How Difficult Can it Be?
For once it is a figure that I didn’t record, but I guesstimate it took well over a thousand hours for me to get to break-even with my trading. That’s not surprising because we all know how tough trading is don’t we? But a quick look at the numbers, unencumbered by emotions or preconceived ideas, suggests that it shouldn’t be.
Lets assume we are not going to try our hand, and blood-shot eyes, at scalping a few point here and there. So even if we trade intra-day it is a reasonable assumption that our average profit or loss is a decent sized multiple of the spread (I suppose I am also assuming that we are not going to be trading something like GBP/HUF!). We can’t ignore the spread but, as this is just the back of an envelope, that’s exactly what we’ll do.
So with a reward to risk ratio (R:R) of 1:1 we only need to get the direction right as often as we get the direction wrong. Tossing a coin should be a break-even strategy.
Even if we allow for the spread, and say we make N trades a week, our weekly loss should be no greater than (N x spread) if we just followed this random approach. Any greater loss means we are actually worse than random, this takes some skill, it just happens to be the wrong sort!
So what is interesting is why it isn’t this easy, it’s not. Understanding why is a way to learn some lessons (as was those thousand hours). Now this blog has got way too ‘preachy’ recently so I’m not going to bombard you with my list (Number 1 is ‘Money Management’, oops, couldn’t help myself).
Just a short post, you can file it under ‘little gem of wisdom’, ‘stating the bloody obvious’ or somewhere in-between.
Sorry to leave a comment on a post made some 20 months ago, but as I continue to study my trading and myself, your blog appears to be the (unfortunate?) recipient of my repeated visits.
The topic of this post is one that has lived and swum around in my mind for many years. There is something about this idea that continues to strike me as being so deep, such an important factor related to trading, and yet it seems to fly right out the window when it’s time to trade.
I’ve witnessed a group experiment where, during the trading session, a coin was tossed, an entry was made in one direction or the other (heads long, tails short), and using only trade/money management the experiment was profitable. It makes a point that is at the same time considered obvious by anyone witnessing it, and yet completely discounted by most if not all who witnessed it when it comes time to do their own trading.
As a way of gaining a better understanding of a concept it does seem to help me to view the thing from another, or opposite, angle, and your remark that it actually takes some skill to be worse than random, could be a life-changing, opposite view, for anyone able to grasp it.
It would seem that once the environment is understood at a reasonable level (where does price seem to like to move to when it does move, at what point is the setup no longer the setup, etc.), then it would be only logical that a trader would just start taking the entries as they come and let them work out in whatever way they’re going to.
The reasons that it doesn’t work this way are multifarious and probably without end, but would appear to me to really only consist of one thing: whatever it is that’s going on in the trader’s mind that would override the logic you have already illustrated.
As you may (or may not) have noticed, I’m making another try of the Forex markets (after a series of events lately have led me in this direction again), and in conjunction with reviewing the (few!) charts you’ve posted along the way, I’ve begun to have some intermittent flashes of understanding where “simplicity” in my trading may reside, and how I might “let the outcome be whatever it’s going to be” on each trade I take.
It’s early on Sunday morning and I’m not yet completely awake, so any coherency I might have thought was being conveyed in this comment could be very far from it. I’ll go ahead and apologize to you for that in advance so I won’t have to do it later. I don’t think I need to apologize to anyone else though. I mean who, with a normal social life (obviously not me), will ever venture this far back and read this anyway?
Thanks for giving me another angle of thinking and another opportunity to try to wrap my mind around this thing called trading.
Attitude Trader
November 14, 2010 at 6:35 pm
“I mean who, with a normal social life (obviously not me), will ever venture this far back and read this anyway?”
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Great post and great comment.
I also have to mention AT that I have your feed spiting out new posts from end of September
)
FX
November 14, 2010 at 10:09 pm
Damn technology (and my obvious lack of knowledge of its complete workings)!
Thanks FX. For some reason I’ve been overlooking your blog lately – I’ll be stopping by more regularly.
Attitude Trader
November 14, 2010 at 10:48 pm