Can We Be Taught to Trade?

A recent discussion with fellow traders brought up the query “Can we be taught to trade?” There were wide ranging views, opinions, studies and personal stories brought up, and needless to say it was a very engaging, and at times heated, debate. Not many traders think about this question when they start trading. Most of us assume anyone can trade, and we can teach ourselves or be taught by others how to do it. I personally think people can be taught to trade (or teach themselves, as I and many of my trader colleagues have), but it requires a lot of work, discipline and self knowledge to consistently profit year in and year out. Here are some bullet points from the conversation, which will hopefully help you in becoming a consistently profitable trader.

• A willingness and humility to be able to accept when wrong and not dwell on it. Losing is a part of trading. Those who can’t get over that fact, fail. Those who learn to embrace a loss as just another trade which ultimately gets them to their financial goals, often succeed. How do losses get you to your financial goals? If your track record shows you have been profitable on 65% of your trades, and that allows you to have a trading income, then in order for you to have that income you are going lose 35% of the time. Wins and losses go hand in hand.

• There is a big difference between analysis and trading. Because someone seems to be able to call the direction of the market with a high level of success does not mean they will trade well. Timing, magnitude of moves, capital, risk/reward, fear, greed…all come into play when trading, but are not as important when making market calls.

• Like any field, in order to be a successful trader you need to be ready for success, and be willing to embrace it. This element likely can’t be taught. There is a big difference between wanting something, and being able to accept it. Most traders want to be successful, but are unable to accept the personal responsibility that comes with mastering emotions and a strategy in order to extract profits out of a sea of endless possibilities (the markets).

• A couple experiments, such as the “Turtle Traders” tried to showcase that it is possible to teach people to become traders. Given solid educators, a group of select people chosen from more than a 1000 applicants, were provided a winning method for trading. Not all succeeded, although several did. Another TV show called Million Dollar Traders attempted the same thing. A fund manger provided “ordinary” people with money to trade. They lost money, down 2.4% although the fund manager called it a success because over the same time period professional fund managers were down 5%. As a trader you can make money in up or down markets, so I didn’t view this is a success. The experiments show what we already know. You can teach a man to fish, but he still has to feed himself.

• This brings us to another point. Continually comparing yourself to others can be your demise. Saying you were “Less bad” (see above) isn’t constructive. Just as gloating over a great month isn’t likely to do anything for future performance. Trade with conviction the way you trade. Your results are uniquely your own. If you are happy with them, that is all that matters. You set your own bar, not someone else.

• Trading is mostly psychological. There are strategies literally everywhere on the internet, for free, and that work quite well. But novice traders have a few losses with them and assume the strategy doesn’t work. They go in search of something else. Part of the psychology of trading is understanding that losses are part of a winning system (see prior comments).

• Nearly any personality trait, habit or skill can be enhanced or removed through internal work, using tools such as meditation, focus/visualization, neuro-linguist programming and others. This basically means anyone can be a successful trader, but at some point all traders will likely need to look outside the markets to find the tools they need to succeed within the market.

• No two moments are ever exactly alike. As traders we learn to spot trade set-ups and patterns and act on them. Unfortunately, one set-up is never going to look exactly like another. Contexts are different; moves may be bigger or smaller, etc. Good traders understand this and act anyway. Novice traders often freeze, not knowing what to do. Or they figure since nothing is exactly the same anyway they can take random trades anytime they want. In other words, good traders embrace uncertainty. While unsuccessful traders seek certainty, which is unavailable, and therefore squander the opportunities that uncertainty provides. Markets=uncertainty.

• Just as you need the right mindset, knowledge and self-awareness to trade successfully, you also need some physical things. You need time to learn and implement your trades. You need enough capital. I recommend not risking more than 1% of capital on a trade. So that means you need enough capital for at least 100 trades at your risk level (i.e. risk $5/trade, you need $500. Risking $50 per trade you need $5000, etc).  Most people enter trading with too little capital and too little time to even give trading a real chance.

• Confidence. You need confidence. Confidence comes from thoroughly understanding what you are doing, and overcoming adversity while doing it. This won’t come immediately, it takes time. Keep going.