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Welcome to Episode 157 of The Traders Podcast! In this show, your host Rob Booker talks with Jared Johnson, the CEO, founder and president of Day Traders FX.com, about some listener feedback we’ve recently received. Our friend Justin e-mailed in to the podcast to suggest / request that Rob provide more discussions of trading setups, back-testing and technical analysis. So, in answer to Justin’s request, Rob alternates with Jared and provides — more or less — six quick methods for entering a trade.
Next Rob talks about having breakfast with Tim Bourquin and their discussion of the universal question that beginning traders always seem to ask: “How long will it take to become successful at trading?” Or another version of this same question is: “How long until I can quit my day job and just trade full time?” This leads Rob to tell a story about his good friend, Shonn, and his response when Rob asked him if he could think of a time when someone asked him to do something and he was absolutely confident in his answer.
All of this, of course, leads back to Justin’s e-mail about trading setups. Rob says the important thing is not how you set up your trades, but how you use what you have been given. Rob and Jared also talk about forgiving one’s self and about being sufficiently embarrassed with ourselves for our own mistakes, which leads to a candid discussion of personal accountability and transparency. And finally, Rob and Jared wrap up this episode by making some confessions about their joint trading account for charity. Good stuff. Listen!
Links for this episode:
Twitter: @RobBooker
The Traders Podcast on Twitter: @TradersPodcast
E-mail us! Producer@TradersPodcast.com
{ 15 comments… read them below or add one }
Hi Guys
Great show, there some real gems in there!
With regards to Justin’s email on “strategy / trading setups”.
I think all new traders focus on this way too much, “strategy” which would have to be the least important part of trading (in my mind).
Learning to follow a system or methodology & faithfully carrying out the plan after your trades are placed is important but not nearly as important as your “state” (emotions about money, etc) first, your “Story” (why you can or can’t do something) second and your strategy last.
When I have modelling successful traders and talked with new traders following this order of business is where I’ve see the greatest success levels. Often however when I’ve talked with “losing” traders I find they are hung up on “strategy” or have missed the first and second step and gone off looking for the “holy grail” as it were.
The markets are littered with examples of people who have taken a winning strategy and applied a poor state and story to it, butchering the strategy as a result.
Rob as you well know, the irony of this is there is no magic method,
Trading is 90% psychology!
So in other words the magic method is you.
I really enjoyed the dependency/accountability discussion.
Whilst I’m really quite uncomfortable trading in public I believe I trade better in public because there is nowhere to hide any bad decisions therefore I consider my trades carefully.
I think this is CRUCIAL to trader development and would strongly encourage more people to post their trades more openly
Look forward to the next episode
Scott
I agree with Scott (who is a much better trader than I). Trading is certainly 90% psychology (at least). But I’ve never understood how that matters if you follow a proven system. If your system has an edge and you follow it just like an EA would, does your psychology matter?
I know that my best days are after a nice break or after a good night’s sleep but that is when I’m trading discretionally and feel like I feel the market’s flow a little better. My most important job is still limiting my risk. Trading to try and gain a bunch of money is the surest way I know to lose a bunch.
So is that all market psychology boils down to, to be able to follow one’s system? Or does it include knowing when to break one’s rules?
G’day Nate
Thats a great question, I’d love to hear Rob and Jason discuss this one.
For me I would say its still JUST important with auto trading, as you have mentioned “if you have an edge and you follow it like an EA would” how would psychology matter?
A trader would still need to follow the system and not “turn it off” when you have had 5 losers in a row. The key word here is “if” and its a big if. There can be a strong temptation to stray from your system when your in a losing trade.
Without your head in the right place these are the trades that bring most of us undone.
If you have a system that can truly be automated, then I would automate that system and remove the temptation to stray from the plan (which even the most experienced traders do from time to time).
I think market psychology is more about knowing yourself, and then developing a set of guidelines that apply to a given situation. hope that helps
Automated trading in which all the players in the market behave rationally, not accounting for the emotional aspect of the market can sometimes lead to unexpected outcomes that can’t be predicted by simply looking at the fundamentals
“I think market psychology is more about knowing yourself, and then developing a set of guidelines that apply to a given situation.”
This is the single best answer I’ve ever heard on market psychology. Thanks Scott!
thank you 🙂
I agree with the above comments, but in defense Justin’s email asking for technical and strategy discussions, I also find that stuff very interesting. Knowing yourself is definitely important, but if you don’t know what the trend is or how to pick good support resistance etc, it’s going to be painful 🙂 Additionally, as a new trader myself, hearing what has worked for others has helped in putting together ‘my’ strategy that works with my psychology, schedule, etc.
Kevin,
Thank you for writing. Good to hear from you. What do you trade? How long have you been trading? What hours do you trade? We’ll look into doing more of this kind of thing – maybe make room for it once a week even.
Rob
Hi Rob,
I started trading about three years ago and have had pretty hit and miss results (more miss than hit 😉 I’ve traded various instruments including ETFs, options, futures, and forex. This year I ‘ve choosen forex to be the one thing I trade and my method is harmonic patterns. I’ve also established a pretty consistent block of time in the morning (5 to 6:30am central time) when I can look at charts, set alerts, and such. I draw my patterns/levels in tradingview and set alerts in metatrader to send me push notifications when they are near completion. Then throughout the day (I’m a programmer by trade) if I get an alert on my phone I can glance at the chart and decide whether its a go or no go. Most of my trading is done on h1, h4, and d1 charts.
All in all, I feel like I’ve probably got a foundation now that I can start refining and building on—thanks to bits and pieces (both technical and otherwise) I’ve picked up from you and your crew (Wilson, Jennifer, Scott W, etc) as well as others and lots of reading.
PS. I just had a thought…another reason for being interested in the technical stuff is that I’m interested in building EAs and to build an EA, pretty much all you have are indicators to work with…just a thought.
Thanks,
Kevin
I can’t agree more with Scott. New traders spend entirely too much time on optimizing trade selection, jumping from indicator to indicator, and system to system, and never making much progress because selecting the “best” indicators and systems is only a small portion of becoming profitable. Technical analysis has five functions. It measures what the market has done. It looks for hidden divergences. It makes predictions. It provides us a structure for a trade in the form of an entry, a profit target, and most importantly, a stop loss. And finally, it tells us when we are wrong. Of the five, telling us when we are wrong is the most important. The weakest gift of technical analysis is the prediction part. Your system is no more predictive than your edge, and an edge is a 99 pound weakling compared to the eight hundred pound gorillas that can destroy your profitability, things like ignoring what the market has done, ignoring divergences, not having a plan for entry points and exits, or denying when you are wrong.
All of this, of course ignores the psychology of holding your future in your hands. (Ah, trader psychology, sigh)
The reason seasoned traders don’t want to talk about indicators is because it brings back bad memories when they though indicators were anything more than just 10% of the system. Most painters don’t become masters, but the ones that do use the same paint brushes as everybody else.
Ahhh…so true Brian. So true!
I like your quote “Of the five, telling us when we are wrong is the most important” that is spot on the money.
Ya, well said. Just a point of clarification (as a newish trader myself)…when I say that I’m interested in the technical stuff, I (and I would guess others as well) am saying that I want to learn about all of the 5 things you listed…especially the “tells us when we are wrong” part 🙂
Check out the #edge trading videos by Booker & Wilson at http://www.edgetrading.co
Even I stumped up for this, CDR Wilson covers the 5 points Brian raised.
Simple but spectacularly effective!
Hi Kevin, I don’t want to highjack the thread like some Yoda of trading, especially because my thing is the big picture and that makes one seem a windbag, but my point is everybody enters trading obsessed with technical analysis and edge, and the two combined are about (insert random % here) maybe 10-20% of trading. So we all try to be as deft as we can be in utilizing these tools, and even when we become experts, we are still only experts at 10-20% of the game and we lose, and lose, and lose, until we finally are willing to admit that we are competent enough at one aspect of the game and move on to other matters. Kevin wants to know what those other matters are, and I can’t articulate them in detail, but he won’t be misled if I say that money management is the central pillar upon which to build your winning system. If your money management is good, everything else is easy. There’s plenty of great books out there about probability, expectancy, and drawdowns, so I won’t go on. I think a lot of the other 90% of trading is discussed on the podcast, which is why I love to tune into it.
Scott: I too remember the bright shining moment when CDR Wilson said that after whatever your entry technique executes, your fate depends upon only two things, holding time and exits. Biblical baby, he’s da man.
Nice…money management is actually where I’m currently turning my focus! Thanks guys for the comments/responses!
A lot of good comments here and I would like to add a comment. In my opinion, the most important part of trading is different for every trader and this even changes throughout a traders evolution. The most important aspect of being a successful trader is that which stands in the way of a trader’s success. Every trader has different hurddles to overcome. For a seasoned trader, psychology might be 90% of trading. For a new trader, learning how to trade and develpoing a system might be priority #1. Anyway, just my opinion and please keep up the good work!