In Trading Routine and Psychology

As if I nor anyone else needs to tell you, the ability to achieve perfection in just about any endeavor is an unlikely prospect. What we refer to as perfection, in many cases, is moreso a perception as opposed to a reality. When we see something behave exactly as it was designed to and working without error, we say it is “perfect”.

We all want perfection as much we want a peaceful and happy life. In many ways we see that peaceful and happy life as nothing more than a function of perfection. The desire to do something perfect can be addictive and lead to obsession, as we all know how trading tends to evolve and affect in different ways.

I rarely discuss topics like this because they tend to fall into the category of “Trading 101”, and I wonder how much words like this can really affect someone's ability to perform better. This is why I focus more on “how to” as opposed to “fireside chat”. Fireside chats might warm the heart but they don't roll in the money, which is why we do this.

Striving for Perfection

No one's life is perfect, and it was never meant to be. Almost everything we do in life contains some flaw, some aspect, that is going to derail us from a straight line to our goals. And so as we get older and grow wiser, these bumps in the road can tend to smooth out.

The same can be said about experience in trading. I work on a desk with several other guys who trade various instruments. I notice the more experience they have, the better risk / reward and win ratio they achieve. What we call “trade management” can many times boil down to a less worry, driven by a general understanding of how price behaves and the factors that drive it.

Seeking perfection, especially in the beginning, is a harmful exercise. But many novice traders try to do this. And it isn't just in trading. This happens across a range of disciplines. We want to be the best we can be at just about anything in life. What we fail to see is the harm this can cause along the way.

Seeking what we view as perfection is dangerous because it shifts our focus away from reality, which is not perfect. Unrealistic trading tends to lead to very realistic results for newer traders. Any red ink you might see is an effort to be perfect but while wearing blinders.

You Will Never “Get to the Bottom of Things”

All too often, traders try to “get to the bottom of things”. But you will never “get to the bottom of things”. The sooner you realize this better off you are. Perfection in the sense of zero losses and nothing but wins is next to impossible, although I probably don't need to tell you this. The best performance records ever achieved all contained losses at one point or another, just like any business.

But we all know this, don't we? Then why do we keep shooting for perfection? Can't we just be happy with a basic, winning strategy and stick to it? Well, then we wouldn't be human. Trading billions of dollars usually has more to do with who your salespeople know as opposed to the winning record of the traders themselves. Take a look at a very large chunk of hedge funds and CTA's and you will see what I am referring to. Some of the largest funds don't pull in the best performance, but their sales force definitely has some good contacts. This is why I (hint coming here) always recommend seeking out effort with others.

Recently, I was asked about “trading for a living”, a question which I have been regularly approached with over the years. If you really want to do this for a living, I can't help but recommend attempting to work with other people. As a side hobby, yes, but going full-time while trading your own capital is an extremely rare event.  I have never met a single person to do this successfully, and I myself have only done it for a relatively short period of time (appx. 1.5 years, broken into 2 parts).

The Traits of My Best Known Traders

I hear a lot of stories from a range of people about their triumphs and disappointments over the years in trading. Before I get too far here, I do not by any means tend to insult or discredit the work of anyone reading this. We all have a unique set of disciplines and what might work for someone will not for another. This is one of the more difficult things that any trader will encounter while learning, simply because the work of one person will commonly be lost in translation due to the perception of the student.

I notice that some of the highest independent achievers passing through this site tend to fall into several categories:

1. Comparatively older individuals, typically from professional or scientific backgrounds, working in industries such as law or healthcare.

2. Young and ambitious traders: usually in their 20's, fully alert and backed with heaps of analysis.

So why these two “segments”? What's going on here? Based on what I see we have two different key traits, thus two trading styles, that appear to follow:

For the older crowd: patience and understanding, thus smooth “bumps” in road when approached with challenges. Trade horizon and hold time is usually longer and conviction in analysis usually higher. A basic understanding is sought, achieved and adhered to.

For the youth: “on-point” decision-making. More aggressive analysis yet less confidence in decisions. Shorter trade horizon and more focus on “pinpointing” reversals as opposed to riding out positions.

Of course I speak in a relative terms but I would be lying if I said otherwise, based on what hits my inbox. And so again, I do not mean to insult in any way but rather shed light on my observations.

There is one more category worth mentioning here:

3. Trading professionals working in a hedge fund/prop environment, of any age.

This group has a huge benefit, and it all boils down to working with the right kind of people. They are highly motivated and work with others to improve their bottom line. Structure is present, as are elders and honesty in terms of P&L. That honesty is a very big deal. It forces these individuals to adhere to a trading policy that works and avoid detrimental behavior in the process. This, of course, works in tandem with the consequence of them losing their jobs should things not work out. Put it all together, and end result is still not “perfect”, but more likely to be sustainable.

I cannot say that I can find a common thread in terms of strategy for this last category. There is an incredible amount of diversity. In a prop environment and select hedge funds, simple daytrading likely trumps all.

Where “Perfection” Falls into These Very Different Styles

No surprises here, it is a marriage of the three. A “perfect” trader (or what we perceive as such) would:

1. Pinpoint a major reversal

2. Let it ride until a major reversal and then

3. Switch directions until the next major reversal.

4. No losses, of course, along the way.

So good luck getting that accomplished. It is not “kind of” impossible. It is impossible. I don't believe that we ever truly change to achieve such “perfection”. I believe that we simply adapt to circumstance based on the foundation we are given early in our lives. And it does not matter what that foundation might be. Everyone has the ability to do this, silver spoon or struggle, it does not matter.

When we see a “perfect” run of trades, we are fully aware of its rarity. Excitement follows and pats on the back might or might not come directly thereafter. But this does not, of course, last forever. It never does. And this is why we prepare for other circumstances and do the best that we can in the time that we have.

My Personal Evolution in This Industry

I thought I would share a few things about the changes I have noticed in my own routine over the years. My trading these days is very different from the past, and of course this is due to nothing more than a steady and gradual evolution of my abilities and perception. I find that the more diverse the crowd with which I work, the better I am able to gain confidence in my decision making and simply move forward. In my own pursuit of “perfection”, here are a few things that I have noticed along the way:

I take less positions than I used to. I daytrade now, and rarely do my positions stay open for any more than 12-16 hours. I see no point in trying to do something that I know will derail me (such as trading for longer periods) and only go for what I see as an “easy” call.

I gave up a long time ago on being an economist as it oftentimes has a fraction to do with the manner in which price moves on an intraday basis. Most professional economists are horrible traders anyway. I have little interest in more complex economic subjects, and don't trust myself enough when it comes to translating these types of things as there are only so many hours in the day. I worry more about market structure, execution, order flow and how it all ties together, because this is the root of price fluctuations.

If I can't find anything, I take no action. I don't view it as an issue of self-defeat, just reality. I am only capable of accomplishing so much and have come to better realize what I simple can and cannot do. I care less about missed opportunities.

I trust my initial analysis and “think less”. Limit orders are my surefire way to beat overthink by taking action in the moment a predetermined turning or continuation point.

Transaction costs are a massive concern. Most people have no idea how much money they are simply tossing down the tubes and forking over to their brokers. Direct access to liquidity is easier than ever and there is simply no reason anyone should be paying more than a pip on EUR/USD during a liquid trading session, or receiving artificial prices from a B-model market maker.

I take less time analyzing charts. Over the years I have come to realize that many of the strategies I used serve less value and worry more about cutting to the chase and using what I know works for me. Most of this work is outlined on this site already.

And these of course are off-the-cuff considerations. While I am sure there are others, these are the ones that seem to be the most obvious to me at this point in time.

Perfection Is A….

Perfection is a perception, and not a reality. Perceptions must change in order for reality to follow suit. Regardless of your own individual traits understand that this “journey” you have sought to undertake requires a tremendous amount of input. Dramatically changing your end result many times boils down to nothing more than changing your thought processes.

I know many of you already have the knowledge, input and tools to do this. Perception tends to be the very last thing to get corrected.

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Showing 13 comments
  • Antony

    Great one. Thanks. A.

  • Bev

    “but going full-time while trading your own capital is an extremely rare event. I have never met a single person to do this successfully, and I myself have only done it for a relatively short period of time (appx. 1.5 years, broken into 2 parts).”

    This is an interesting comment I have heard several times before.
    What was it that stopped you from continuing to trade full-time?
    What do you think are the major hurdles preventing any consistently profitable trader from trading their own capital full-time, as their main source of income?

    • Steve W.

      Hi Bev,
      Right, a little clarification: The usual course of action is to find a 3rd party injection of capital. Unfortunately the more business oriented types that are likely to do this are simply bad traders, so a marriage of the two always seems to be the way to go. Any evolution I have witnessed in “professional” traders, well, they either go to work for someone or start their own firm. The startup firms in this business are like many others. Percentage of success is on the lower end. The only times in my life I have ever exclusively traded my own money were around six years ago, when I started this site, and just recently. Both didn’t last long because I had other plans – I was once a CTA and now working for a mostly privately capitalized fund. Could I have continued to do it? I doubt it. We just had this conversation at my office the other day: what if we were all trading nothing but our own money – could we do it? No idea. The pressure cooker starts to go off and it is very difficult to keep your eye on the longer horizon when it is nothing but your own cash. Again as a side hobby/business sure. But full time on your own, completely dependent on the income? Even thinking about it seems stressful, and I am not the type to get stressed out by trading anymore. You could justify it all of course, but reality is another issue. We’re human after all.

      • Bill

        This comment is a major blow. I have really come to respect what you have to say and look up to your ability as an analyst as something to shoot for. i mean what the heck are we doing this for if there is no chance that we could ever trade successfully with our own money. So what is the point of this whole site? All these strategies and information and in the end it still all leads to an inability to make a living trading our own money? I guess i just dont understand how this information is only tucked away in this little article and not the very first thing that we see when we come to your site. It should be plastered in giant letters on the front page…”NO ONE EVER MAKES A LIVING TRADING THEIR OWN MONEY!”.
        At least then we would know were we stand. I guess i just assumed that when you say you are in the top 2% of traders that makes money consistently that you were independently making a living off trading.

        • Steve W.

          Hey Bill,
          May I should rephrase then because I think I am at fault of not explaining myself properly, reading this later.

          First, if you were to take a look at the big picture, if you want to know why I think so many people get defeated by day trading just about anything, it is because of one word: time. Hardly enough people do something without full blown confidence that they can. So then I ask myself: Can I trade with 25% of my own money, for the long haul? YES. Can I trade with 100% of my own money, for the long haul? I doubt it.

          There is too much at risk, and this is more a personal observation that a “macro” one. Not that people haven’t tried this, many of them failing, some succeeding. Both instances in which I traded exclusively for myself things went fine, but I am a serious pessimist, and maybe that helps me more than it hurst me or vice versa, I have no idea.

          Obviously there is a point to this site and everything I do and you can see that what we cover here is not exactly down the road of conventional. It takes a serious amount of time and observation putting this all together, and I do it as a hobby.

          Next, the idea that people should trade with their own money, living on some beach somewhere, sitting on a laptop or whatever the pipe dream may be, is ridiculous to me. This is marketing, not reality. This job takes a ton of effort, time and persistence. And even then it is a grind because it can indeed be so repetitive. But I do enjoy it and try new things whenever I can.

          So this was not intended to be a blow. I worry about the here and now, what is realistically achievable and what is not. And again time (aka experience) plays a major role in determining this. I never make claims to be in any kind of 2% category (in fact the actual statistics are more along the lines of (70-80/20-30), again this is just marketing. I am just another person.

          Anything is achievable, but this is a skill which no words can easily describe how much effort you need to put into it in order to get really good at it. It is much easier for me to sell a dream than a reality, because people want to believe certain things more than others, but I don’t. I don’t have it in me. Thanks and sorry for the rant, but I don’t get comments like yours too often…..perhaps I should – they are good wake up calls for me, so thank you for that.

          • Bill

            First let me say I meant no disrespect by my comment. I have the utmost esteem for the skill set you obviously possess and are very proficient at… not to mention your writing ability. Im afraid that maybe my post didnt come out the way that was intended. I was not making any kind of accusation. i was just thrown off with your comment because the fact is that everyone that comes here has at least a little bit of hope somewhere inside them that one day if they try hard enough and pay their dues that they too could be a successful trader.

            I may have been mistaken with the 2% number in my previous reply. I would have sworn that i had read you say that 92% never make money trading. Of the 8% that actually do make money only 2% make money consistently over an extended period of time and that you were happy to be in that 2%. If i read this somewhere else and was incorrect in thinking it had been you then my apologies.

            I am not looking to hear what i want to hear. I just wish that the people in the “know” would be completely honest in respect to the actual chances a person such as myself has at becoming a full time trader. Ive always heard the number is between 90 – 95% failure. From your perspective is this close to accurate? If so then i guess the next logical step would then be to define what is considered successful. Does successful mean making a living by trading through learning and adapting to the demands and gaining the character traits necessary to be profitable or does it mean that one has the proper education to then be paid to trade even though it wouldnt necessarily be because they were good traders. To tell the truth i hadnt given it that much thought until right now. Can u give some input on this?

            I myself am no writer and by most accounts would not even be considered an educated man. I make my living from the sweat off my brow and the determination of my spirit. I also believe, as would those in my field, that I AM in the top 2% of my craft. This would be great if this was truly what i wanted to do with my time but unfortunately this is not the case. One day an employee of mine introduced me to forex and i have since found a passion and a drive that i had never experienced in any aspect of my life up to this point. This has become my dream.

            I have no illusion of sitting on the beach somewhere with my laptop making zillions with every click of the mouse. Theres a difference between having a dream and having a fantasy. In reality my eventual goals only go as far as replacing my current five figure income which i though should be totally possible given the fact the i am willing to do the work to one day get there. Maybe it will never happen for me. I dont know what the future holds. The only thing i do know is that if i cant make a living trading it wont be because i didnt give it everything i have to give.

            Thank u sir for your time and for the obvious effort you make here each and every day to help guys like me to realize their full potential.


        • Steve W.

          No worries at all Bill, I don’t take offense – hopefully you can tell I always lean more to the constructive side than anything else. As far as the profitability goes, I’m just going to stick with the statistics – yes they make sense to me. I am going to lean towards the lower end of the scale, however, and put it in the ballpark of 20. This site (and the emails/feedback I receive) would actually lead me to believe that the number is more or less legit. Even then we are speaking in general terms.

          In regards to your 3rd paragraph, it is no doubt a combination of them both. I write and trade about ideas that were piggybacked on more conventional thoughts. The way I have always perceived most books about trading, go something like this:

          1. Author has a genuinely good idea / starting point
          2. Author elaborates on that initial thought, and runs with the idea
          3. Idea manifests itself in many different forms which the author writes about, rarely stressing importance on that which is better or worse. By the time the manifestations end, a lot of bad ideas are basically left on the table.

          And this is why I am slow to introduce ideas on this site. There are really only a handful of things I look at on a daily basis, and they are all more or less mutations of previously written about ideas. Wading through all of that mess and finding what works / what is commonly misinterpreted and what will just flat out take the clothes off of your back is what takes so much time. Unfortunately finding solid education is extremely hard (for daytrading) because those that teach rarely do. And so they end up like our author scenario above.

          Which brings me to your other, point 2….yes, it is a knowing of one’s self, strengths, weaknesses, all boiling down to the point of control. When I lose money, roughly 3/4 of the time it occurs because I should have constrained myself, but that’s just me. Others have various other issues they deal with, but that’s my thorn…all of these years later. I have gotten it as good I possibly can, however, and it is good enough to get me where I need to be. But it could still be better. I work in a relative small group. Everyone has their “thing”. But we all make progress on a bigger scale, some more than others.
          Speak to any experienced trader they will all have their “thing” – people just need to find theirs and realize it as an issue.

          But this is all after point 1. If you don’t understand price then point 2 is a waste of focus in my opinion. Again, confidence. Most people simply can’t grasp the concept of how much time this skill takes on average (and it is not just FX….I am talking about any asset class). Everyone is always in a hurry.

          And so here we are, but patience in going solo usually remains an unresolved topic. There are a lot of words on this site now – many of them can be redundant but as I say it is very hard to convince people that they simply are not ready to take a leap until they do, and get burned. And so the more experienced traders are usually the ones that didn’t listen (to anyone, not talking about me), got burned, and then stopped for a long time before picking up the pieces again. These are probably/usually your top 20%, if I had to guess.

          • Bill

            Thank you sir for your time. I cant begin to fathom the amount of time it must take to keep this thing up and running on a daily basis. All the while responding to ALL replies. My hats off to you


          • Steve W.

            You’re welcome and it is actually not quite as bad as one might think. If I was doing it every day, well, that’s another story :). Thanks again Bill.

  • Pawel

    That is very interesting. For two reasons. First of them being when you read about trading most authors try to sneak in an impresion that trading your own money for a living is not only possible but also perfectly doable. Second: never trade borrowed money (allegedly an iron rule of trading). Lord, it’s so difficult to find any reliable information out there.

  • keith

    So to lead on from this. If I traded my own money for 6/12 months with good return will a hedge fund, prop trading group take me on? What do they look for (if one wants to create a backup plan).

    • Bill


      Obviously im no Steve but i happen to have researched your question thoroughly and have found that without a doubt that if someone can PROVE good consistent LIVE returns over an extended period of time then they should have no trouble finding a prop shop that will give them shot. These proprietary trading firms know how hard it is to find consistently profitable traders and they also know that its even doubly tough to do this completely on your own. If this is your plan then just make sure you have a way of proving your results.
      Just do your research because i have come to see that there are (just like anything else) good shops and bad shops. Some of the best ones will take you in and then make an investment in you by giving you everything you need to succeed…ie… technical and psychological coaching, the best platforms, and not to mention backing you with more capital.
      Just stick to your guns and dont take the first offer you get. If you can prove consistency and profitability over the span of many months then you should have the upper hand when it comes to choosing where you want to go.
      Through all the research ive done i think this one is one of, if not THE best shop in the country. Obviously not easy to get in UNLESS you can show consistent profitability but they have probably the best training and support of anywhere i have come across.
      Im sure Steve will have some input as well.


    • Steve W.

      Hi guys and sorry I am late to the party on this one but I have been having a busy summer and (think) I have rested back into normalcy. Keith, you basically have 2 types of “prop” firms out there: those that follow the same hiring disciplines as any hedge fund, and those that will train on demand and give you a “chance” of trading live. The former is obviously the preferred as they are simply a hedge fund, but using in house, private capital. This is the type of company I currently work with. The second I have no experience with, but have to obviously question the motive as they tend to require some kind of “cost” for the employee. So right out the gate there is a conflict of interest there. Think of getting hired at a solid shop just like any other skill (say a tech job). People get in the door based on all sorts of stuff, and not just always historical performance. Many get hired on a “trial” period if they are trading immediately (with less VaR), and others get in as a trainee, and the more experienced ones just hit the pavement from the moment they get hired. I built a resume as an analyst on the buy side, then on the sell side, before I was ever allowed to touch anything, essentially. So it all depends, just like any other industry. Who is doing the hiring, what kind of firm, their business model, etc. all varies.

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