Trading with an edge and learning to lose are two key lessons to learn if you want to become a successful trader

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What do you do when you want to be a trader but you’re struggling to be consistently profitable?

Some traders take endless courses or read countless trading books, some find a mentor. Most just keep struggling until they get it right, or give up.

But Aaron Fifield decided he wanted to do something different. So he started a podcast where he interviews some of the best traders on the planet.

Fifield, the host of the popular Chat with Traders podcast – one I listen to every week – told Business Insider he “was making little progress and something had to change if I really wanted to become a profitable trader — it had to become more than a hobby”.“I understood the power of mentors and having relationships with those who were where I wanted to be (or at least, further advanced). But no one in my circle of family or friends etc had any interest in financial markets, investing or trading and I’d always learned a lot from listening to podcasts and enjoyed listening to them.”

And thus his podcast was born.

aaron

Fifield is now 88 episodes into his journey which has included chats with Blair Hull, Jerry Parker, Tom Sosnoff, Nick Radge, Nicola Duke, RealVisiontv founder Raoul Pal and even Jack Swager, the author of the Market Wizard series of books and himself a student of great traders.

So we asked Fifield if he could share some of the wisdom he’d picked up along his journey.

The one piece of knowledge that he’d like to share with his novice trading self and other traders was you have to find your comparative advantage, your edge, to be successful.

“You need to understand the importance of having an edge — and understand what an edge is,” Fifield said.

“Blair Hull defines as an edge as making the same kind of trade hundreds of times, and in the long run, having more money than you did to begin with.”

And it’s edge that pops up again when Business Insider asked him what were the most important lessons he’d learned from his conversations with traders.

Blair Hull told him “If you’re missing an edge, there’s no reason to play”, while Tom Dante taught him “If you’re not working on your edge, someone else is”.

For me though, my favourite episodes, amongst so many, are Fifield’s discussions with ‘FuturesTrader 71’. He appears in episodes 37 and 82 and is a trader who really learnt his craft from the ground up.

His point, the one Fifield thinks is among the most important he’s taken away from his scores of conversations, is that traders need to “stop being afraid that somehow you’re going to lose money”.

“In fact, you’re guaranteed to lose money, it’s part of the process.”

Traders need to learn how to lose before they can learn how to win, Fifield added

The three big reasons for trading drawdowns

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drawdowns

The three big reasons for trading drawdowns according to renown trading Psychologist Brett Steenbarger:

1)  They’re trading a strategy that doesn’t fit the present market;
2)  They’re trading the right strategy, but their head isn’t in the game and they’re not following their strategy;
3)  They’re trading the right strategy with a good mindset, but they’re employing the wrong tactics and thus not implementing their strategy the right way.

The may be so but I find the  STOP the simplest most effective and reliable way to stop drawdowns.

Five distinguishing characteristics of winning traders

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1. Successful traders trade uniquely

2. Successful traders are multidimensional 

3.Successful traders work at their trading

4. Successful traders know when to not trade

5. Successful traders are self-aware

Artificial intelligence has some way to go yet

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GO

go

A computer armed with artificial intelligence has beaten the worlds best player at the Chinese game of Go. Go is complicated, but its nothing compared with a world that has more than 7 billion traders making their own moves every day. Yes we all need  a plan of engagement.

5 Things You Can Learn From Trading In The Zone

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Trading In The Zone by Mark Douglas is widely regarded as a classic in trading literature.

I myself have read it many times throughout my trading career, always managing to learn something new from it with each successive read.

Excerpts:

“Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.”

“If you perceive the endless stream of opportunities to enter and exit trades without self-criticism and regret, then you will be in the best frame of mind to act in your own best interest and learn from your experiences.”

“People see what they’ve learned to see, and everything else is invisible until they learn how to counteract the energy that blocks their awareness of whatever is unlearned and waiting to be discovered.”

“To operate effectively in the trading environment, we need rules and boundaries to guide our behavior.  It is a simple fact of trading that the potential exists to do enormous damage to ourselves damage that can be way out of proportion to what we may think is possible.”

“There is a random distribution between wins and losses for any given set of variables that define an edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like ‘right’ and ‘wrong’ or ‘win’ and ‘lose’ no longer have the same significance.”

What Mark is talking about here is very important.

Probability is one of the least understood aspects of the markets, having a firm understanding of probability and how it relates to you and your trading strategy will allow you to keep your expectations inline with the reality of the markets.

If you have tested your trading strategy over a sample size of trades ( lets say a thousand for example’s sake) you’ll know how many of the trades out of the thousand you have won and lost on, additionally you’ll also know what the highest streak of winners and losers you have had in a row.

Knowing this information allows you to trade from a standpoint of probability rather than chance, if you know out of 1000 trades your going to win on 500 of them then what purpose does it serve to be scared of losing money ?

We are blessed to of had someone as smart as Mark Douglas to shed an incredible amount of light on the psychological aspects of trading, if were not for him many of the techniques used to control and understand what a trader is thinking when trading would of forever been lost.

The key research rules to all market decision making

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Nine Rules of Research According to Ned Davis

There’s always some ‘big’ news story dominating the markets (we have to talk about something) that can catch your attention and in turn shift your bias and focus and rattle your cage. The first half of 2016 seems to have contained an abundance of such stories ranging from profit margin contraction, Fed policy, country’s leaving unions, police shoots, and whether certain political candidates are either racists or criminals, and of course the Brexit.

As traders our job is to focus on what the market is telling us – for many of us that involves a form of analysis based on price movement and for others it incorporates corporate reporting and macro economics. No matter your market paradigm, staying focused on what matters is crucial.

Today I want to share the nine rules of another of my favorite research commentators Ned Davis, founder of the well-respected market research firm, Ned Davis Research…

1. Don’t Fight the Tape – the trend is your friend, go with Mo (Momentum that is)

2. Don’t Fight the Fed – Fed policy influences interest rates and liquidity – money moves markets.

3. Beware of the Crowd at Extremes – psychology and liquidity are linked, relative relationships revert, valuation = long-term extremes in psychology, general crowd psychology impacts the markets

4. Rely on Objective Indicators – indicators are not perfect but objectively give you consistency, use observable evidence not theoretical

5. Be Disciplined – anchor exposure to facts not gut reaction

6. Practice Risk Management – being right is very difficult…thus, making money needs risk management

7. Remain Flexible – adapt to changes in data, the environment, and the markets

8. Money Management Rules – be humble and flexible – be able to turn emotions upside down, let profits run and cut losses short, think in terms of risk including opportunity risk of missing a bull market, buy the rumor and sell the news

9. Those Who Do Not Study History Are Condemned to Repeat Its Mistakes

There’s nothing exceptionally profound here apart from hard nosed awareness of what’s important. When times are ‘noisy’ it’s nice to have a reminder of what’s important as these are the messages that will see you through both the good times and the bad.

The American dream – an amazing fact

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“In 1923, seven men who had made it to the top of the financial success pyramid met together at the Edgewater Hotel in Chicago. Collectively, they controlled more wealth than the entire United States Treasury, and for years the media had held them up as examples of success.

Who were they? Charles M. Schwab, president of the world’s largest steel company; Arthur Cutten, the greatest wheat speculator of his day; Richard Whitney, president of the New York Stock Exchange; Albert Fall, a member of the President’s Cabinet; Jesse Livermore, the greatest bear on Wall Street; Leon Fraser, president of the International Bank of Settlement; and Ivar Kreuger, the head of the world’s largest monopoly.

What happened to them? Schwab and Cutten both died broke; Whitney spent years of his life in Sing Sing penitentiary; Fall also spent years in prison, but was released so he could die at home; and the others? Livermore, Fraser, and Kreuger, committed suicide.”

—Donald McCullogh, Walking From The American Dream