Episode 297: The Journey to Become a Full-Time Trader

In Episode 297 of The Traders Podcast, your host Rob Booker interviews Calvin, a listener of the show who is in the midst of his journey to become a full-time trader. So, Rob begins by talking about the beginning of Calvin’s trading career and his motivations for becoming a full-time trader. Calvin and Rob cover a lot of ground in this 43-minute episode, including how to deal with major losses, the psychology of trading, Malcolm Gladwell’s 10,000 hour rule, choosing a specific direction for your life, and much more! If you plan to trade for a living someday, be sure you don’t miss this one! Thanks for listening.

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4 comments on Episode 297: The Journey to Become a Full-Time Trader

  1. ryan herron says:

    This was, by far, the best show in a long time!

  2. fxoutlier says:

    Excellent episode. Will go down as one of my all time favourites. 43 minutes also taken off my 10000 hours.

  3. Brian F. says:

    Dear Rob, Jason, and Calvin.

    Absolutely great cast. I can’t wait for the commute tomorrow to listen to it again. Until then, here is some drivil I thought up in response to the show:

    Especially in trading, where you don’t learn by doing, 10k hours of labor doesn’t ensure you’ll become an expert. However, critics of the rule must acknowledge, NOT doing your 10k hours GUARANTEES you won’t become an expert. The 10k hour rule assumes you properly direct your studies, review your results, and receive adequate coaching. Unfortunately, the world of trading is full of bad advice and dead ends. It’s very easy to spend your 10k hours becoming an expert at what doesn’t work. This is why I am a proponent of finding the right coach to keep us on course, why make this journey any longer? Calvin is currently off course, so I thought I’d add to Rob’s advice.
    In my honest opinion, and no offense intended, Calvin is in denial. He obviously understands the severity of a 66% loss, but let me put that in perspective first. A 66% loss roughly requires a 175% gain to get back to zero. How many years would that take you to accomplish? Hopefully, he has some other way of replenishing his account to speed his recovery. When you lose, you don’t just lose money, you lose time. Therefore, figure out how much you are averaging, for example in a month or year, and think twice before risking that amount. Otherwise, sooner or later, you are going to be spending that period of time getting back to zero. My advice to Calvin is look on the bright side, you learned this lesson early, you can be a much better trader because of it if you choose to do so, you didn’t blow your family’s nest egg, and trading is one of the few endeavors where you can just start over. Here’s where I think you can choose to improve, and follow in the footsteps of a lot of great traders that meet with similar results early in their careers:
    I wrote that Calvin is in denial because he’s still talking about trade selection. He’s offering that he took too many “D” and “F” setups as an excuse for blowing up. That’s nonsense. If you sized properly, you could use a coin flip for trade selection, and not make or lose overly much for weeks. It sounds like you lost this money fairly quickly. That’s a money management issue, not a trade selection problem. Trade selection CAN be improved, but due to diminishing returns and a changeable market, it can never be optimized. Instead, you have to optimize everything else, like money management. Calvin is tacitly saying this would never happen with his “A” and “B” set ups. Has that been anyone’s experience? Mine has been any of my trades can hurt me if I sized too big, no matter how much I like the set up. Calvin sized his positions and placed his stops to allow a blow up to happen. You have to actively prevent a blow up, because long strings of losses should be expected in large groups of trades. Probability demands this result, no matter how fantastic your offense has been. In fact, because he was successful, I will go so far as to guess he used that success as justification to increase his position size, but with the way he trades, larger size is multiplied over 10-15 trades with a 50% chance of correlation. Then, the inevitable happened. “He might have broke up, he might have capsized, or he might have dove deep and took water. I’m not sure how you performed when you found yourself on the deck of a sinking ship, but cheer up, the greatest traders alive wouldn’t do much better. They know they are just human, so they don’t put themselves in those situations. That’s why they are the greatest traders alive.
    No disrespect intended, but junkies always point to whoever poisoned the junk when they overdose, when in fact it’s their addiction that’s the problem. Junkie traders do the same, always blaming their setups, The Man, their broker, or their broken rules, when in fact it’s their position sizing that’s usually the problem. You just don’t go there. Yes, I sound like a broken record. In Calvin’s defense, the amount of choice in sizing your position to safely trade given a given account size is razor thin, and Calvin had to divide that sum among 10-15 trades. Of course he felt safe, it didn’t seem like that much money from an individual trade perspective, but add a little indecision, and little hopium, and multiply the losses over 15 trades? It would be very easy for even an experienced trader to make a fatal sizing error in that environment, and we can all thank Calvin for this lesson.
    I hope nobody is upset at this point, these are my honest impressions and not intended to point out any shortcomings that we know we all share. Let’s face it, the enemy is our human nature. Calvin is obviously going to be an excellent trader. In essence, he is creating his own exchange traded fund of ten currencies to trade against the Yen, thereby spreading the outlier risk on the quote side of the equation among multiple trades. It’s ironic a poor defense hurt his trading, because I think breaking up your “counterparty risk” among multiple quote currencies reveals a great defense and a very savvy trader. Provided outlier catalysts occur in the ten quote currencies and not the Yen base currency, it ensures these unexpected events won’t hurt or help you overly much, because your position size is one tenth its normal size in any given trade. I’d put the outlier “risk” at 55% of typical trading risk. In a normal trade, there’s a percentage chance, let’s call it “n,” that an outlier will come along someday on either the base currency, or the quote currency side of the equation. By breaking your trades into ten smaller trades, each with a different quote currency, you “eliminate” that risk on the quote currency side of the equation, and can therefore trade with ½ n (+ 5%) risk, 50% of which is represented by the base currency (Yen) risk plus the broken up 50% of the quote currency side which was divided by ten, or 5%. In trading, techniques like this just move the risk and rewards around. Nothing is created or destroyed, or everyone and their brother would trade the same way to exploit the magical advantage, and there’d be nobody left to take your trade. A lot of options traders miss this point and forget that options techniques do not constitute an edge. I love this technique, combined with a good edge it promises to shine, so I wouldn’t trash it, I’d keep building on this foundation. The problem is protecting yourself from outliers half the time is only half of an insurance policy. Full protection has to come from good money management and risk analysis across your portfolio.
    When you’ve lost everything and suffered the worst, I see three possible results. First, you can do it all over again until you quit (this is the most common road taken). Second, some traders become scared, so timid of risk that they are never able to effectively trade again. Third, some traders learn from their losses and become more pragmatic and, as Rob would describe it, ruthless. Those are the types who are willing to change, the types that think for themselves and learn how to win. I would start with a review of money management and probability. Then reduce your position size enough to think clearly, trade ruthlessly, and get rich slowly. You HAVE to trade small and get rich small to BE RICH QUICKER. A trader with a $5000 account that makes $100 a week is exactly twice the trader of someone with a $1m account that brings in $10k a week. The former, at 2% profit has double the performance of the latter at 1%. Even though the big guy is bringing in a half million a year, it’s a mathematical certainty that that small trader who started out with next to nothing will eventually surpass his account balance if he stays at a position size near the sweet spot for his personal performance. Get rich slow, and be that trader.

    All the best,

  4. Brian F. says:

    LOL, I have to laugh at the human memory. I usually listen twice before posting, but I was so excited about this special podcast, that I fired off one quick post. In doing so, I obviously erred in assuming Calvin is very young, and that he isn’t unusually focused on getting rich slow. Inasmuch as that was THE POINT, I must admit, it’s humbling to make old man mistakes.

    Loved Rob’s comment’s about printing out the charts, identifying the mistakes, committing to not making them in the future, and then crumpling the chart up and moving on. My only caution is you must ensure your promise not to repeat the mistake in the future is confined to what you control. For example, making a promise not to act like a fool when your whole financial future is on the line is a bit like an alcoholic promising to stop at the fifth drink. It’s not humanly possible, all you can do is promise to avoid the situation.

    Calvin described two situations, a single evening where he lost 66% of his account in less than 8 hours, but later in the interview (which I missed) repeated patterns where he was very profitable for periods of time, after which he gave it all back. Let’s examine the evidence: proven edge, both through back testing and forward testing; wild swings in profitability followed by drawdowns giving it all back; and the mother of all blowouts. My diagnosis remains the same. Calvin can’t trade his system as tested because the amount of money he is employing is too much for his personal comfort zone. He’s really smart, and very patient, and very reasonable about what it takes to make in this business, and yet, he is meeting with negative results. I remain convinced he shouldn’t change a damn thing about his system, this will disappear with lower stakes. Trading doesn’t scale, that which works CAN BE TRANSLATED AND UNDERSTOOD ON A DIFFERENT SCALE, but that doesn’t equate to making you money on a different scale.

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