Friday, June 13, 2008

What Does it Take to Be A Successful Trader?

I can't tell you how many times beginning (or even intermediate) traders asked me how I learned to trade. I wish I could give them a simple answer - but frankly there isn't one.

What I can tell them (and you) is a little bit about my trading journey. Perhaps this may be useful to your own trading journey...

So to sum things up here is how it went:

1) Started talking to a friend who happened to be a Futures Trader. He had some interest in learning Forex.

2) Went to a Forex Trading Seminar in Los Angeles with said trader - cost $1k.

3) Got 2 useful things from the seminar. 1) Learned how to "test" a trading concept
"candle-by-candle", 2) Met Phil McGrew (who helped mentor me) .

4) Spent 6 months (20-30 hours per week) testing different systems from the seminar including some of Phil's old systems. Got TradeStation - cost $200 per month.

5) Wasn't happy with results of testing (my expectations were too high - wanted to make 1000% per year with like no drawdown lol) .

6) Spent another 1 year(20-30 hours per week) testing many different indicators and setups. Basically on the Holy Grail Hunt. Bought probably $500 worth of books, read every forum, website I could etc. etc. Setup account with TradeStation ($5k). Made $20k in 3 months and gave it all back in 3 days. Learned about the toilet stoploss.

7) Decided that automated trading was the way to go and began learning TradeStation Easy Language. Spent 6 months doing that. Bought an automated trading system (grey box) for $3k.

8) Discovered curve fit strategies don't really make money ;) Spent another 6 months learning about The Grail (a genetic algorithm and walk forward testing package) and spending another $1.5K. Finally got some decent results with that.

9) Discovered two important things that forever changed my trading life 1) Money management could make a decent strategy great, 2) I was a crummy programmer and that the main problem I had was that my automated strategies were never as good as my candle-by-candle tested strategies. Spent another 6 months discovering this fact.

10) After 2 1/2 years finally came up with 2 simple non-curve fit swing trading strategies that made money and which I continue to trade today with strict money management.

11) However, I still was not satisifed as I wanted to learn the day trading strategies that allow some traders to make money every day (more like every month). Spent another 1 year(40-50 hours per week) with NeoTicker ($1.5k) and NinjaTrader ($60/mo and $200/mo for eSignal data) discretionarily testing in tick by tick simulation several simple methodologies that I continue to use today. Spent another $5k in market hazing fees to determine what works and what doesn't.

12) Finally came up with a couple of simple methodologies that I continue to use. Finally after 3 1/2 years I had come up with several methods that work, are robust (only require occasional tweaks) and make money.

13) Today (about 5 years after I started) I am still making money and am working on converting my discretionary day trading concepts into automated strategy (no easy feat but one I am confident I will eventually complete. My swing trading strategies average about 80% ROI per annum with no more than a 10% max intraday drawdown. My day trading strategies average about 10% ROI per month with no more than a 10% max intraday drawdown.

Total Time to
Break-even: 2400 hours
Profitability: 3000 hours
Profitable Day Trading: 5160 hours

Total Dollar cost to
Break-even: $15,000
Profitability: $17,000
Profitable Day Trading: $26,000

So there you have it. Adding it all up seems pretty extraordinary. I guess they aren't joking that trading is a lot of hard work and that a good way to end up with a small fortune trading is to start with a large one ;0

Of course those of you just beginning will probably ask was it all worth it? To me it was. I enjoy trading so the hours spent do not seem wasted. Additionally, although the initial cost seems somewhat steep, when you compare this cost to opening a Subway shop (about $300,000) it seems pretty cheap. And my returns have already exceeded my initial investment with a satisfactory ROI beyond that.

The key that a lot of beginning traders forget is that Trading is a business. You don't become proficient at your profession without time and money invested. Hopefully this will help some of you who are still beginning your journey.