're under too much stress and one of those three come up, it's going to cost us a lot of money.
Tim: So just to be clear, so it's not the loss the causes the stress, although, I'm sure that's part of the case. But you're saying that there was existing stress about trading already and then that's what had the correlation to the large loss?
Brad: Yes. So, when people start saying, "My trading" -- so obviously, there's been losses in the past and some wins or maybe some trades that have been left out and missed or money left on the table, all those things causing psychological stress. When a person starts to think, this is unhealthy and it's causing me to live unhealthily and it's damaging my family and my friends and relationships, when trading gets to that place, it's almost inevitable that you're going to suffer large losses. It's at that point that we're unable to just execute the strategy. We're too heavily involved. And I think if we ever get to that place where we start thinking thoughts like, "Well, this is -- trading is damaging me as a person or my family or my friends," to take a break to allow that stress to come down. Because it really moves as we see on the slide from left to right. The two that are most closely linked together is cool, calm, and collected and yes, I consistently meet my targets. So when we're in a place and an emotional state where it's not stressed and we're feeling cool, calm, collected, relaxed, comfortable with the market, comfortable with the strategy, I'm not stressing about my entry and my exit, is it here, is that the pattern or not the pattern, and all those things we go through as traders. But we're like, we know our entry, we know our exit, we know or risk management, we're happy with it, we're contained, we're just executing the strategy, that's when we consistently meet our target.
Tim: Sounds like this might also argue for getting counseling or therapy or something along that to reduce that stress if that helps.
Brad: Yeah, I think definitely. I mean, I've done a few Googles in my moments where I've been really stressed to try and find a trading coach and there seems to be a ton of them on the web. So, I think it's a need and something that we can learn to manage. Certainly, books on trading psychology help a lot. There's "The Daily Trading Coach" and, obviously, I think we know that "The Distant Trader" and "Trading in the Zone". Those are all really useful for getting us into this position of having a little bit of stress. So, in summary, profits is proportionate to trading stress. If we find ourselves stressed, we need to walk away. This is no longer a technique recommended, but actually something that's statistical and we can prove it by hundreds of traders. I think, if we could make one change is just when we feel ourselves starting getting stressed or prickly to walk away or to readjust the way we're looking at things, to relax. The next slide is just to quantify all those other trading mistakes and to say how related are they really to profit. The closer something is to 1, the closer it is to being fully related or correlated to profit. The closer it is to -1 means that it's perfectly correlated with losing profit or, i.e., making a loss. So it's very interesting to see that if people under trade, which they said was a mistake, they actually save the money.
Tim: Too much trading means too many losses for a lot of people.
Brad: Yes.
Tim: What is that G7? I've seen that G7 entry and exits, what is that?
Brad: That's part of a system that a portion of these traders that I did the survey with were using. We can say the G7 system here is a system of trading and, you know, understanding it and you can substitute it for, do I understand my system.
Tim: Got it. So we can relate it to pretty much any trading system?
Brad: Yes, pretty much any trading system. So, at the very bottom we've got greed, trying to make unrealistic profits, and being disciplined with risk and money management. All those are still fitting into the same thing of the expectation. And we could see expectations really are deadly, but still -0.18 is not really a high correlation. You know, -0.5 would mean that it's 50% correlated, at least half of the time it's correlated. But here, we're seeing it's really not correlated. And this just really goes hand in hand with the previous slide saying, there's something else other just these usual things that we think of. And I think that's why there's a trap for traders. We get into it and we keep doing the same thing. Was it Einstein who said, the definition of insanity is to keep doing the same thing and expecting a different result. We keep trying not to be greedy. We keep trying to make realistic profits, change our mindset. We keep trying to be disciplined. We're trying to stop over trading. We're trying to only stick with one system. We're trying not to be afraid. But none of it is working. We're just stuck in the same cycle. Because we know that's what sitting in the background is the stress. When we're able to take the stress off of it, the greed is not going to be such a thing. We're not going to place such an emphasis on it. When we take the stress out of the system, fear will automatically start to dissipate. When we take the stress out of the system, we won't spend too much time in our computer. So, from the data, that's really the shift in mindset that I'm seeing. As traders, we've got to try not to get stuck on the treadmill of pointing to these things as the reason for our losses and for inconsistency. The reality is that stress is -- and that intensifying of stress where, you know, from a psychological point of view, certain parts of the brain start shutting down under stress and hormones are released into the body, adrenaline and all the rest of it. Those are not conducive to trading. The more stressed we are, the less we are actually positioned as a human being, a biological human to trade.
Tim: So that would be your overall conclusion for the entire thing, is that stress really if we're going to point to one thing that causes losses, it's stress?
Brad: Stress, unmanaged stress. And I think just on the next slide, conclusion, the harder we try and make money the more distressed we get, the further we get away from the money tree. And I then I just said here, if there was a secret to trading why do we trade to make money, how do we trade by executing a strategy. The more in control we are, the less distressed we are with losses, the less over excited we are at profits, and the more consistent we are. If we can just focus on executing a strategy and realize when we move out of execution and into stress and over excitement and all those emotions, we'll do a lot better as traders.
Tim: And then finally that last slide is almost steps that we could take to try and achieve this goal, right? You've almost laid it out here for us.
Brad: Yes. I suppose this is somewhat a summary of my own trading career. Where we start off wanting to make money and then the next step is we try and realize well, I actually need to learn something about the market. And then once we've learned something about the market, we either get stuck in learning about the market, i.e., blame a lack of knowledge on, "Oh, the market moved to get me. I didn't know enough. I need to learn more". Or we realize, there's something else so we move to the next step, which is learning about the psychology of trading and we learn about ourselves and how we work as human beings and we relate to all these different things. But to shortcut that, if we just believed in probabilities and we just executed the strategy, i.e. we don't think every trade is going to be winner, we just realize, well, I don't know, maybe this one will be a loser, maybe it'll be winner, it doesn't matter, I know my strategy is profitable over a reasonable number of trades. If we can just get to that place, we find consistency.
Tim: Well, this has been great, Brad. I appreciate you taking the time to share with us some of the results of the survey. I think if it just gives people something to think about in terms of the stress and reducing stress and maybe they see themselves a little bit in this, I think we've done a decent job of that.
Brad: Thanks Tim for helping me gather the data.
( Source: Trader Interviews / Free Interviews )
Tc and I hope you had some aha's when reading this post
DanPickUp
To be successful in trading, what does it really need ?
Tim: Hello everybody and welcome back to TraderInterviews.com. Thanks for joining me for another special episode. I've done something a little bit different today. Today, we're speaking with a gentleman named Brad Taylor and he is a trader, but this interview is a little bit different. A few months ago, Brad inquired about sending out an email to our list, to you, you may have gotten it, with a survey about traders. He was interested in knowing what -- so what data there was out there about trading success and what led to that, and what led to traders not having success as well. He's gotten the results back and we wanted to get him on the phone and talk to him about that and see what the results were. So, Brad, first of all, thanks very much for joining me on the phone today.
Brad: Thank you, Tim. It's great to be here today.
Tim: All right. So let's go through just each of these results and we can kind of start by asking basically, what was the reasoning behind wanting this survey done? What were you interested in finding out?
Brad: Okay. There were several things. First, we always hear that figure, 5% of traders are successful and 95% fail. So, I thought it would be great if we could get a handle on that and see where the truth is. And then secondly, are there some things that we do as traders that we could be more aware of that relate to the profit. So, is there a way we could become part of that 5%. You know, obviously we've heard lots of other trading coaches and psychologists and things tell us various ways that we can become part of the 5%. But what I wanted was to get numbers behind it so it's not just a theory; it's actually something that we can observe. A behavior pattern that shows us the difference between the guys who are consistent in winning and everybody else.
Tim: Right. And you do hear that anecdote a lot. You hear that story about 95%, I've heard 99% of traders fail and 1% is successful. We do know that it's somewhere greater than 50%, I think, we can all agree on that at the very least, that do blow out their accounts for whatever reason. And, you know, a very small percentage of traders probably make the majority of the money like anything else in any other industry. But let's talk about that. First of all, you on that first slide -- and traders we've uploaded the slides to the site so hopefully you've downloaded them to follow along here. But you had 700+ traders respond. You know, I was a Pol. Sci. major in college, but I did take a statistics course. Is 700 --first of all, we should probably talk about, is that statistically relevant in terms of getting good data on the overall landscape of traders?
Brad: Yes. 700 is a great number for us to work with because not only is it a good representation of traders generally relative to the population size 'cause that's always the trick with the sample sizes. Is it big enough because we're not asking every trader, we're only asking a few traders and then taking that information and making it apply to everyone. So, the 700 is more than enough. Usually for a countrywide study, you'd only need about 250 people per cell. So, we've got more than that. So, we've really got a great base to work with and we can cut it up in some ways, which we'll see in the following slides, and know that the answers are still rigorous. And it's also important is, is who we interviewed. You know, we didn't just ask successful traders, we didn't just ask unsuccessful traders. We didn't ask people who only had an account size of a certain amount, it ranged from $100 to more than $50,000. And people's trading goals from just 50 pips or points a month to more than 800. So, there was quite a nice broad spectrum of traders. It's not looking niche. If anything, the fault of the study would be that it's erred slightly on the side of having a few more Forex traders in it than futures or stock options, or other markets traded.
Tim: Yeah, I was going to ask you about that. You mentioned pips as the goal, that assumes you talked to Forex traders, but there were some stock and futures traders in here as well.
Brad: Yeah. And quite a number here trade multiple markets as well.
Tim: Okay. All right. Well, lead us through that kind of first slide and the things that you learned and then we'll just go down the road.
Brad: That's basically who spoke to. An interesting thing is that it doesn't matter how much money you got, it seemed the goals didn't change. They all stayed in proportion. So it could range from the goal of $100 to the goal of $50,000. They might all have the same goals, 10% a month or 20% a month, which is odd. Because usually when you start a new venture, the goals are scalable. But it seemed like in trading the goal is not scalable relative to the capital. Ninety percent of traders though did say that they believed that they had the skill or that they could acquire the skill over time, which would make them successful traders. And that's very interesting. So, there's a mindset out there amongst the general trading population that they believe skills are acquired over time, which is quite significant because if that proves true then throw time at trading and you'll become successful. If that proves false, there's something else.
Tim: All right. Well, it's good to know that you don't have to be born with the skill. Well, these traders don't think so and I agree with that. I think for the most part, 90% of the people out there probably can learn the skill and there are 10% out there that for whatever reason just don't have what it takes, whether it be ego or anything else. So that is interesting.
Brad: Quite interesting that 10% would say, you know, they don't have the skill and they don't think they can get it. Kind of like, well, why carry on? But anyway
Tim: [Laughs] Well, they're taking the survey for some reason so I'm glad -- there has got to be some of those folks, I guess, out there.
Brad: Hopefully, we can just shed some light on some thoughts that already help traders out there. I know the study for myself has backed up a lot of my thoughts that I had beforehand and also crossed some out. So, it's been really useful.
Tim: Right.
Brad: Eighty-five percent of traders said, you know, they believe they have what it takes to succeed mentally and emotionally. It was very specifically worded around that you have the mental capacity and the emotional capacity. I think any of us who have been trading for a little while realize, well, this isn't just about trying to figure out a strategy, there seems to be an emotional component to it. But most people are again saying, "Look, we believe that we can do it" so traders, we're a really positive bunch of people I think.
Tim: So somewhere between that 90% and then 85%, 5% we may have caught on a bad day. [Laughs] Who had big losses that day and said, "Nope, I don't have what it takes." Who knows what they felt the next day, but on that day, we got them on a bad day maybe.
Brad: If we got them on a bad day, yeah.
Tim: All right. So that next slide, the profitable trading, that was interesting one. Talk about that.
Brad: Yeah. Profitable trading, this is quite nice. Large losses and small losses, 50% of people fall into that category, which seems to make sense. And then we're looking at about another 25% of people that are more or less break even. So, you know, lose some money this week, make some money next week. We know in market research and, I think, also just as traders, generally people tend to exaggerate a little bit. So probably, the more or less break even is probably less break even and not so much about break even.
Tim: You think they skewed to the losing side a little bit probably?
Brad: I think they skewed to the losing side.
Tim: Okay.
Brad: But they're close enough that they're comfortable that look, it's almost there, it's almost there. In terms of small profit, we've got another 20% of people fitting in there. And this is a very interesting category because the next one up is consistently meeting target. So, small profits are still saying that you're inconsistent with your trading. So maybe you have three good months and then a really bad month and that wipes out most of your profit. So, there's still a sense of inconsistency coming through.
Tim: I guess, if we're going to read something a little more into that, that kind of tells me that maybe people are not setting discipline stops all the time. Because if they're, you know, profitable with little profits for awhile and then get all that wiped out, either they're doing mental stops and then backing off of that when it comes down to them. It sounds like those people are still having a little trouble with discipline. That's extrapolating a little bit, but that's what it says to me.
Brad: Yeah. And I think definitely, we'll get a bit more into those reasons and one of them is definitely about a stop loss, but how we approach a stop loss really does affect the whole ball game. The next set of people which is just under 5%, which is really interesting 'cause I think that's where the 95% to 99% of traders who make money comes from. These are the guys who consistently meet their targets whether it's a 5% target a month or a 25% target, it doesn't matter. They are consistently meeting their target. I think that's quite significant because it means that they've managed to master whatever skills are required in order to succeed at this game of trading. And it's not that they're in here, it's not we actually found some because if we only had answers on the side of small profits or large losses or small losses then we wouldn't have anything to contrast against. But now, we've got a sample size, which is big enough that we can contrast against these consistent traders and see what they do differently, which is quite exciting. I just threw in a little thing. One broker they disclosed their figures as 28% to 33% over a period of time of people made money. Now they didn't say how much they made or if they continued to make money, but they made money. In the survey, we're picking up about 23% of people so it's really close and it means they're literally heading in the right ballpark to this one broker --
Tim: Great.
Brad: -- this last broker which is nice.
Tim: Great.
Brad: On the next slide, we looked at the whole question of time. Does the amount of time that you've been trading for change whether you're profitable or not. And this is quite amazing. Those lines are almost on top of each other, which means it doesn't matter if you've been trading for six months or five years, it seems that time is not what's changing. If time actually changed our ability to be profitable as traders, we should see that brown line of more than five years really getting up more and out of line with the rest of these guys on consistent targets. It should peak on consistent targets, but we don't see that.
Tim: Does that mean that then the people who are profitable are pretty much profitable right from the beginning?
Brad: That's pretty much what this survey is telling us. Is that guys who are making consistent targets seem to know something or understand something from the start, and the length of time is not really affecting it. It's not saying that, you know, like I became profitable after a certain amount of time or it took me a certain amount of time. It was just, like, how long have you been trading for and then, you know, what is your profits. So when we put those two together, we get a snapshot in time. So, it's not saying that these traders didn't transition from being unprofitable to profitable. It just means that you get traders who've been trading for six months who are consistently meeting their targets, 12 months they're consistently meeting their targets, 2 to 5 years and so on. So, right at the gate, there seems to be a different attitude or a way of thinking that comes across or maybe it's a strategy but, you know, we'll see that as we go on. So, it's interesting that time -- that we don't have to be bound by time. We don't have to say, "Well, in five years' time, I'll be a profitable trader" or "Two years' time, I'll be a profitable trader." Actually, it seems like within six months, you can be a profitable trader. And I think that's really great news because, you know, -- I mean I struggled with trading for many years to become consistently profitable and then it almost seems to change overnight.
Tim: Right.
Brad: I think that's quite encouraging news. You don't have to be an old dog to get the bone.
Tim: And the next slide talks, I guess is even more encouraging, about being able to do this and learn this skill. But there was a pretty important key to this.
Brad: The important key here, as you're saying, is profit increases over time, but only if a post trade analysis is done. Everyone else who's maybe, "No, I don't do it" that red line is up and down and looks pretty random. You know there's no real nice progression. The green line has a really great progression from being large losses are really minimized to consistent targets, which are quite up there.
Tim: So keeping a trade journal, understanding what you did wrong, making corrections, all that goes toward becoming more profitable. Make sense.
Brad: Yes. So, I guess, it's how we use our time as a trader or we just keep trying new systems or are we bolding on something gradually, as you say, with the journal and the making sense of it and trying to understand and learn from what we're doing.
Tim: Well, the next three slides are, I guess, the downer part of the survey about what went wrong when traders had losses, right? Take us through those.
Brad: Interesting, 40% of traders said they don't know. [Laughs] I think that probably speaks to a lot of us. I remember at the time of my own trading, I didn't know what was going on. I was just losing money hand over first. I was using the system that I was taught and it wasn't working. So, I think we can relate to that too. But 40% of traders sitting in that category, that's quite a lot. Twenty percent of traders saying, "Well, I'm not sure. I think I've got an idea of what's going on". And then, 40% really saying, "Look, I know." And although it's good that we might assert that we know, sometimes it can be quite dangerous. 'Cause we can say, "No, my problem is this," but there might be several other things, which are causing us trouble so it doesn't really help to have such a fixed yes.
Tim: And knowing what's wrong is only half the question then fixing it is the other half.
Brad: I think the fixing it is the real struggle we have as traders.
Tim: And then you have some real concrete answers about -- in the next slide about what is it that they thought was going wrong. And I assume those are answers from the people that said they knew.
Brad: Yeah. These are answers from people who are willing to say, "Look, I think it's this." So, either they know or they think they know. Interesting that the biggest problem people say is having too many systems. From a psychological perspective, that's very interesting because they're still blaming something outside of themselves.
Tim: Is that -- do you think that also means using too many indicators?
Brad: Yeah, too many systems, too many indicators, hopping from one system to the next never really settling down. I think that hopping from system to system is what Mark Douglas calls random trading.
Tim: All right. And then you've found that once they determined what they thought was going wrong, that there were some commonalities between these things on the next slide.
Brad: Yes. So the next slide gets a bit technical, but it's run from a cluster analysis. Very simply a statistical procedure and it looks for patterns in the data, where it finds patterns, it'll group things together and the tighter the patterns, you know, the closer everything is. And then, I just overlay enough summary on top of this so you don't even have to worry about too much of that. But what it's saying is that fear, greed, trying to make unrealistic profits, not stopping trading after you've met your targets, overtrading, all kind of fall into the same category of what we call going after money or expectations. So, on this slide, we see that our expectations are tied into the fear and the greed and making unrealistic profits. The second class of arrows that we can make is with discipline. So around our trade entries, our exits, our risk and money management, understanding money management in the first place and understanding risk. And then there's a third category, which is all around strategy problems. And I think a lot of blame in terms of traders go to strategy problems. Like on the previous slide, we saw that the number one thing which people said was, "I trade too many systems," i.e., a strategy problem. It's interesting to note that all of those would cause losses, but they're not necessarily the root cause. So, moving on to the next slide, profit proportion to trading stress. Now, this is very interesting. Because on the previous I tried to get profit to relate to one of those categories and I couldn't do it. It just keeps sticking out there by itself. Which is telling me that none of those categories produced patterns consistent with making money or losing money, which I think is quite different. Because a lot of us think, "Well, it's because I don't have the stop that I lost money." But the statistics is telling us actually it's not necessarily that you didn't have a stop that you lost money. The current slide that we are on now, profit proportion to trading stress says that large losses come from having too much stress. So, whether it's a system problem, a discipline problem or an expectation problem whenever we're under too much stress and one of those three come up, it's going to cost us a lot of money.
Tim: So just to be clear, so it's not the loss the causes the stress, although, I'm sure that's part of the case. But you're saying that there was existing stress about trading already and then that's what had the correlation to the large loss?
Brad: Yes. So, when people start saying, "My trading" -- so obviously, there's been losses in the past and some wins or maybe some trades that have been left out and missed or money left on the table, all those things causing psychological stress. When a person starts to think, this is unhealthy and it's causing me to live unhealthily and it's damaging my family and my friends and relationships, when trading gets to that place, it's almost inevitable that you're going to suffer large losses. It's at that point that we're unable to just execute the strategy. We're too heavily involved. And I think if we ever get to that place where we start thinking thoughts like, "Well, this is -- trading is damaging me as a person or my family or my friends," to take a break to allow that stress to come down. Because it really moves as we see on the slide from left to right. The two that are most closely linked together is cool, calm, and collected and yes, I consistently meet my targets. So when we're in a place and an emotional state where it's not stressed and we're feeling cool, calm, collected, relaxed, comfortable with the market, comfortable with the strategy, I'm not stressing about my entry and my exit, is it here, is that the pattern or not the pattern, and all those things we go through as traders. But we're like, we know our entry, we know our exit, we know or risk management, we're happy with it, we're contained, we're just executing the strategy, that's when we consistently meet our target.
Tim: Sounds like this might also argue for getting counseling or therapy or something along that to reduce that stress if that helps.
Brad: Yeah, I think definitely. I mean, I've done a few Googles in my moments where I've been really stressed to try and find a trading coach and there seems to be a ton of them on the web. So, I think it's a need and something that we can learn to manage. Certainly, books on trading psychology help a lot. There's "The Daily Trading Coach" and, obviously, I think we know that "The Distant Trader" and "Trading in the Zone". Those are all really useful for getting us into this position of having a little bit of stress. So, in summary, profits is proportionate to trading stress. If we find ourselves stressed, we need to walk away. This is no longer a technique recommended, but actually something that's statistical and we can prove it by hundreds of traders. I think, if we could make one change is just when we feel ourselves starting getting stressed or prickly to walk away or to readjust the way we're looking at things, to relax. The next slide is just to quantify all those other trading mistakes and to say how related are they really to profit. The closer something is to 1, the closer it is to being fully related or correlated to profit. The closer it is to -1 means that it's perfectly correlated with losing profit or, i.e., making a loss. So it's very interesting to see that if people under trade, which they said was a mistake, they actually save the money.
Tim: Too much trading means too many losses for a lot of people.
Brad: Yes.
Tim: What is that G7? I've seen that G7 entry and exits, what is that?
Brad: That's part of a system that a portion of these traders that I did the survey with were using. We can say the G7 system here is a system of trading and, you know, understanding it and you can substitute it for, do I understand my system.
Tim: Got it. So we can relate it to pretty much any trading system?
Brad: Yes, pretty much any trading system. So, at the very bottom we've got greed, trying to make unrealistic profits, and being disciplined with risk and money management. All those are still fitting into the same thing of the expectation. And we could see expectations really are deadly, but still -0.18 is not really a high correlation. You know, -0.5 would mean that it's 50% correlated, at least half of the time it's correlated. But here, we're seeing it's really not correlated. And this just really goes hand in hand with the previous slide saying, there's something else other just these usual things that we think of. And I think that's why there's a trap for traders. We get into it and we keep doing the same thing. Was it Einstein who said, the definition of insanity is to keep doing the same thing and expecting a different result. We keep trying not to be greedy. We keep trying to make realistic profits, change our mindset. We keep trying to be disciplined. We're trying to stop over trading. We're trying to only stick with one system. We're trying not to be afraid. But none of it is working. We're just stuck in the same cycle. Because we know that's what sitting in the background is the stress. When we're able to take the stress off of it, the greed is not going to be such a thing. We're not going to place such an emphasis on it. When we take the stress out of the system, fear will automatically start to dissipate. When we take the stress out of the system, we won't spend too much time in our computer. So, from the data, that's really the shift in mindset that I'm seeing. As traders, we've got to try not to get stuck on the treadmill of pointing to these things as the reason for our losses and for inconsistency. The reality is that stress is -- and that intensifying of stress where, you know, from a psychological point of view, certain parts of the brain start shutting down under stress and hormones are released into the body, adrenaline and all the rest of it. Those are not conducive to trading. The more stressed we are, the less we are actually positioned as a human being, a biological human to trade.
Tim: So that would be your overall conclusion for the entire thing, is that stress really if we're going to point to one thing that causes losses, it's stress?
Brad: Stress, unmanaged stress. And I think just on the next slide, conclusion, the harder we try and make money the more distressed we get, the further we get away from the money tree. And I then I just said here, if there was a secret to trading why do we trade to make money, how do we trade by executing a strategy. The more in control we are, the less distressed we are with losses, the less over excited we are at profits, and the more consistent we are. If we can just focus on executing a strategy and realize when we move out of execution and into stress and over excitement and all those emotions, we'll do a lot better as traders.
Tim: And then finally that last slide is almost steps that we could take to try and achieve this goal, right? You've almost laid it out here for us.
Brad: Yes. I suppose this is somewhat a summary of my own trading career. Where we start off wanting to make money and then the next step is we try and realize well, I actually need to learn something about the market. And then once we've learned something about the market, we either get stuck in learning about the market, i.e., blame a lack of knowledge on, "Oh, the market moved to get me. I didn't know enough. I need to learn more". Or we realize, there's something else so we move to the next step, which is learning about the psychology of trading and we learn about ourselves and how we work as human beings and we relate to all these different things. But to shortcut that, if we just believed in probabilities and we just executed the strategy, i.e. we don't think every trade is going to be winner, we just realize, well, I don't know, maybe this one will be a loser, maybe it'll be winner, it doesn't matter, I know my strategy is profitable over a reasonable number of trades. If we can just get to that place, we find consistency.
Tim: Well, this has been great, Brad. I appreciate you taking the time to share with us some of the results of the survey. I think if it just gives people something to think about in terms of the stress and reducing stress and maybe they see themselves a little bit in this, I think we've done a decent job of that.
Brad: Thanks Tim for helping me gather the data.
( Source: Trader Interviews / Free Interviews )
Tc and I hope you had some aha's when reading this post
DanPickUp
