Why Having Conviction in Trading Matters
09/17/2012 7:00 am EST
Marc Principato explains what separates outlandish claims from consistent and proven results.
A few days ago, the head trader of our equities desk, Gilbert Mendez, aka “GMan,” had an exceptional day. Jokingly, I sent him a message that read, “Now I know what “G” stands for in GMan: Grande.”
I am writing about him here for two reasons: First, a significant part of his returns came from a position in the EUR/USD pair, which he took on his strong conviction. Second, to illustrate how important it is for up and coming traders to have access to someone like GMan.
I can’t get into numbers, but I can say he took a very aggressive position. One that I would never think about taking, especially in front of an ECB press conference. By the close of the day, he was the talk of the office.
How did he do it? How did he know? What was he looking at? We wondered. And when he came over to say hi, I straight up asked him.
His response was simple. He recognized a larger time frame trend continuation pattern on a major index. On the breakout, his analysis told him he should be long. His experience combined with his aggressive nature told him to be long the world and then some.
The pattern that he saw, a classic bull flag, is nothing special by itself. When considered within the context of our current environment, and taking into consideration the price action of the previous few days, the argument for long was more compelling.
The question is what made him have the “conviction” to get long the world? Is this just a bold gamble? Or is there more to it?
As you know, every trade we take is similar to a gamble, but what separates us from gamblers is our ability to only place bets when we have concluded that the conditions are most favorable in light of risk relative to potential reward. In contrast, gamblers bet big on random outcomes that often don’t compensate for the risk that is taken.
Once you have the skill to measure your chances, then it's all about your level of conviction relative to your judgment. Is the setup you are taking lining up with other highly important pieces of information, like major levels or other technical/fundamental factors? Or is it just a minor level on a five-minute chart? What is the context of the price action in relation to the environment?
This kind of conviction cannot be obtained by an indicator, a charting platform, or a few weeks in front of a screen. This comes only from pure confidence in your judgment and the ability to absorb the loss without it affecting your ability to continue. How do you gain this level of confidence? It comes from “quality” time in the game.
Next: How Gman gained experience|pagebreak|
GMan has been a trader for at least ten years. He spent this time learning from traders who were more experienced than he was. He gained experience while being focused on only the most relevant information. He didn’t waste time with unproven methods, or trying to trade from home by trial and error.
Did he get this education for free? Certainly not. He had to make an investment of time and money.He worked hard and he worked smart.
Most of the newer traders that I come across are not willing to make the same type of investment. They would rather “figure it out” themselves, isolated in their home with nothing but news, emotions, and online forums to guide them. Do you think these traders will ever reach the level of confidence and conviction to take a trade like GMan? It’s probably going to take a while.
As I was coming up in my learning curve, I took this hard route. And I struggled for years. I was isolated and misguided by people who were not proven traders. I often wondered if there were any independent traders who bet big and won. Having access to a resource like this is, especially as a beginner makes a huge difference in the amount of time it takes to show progress.
Even now as an experienced trader, having access to a group of large traders allows me to expand my own knowledge and evolve in ways I had not considered. There is no substitution for being on a professional trading desk.
Sure, you can sign up for plenty of other training packages, offered by someone you never heard of who makes great-sounding claims. You can join a class full of people who know just as little as you. Or you can be in a room with proven professionals like GMan who have the conviction to put up serious numbers consistently. Which one would you choose?