Learning from Traders that Made It (Part 8)
03/26/2008 12:00 am EST
Trader Three: Profits Don’t Come Because We Need Them
I have been running a free forum on the net since 1997, the Median Line forum. I started it to show people what a fulltime professional trader does, day in and out, and just how wrong most people’s ideas of what makes a trader successful are. These days, I have a mailing list and a forum, with well over 4,000 members between the two that range from hedge fund managers to people that have never traded but wandered onto the forum to see what it would take to be a successful trader.
About seven years ago, a person named Mary from Europe joined my forum. For most of the first year, she ‘lurked’, meaning she read the forums but never asked a question on it or answered a question on it. Then one day, she e-mailed me privately and asked me if she could send me a chart and asked me questions via e-mail privately because she was embarrassed to ask on the forum. I told her I was always glad to help people via e-mail and she soon started sending me a few e-mails a week with a chart and some questions attached to each.
The most important thing I noticed about her charts and questions were that they were all related to longer-term trades with very large stop loss orders and very large profit targets. I wrote her back one day and mentioned my observation and she answered me several days later: she was now a single mother with two little children and although she had some money in the bank, she wanted to ‘make big trades’ so she could stay home with her little ones. She said ‘making little trades’ wouldn’t make enough money for her needs—she needed ‘big trades’.
I told her two things: first, you can’t start out with the premise that you ‘need to make money’ or you will simply fail. The market doesn’t care about your needs. The market pays those that have a sound strategy with a winning expectation that are able to execute it over and over. Second, making lots of money isn’t a matter of making ‘big trades.’ First you must find your style and your tools. Then you must learn solid money management and couple it with your trading style and tools. Then you must risk an appropriate amount of your available capital on each trade or you will go broke before you learn to trade. I stressed that many successful professional traders risk relatively small amounts on small trades but do it consistently and frequently and that can add up to a great deal of money at the end of each month or year.
As an example, I told her about a senior trader named Bib that had worked for me at a bank in the early 1990’s. It was early November and he was having a wonderful year. One day, he told us all over breakfast that he had been out house shopping with his wife yesterday afternoon and she had found a house she fell in love with. The only problem was, he’d need a huge bonus to buy the house. As a manager, the bells went off in my head and though I didn’t say a thing, I filed the information away.
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