There are hundreds of trading styles out there. There are dozens of markets to trade. There are multiple time-frames to trade on. But there are only 2 kinds of traders that are making any money. And the only question you need to be asking yourself is: am I one of them?
If you are one of these types of traders, you know it. And your trading statements show it. If you’re not, that doesn’t mean you should panic. You just need to transform yourself. And that’s very possible to do once you see the need for it and commit yourself to the correct path.
So what are the two types of profitable traders? Well, to understand that, you have to realize there are two basic ways to make money as a short-term trader (we’re not talking investors here). One way is through a purely mechanical system or algorithm that has a consistent edge. The other way is through judgment or discretion to consistently gain an edge. That’s not any special insight. In fact, it’s pretty common knowledge. But what isn’t common knowledge is how to actually do either one of those things.
The First Kind
Starting with the mechanical or algorithmic side, I see so many traders, especially on the forex side, buying systems. Systems that are back-tested for years and can supposedly bring great consistent profits. Let me tell you from now, if you’re one of those traders that’s always searching for a great system, it’s never going to happen for you. Why not? That brings us to our first type of profitable trader. You see, the consistently profitable mechanical trader is someone who is extremely versed in programming, math, and statistics. First and foremost, he knows how to back-test correctly, and how to avoid the multitude of statistical biases and errors that can arise. Even traders who aren’t looking for a magic system often make the mistake of thinking that their back-testing has any merit. More often than not, it’s mired in numerous statistical errors that leave it not only incorrect, but worse yet dangerous to their trading account. Trust me when I tell you the math and statistics of correct back-testing and system building are extremely complicated. Unless you’re a math and statistics whiz, you don’t stand a chance.
But there’s another quality that the profitable mechanical trader has that separates him from the rest. And that’s that he truly understands the markets in a deep way. This is of vast importance because market conditions (like volatility and directional conviction) are cyclical and they go through different kinds of patterns over time. So even if you were given a solid algorithmic system by a great mechanical trader, you still wouldn’t be able to make money from it over long periods of time because it would need to be fine-tuned to adapt to changing conditions. Also, the great mechanical traders will often have several systems and they’ll choose which ones to employ at what times based on their deep understanding of market behavior. Not as easy as it seemed is it?
The Second Kind
This is the type of trader that most are familiar with and can relate to: the discretionary trader that makes ongoing decisions to trade the market. But what is the profile of the profitable discretionary trader? It’s simply this: he thinks and trades contextually.
Like the profitable mechanical trader, the successful discretionary trader has a deep understanding of how the markets work. And he takes that understanding and analyzes everything through its lens. There is no focus on indicators and patterns like the vast majority of traders. No. This trader knows that those things mean nothing out of context. They cannot be traded in a vacuum. So this trader focuses on complex contextual analysis. He uses simple principles and techniques, but puts them within a complex mental map of the markets. Why complex? Well, because the markets are complex. This trader doesn’t listen to all the false gurus and educators out there who don’t really trade and who say that you need to focus purely on simplicity. He realizes that simplicity is found in the principles and techniques (and he does keep those simple), but putting them into correct market context is anything but simple. It takes study, practice, and dedication over time. But it is possible. And that’s all this trader focuses on.
So while most traders are searching for patterns, and setups, and indicator combinations, the profitable discretionary trader is honing his skill-set of reading the market. He is building ever-more complex mental maps of how the markets really work, and always putting things into context. And this separates him from the rest.
What Kind Are We?
If you’ve followed this blog for any length of time, you’ll realize that we are the second type of trader. We don’t have a passion for math, programming, and highly complex statistics, so we don’t try to back-test or build systems. We realize that unless we are top-notch in all those skill sets, we’re more likely to hurt than help ourselves by going that route. So we go the route of making discretionary decisions. This doesn’t mean that there is no structure to what we do. Far from it, we have a structured framework that we follow to guide our decisions and make sure they’re not random or inconsistent. But we don’t tell everyone it’s so simple and it can easily be done if you just learn our system. That would be misleading.
The reality is that it can be learned, but it’s not easy. It takes time, dedication, and effort. That’s why we built such a comprehensive training program when we set out to teach others what we do. We knew that we had to teach them not only trading techniques, but how to actually read the market, and how to think contextually. Very few out there in this industry are doing this. And that’s because it’s not popular. It’s much easier to sell education products that promise easy solutions that work super quickly. But that’s not reality. So we’ll take the unpopular route and tell you that it’s hard. And it takes time and dedication. But if you want it bad enough it’s more than possible. And if you want to join the ranks of profitable traders, you have to understand what it means and be willing to do anything and everything that it takes.
If this is you, then you too can be one of the 2 kinds of traders. And you’ll realize that the rewards of going this unpopular route can be truly remarkable.