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.