source: here
In the late '70s, Peter Brandt emptied
his trading accounts several times. He'd lose a string of trades, then
refund his account, then "wipe out" all over again.But he persisted because he knew he was meant for a trading career. His determination paid off.
In 1982, a currency chart "sang a song"
for Brandt. By that time he had saved his earnings and supplied his
trading account with a healthy sum. The currency trade worked out very well. After that trade, he believed he could call himself a competent full-time trader.
Eventually, Peter Brandt's trading earned an annual 42% return over an 18-year period. Did he achieve this by "swinging for
the fences" on every trade? No. In fact, he believes that successful
speculation requires strict risk-management. One other message became clear when I recently called and spoke with Brandt: successful speculation is also about managing yourself.
What's the human factor and why is it so important to successful trading?
The biggest barrier to profitable
trading is not the markets themselves. It's not other traders. It's not
high frequency trading operations. It's not the Wall Street trading
machine out to get us. The biggest hurdle is ourselves. We have met the
enemy, and the enemy is ourselves.
The human element comes into play
immediately when an individual thinks he or she can make their living
from trading. The human components that drive this mentality include
pride, unrealistic expectations, wishful thinking, greed, disconnected
hope.
If an aspiring trader can learn
from and survive the mistakes of the first three to five years, they
will finally figure out the real rules of the game...Most aspiring
traders with four or five years of experience who know what they must do
will readily agree that their real problem is actually doing what they must do. It is said that successful trading is an uphill run or upstream swim against human nature. How true!
Risk management is very important to you as a trader, why? How do professional traders view risk differently from beginners?
I see this in two manifestations.
First, professional traders expect to have losses -- most lose more
often than they win. They build losses into their processes and
expectations. They factor losses into the equation.
Second, while the default
expectation for professional traders is a losing trade, the default
expectation of a beginner is for a winner. As a result, professional
traders build aggressive risk management protocols into their trading
operations.
One of the best traders I have
ever known was a man named Dan Markey, who mentored me at the Chicago
Board of Trade. He once told me that his job as a trader was as simple
as liquidating every trade that closed at a loss. He focused on his
losers. He ignored his winners.
What steps did you take that led you to your successful track record of 42% over 18 years?
This is not easy to answer, mainly because I don't want to give myself credit for any success I have achieved.
First, I didn't need to make
money from trading when I broke into futures. So that pressure was
absent. I had income from several very large accounts. My proprietary
trading started four years into my career in the markets.
Second, I had two very wise
mentors. These were guys who told me about all the landmines I would
encounter. They directed me to less risky paths. They were also very
excellent traders and I could observe their habits.
Third, I stumbled across
classical charting principles. Every successful trader has an approach
that fits their personality, level of capitalization and risk tolerance.
Some beginners never find a niche. I found a niche early on.
Fourth, I didn't have my ego tied to every trade. I was able to take losses in stride.
Finally, I got lucky on a big
score within the first two years of my proprietary trading. Now, people
can say that luck is a process of a lot of things that come before it.
But, luck is luck. I had a hunch and I bet a bunch -- and I was right. I
might have been wrong and the outcomes could have been very different.
I should also say that I'm a
sequential thinker. For me that works because I go through the mental
process of accounting for all the contingencies I can think of. If this happens, I've planned my response. If that happens, I've got my other response planned.
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