After going through last week’s blog I had some more thoughts about this subject and about my own journey as a trader. I think that this warrants yet further discussion on the topic. I hope you were able to get a sense of what it’s like when you are a true rookie and you are trying to find your niche in the trading world. The cold hard reality is that most of us are not going to be billion-dollar hedge fund managers or perhaps the next Richard Dennis. If you do not know who Richard Dennis is I would suggest a read of the turtle traders book would be worthwhile for your development. The fact that most of us will not be hedge fund managers is a good thing because I would suggest that most of us truly do not want to be in that part of the trading world. There are several different classes of traders as I see it. There are retail traders, like most of us here probably fall into that category. The retail trader is one that most likely is just looking to create extra sources of income or has an interest in taking control of their own financial world. This is a noble quest and one that Tackle Trading’s mission fits very well with. There are the institutional type traders, this would be your hedge fund managers or private equity-type managers, these folks are in the big game and using OPM to build wealth. OPM being other people’s money. I believe there will be only a handful of folks that are looking to get into this world as it has its challenges like anything else. The last category of trader that I see is what I call the unicorn. These are the top of the trading/investing world and although it might be nice to be in that space it also takes a lifetime of effort and skill-building to achieve. I would put the following folks in this category, Warren Buffett, Carl Ichan, Peter Lynch, George Soros, Richard Dennis etc. 

I truly believe that anyone with enough drive can reach any one of these levels but I think that we need to truly understand where we want to go as the road to the different levels of trading is fraught with challenges and we must be sure of desire if we are going to blast through those challenges. So, the first question you must ask yourself is where do I want to be? Am I looking to be a retail trader or do I aspire to run a hedge fund or I am so devoted to this cause that I strive to be a unicorn one day? I think most will start at the retail trader level and then decide later where they want to end up. There is nothing wrong with setting a new goal after you have achieved your first goal, as a matter of fact, that should be ones life long pursuit if one wishes to achieve greatness. So let’s say you’ve chosen to become a successful retail trader, what does that mean? Well, that means different things to different folks and that is the theme of this blog series. So that is where we have to start, we need to define what retail trader success looks like to ourselves? Are we going to be a day trader who pulls in a certain percentage per week or are we a swing trader who looks to earn a nice monthly increase? Or perhaps you’re a longer-term trader who just wants to use the power of compounding to crank up the retirement balance? Once you define which category you find yourself in then you can go about setting objectives for your trading. Let’s take the swing trader, for example, let’s say you want to achieve a 2-5% increase in account equity each month? Then one needs to ask more questions to figure this out, like what amount am I starting with? Also, what kind of account balance swing can I handle? Or another way to say this is what kind of drawdown can I handle emotionally and psychologically? Once you have these two numbers in mind then you have to put them through the reasonability test. Let’s take a look at an example if someone comes up with the objective of they want to double their account each year and they are only willing to have a 10% maximum drawdown then they need to be finding trades that have a 10 to 1 reward to risk ratio on average, does this seem reasonable? It seems aggressive to me, typically we are looking for a 2 to 1 or 3 to 1 reward to risk ratio and these trades are not hard to find but to achieve the stated objective above would prove extremely hard and counterproductive in my estimation.

Once we have these objectives in mind we need to answer other questions about achieving them like do I have the skill set to achieve my stated objective? If I don’t then what am I willing to do to get those necessary skills? You see there is a yin and yang to trading success, you must sacrifice something to get what you want? You must be willing to sacrifice time to achieve the skills necessary to trade well. You must also be willing to sacrifice money in the form of losing trades if you wish to fulfill your objectives. I have yet to meet a trade that wins on every trade and that is why the objectives we create for ourselves have to run through the reasonable test before we set in motion our trading path.

You can see here that there is much more to trading success than just learning a few key strategies and throwing some money at the markets. We have just broken the surface of this topic and over the next few weeks, we will explore other things we need to do to achieve our stated objectives and reach our trading goals.

As stated in the blog last week we need to spend a lot of time finding out who we are as a trader before we can achieve trading success and this week we explored a couple of ideas of what we need to think about before moving on. So spend some time figuring out which type of trader you want to be and spend a lot of time figuring out quality objectives that fit into that plan. When you do this you will notice your trading results will take a step forward and I believe that this will give you a little push closer to what you desire from trading. I have spoken to some community members recently that have felt “stuck” on their trading path and not really moving forward and I believe that if you are “stuck” and you go back and look at your objectives or create them for the first time that this could be the catalyst that breaks you out of the current funk and gets you back on track to trading success. I believe this because I have had numerous coaches and mentors over the years and whenever I felt stuck in any endeavor they sent me back to the basics and this kind of reset my mindset and allowed to move forward in a more intelligent way that helped me produce the results I wanted so I would say to each of you, give this a shot and see if it helps.

Be well,

Coach Holmes