The First Step to Becoming a Trader: Trading Pre-Mortem
The Two Blokes Learn to Trade #2
Becoming a Trader
If you caught episode 49 of the TBT podcast, you will know that we have recently been to a dark place. The first step in becoming a trader, was to conduct a personal trading SWOT analysis. Ali Crooks, CEO of Traders Support Club, required us to lay out for him all that we felt was wrong with our trading. For those that don’t know, a SWOT analysis is: Strengths, Weaknesses, Opportunities and Threats. I have regularly conducted SWOT Analyses for various business scenarios, but this is the first time I’ve done one on myself! But, if it is essential to becoming a trader, then count me in.
Sure, it was trading focused. But, more than this, Ali wanted us to present the personality flaws that were impacting our trading. It is a hard thing to do, but clearly valuable. It was tough to be honest, even for two people who publish a weekly podcast publically detailing our trading flaws! We’ve been trading for almost a year now, and it is getting a bit harder to look at our mistakes dispassionately. When we were true beginners we could forgive ourselves most things. Now that we should know better, it is possible to forgive errors in judgement, but harder to forgive lapses in discipline.
The SWOT analysis covered strengths as well as well as weaknesses. But it seems to me that the biggest value here was in analysing what is going wrong. It is a bit like keeping a trading journal - recording the money-leaks is one of the best ways to increase profitability. (We use and recommend Edgewonk btw!) Top coaches in any discipline, be it sport or business, often recommend visualising the perfect shot, race or sales call. Equally, they suggest post-mortems on weak performances. One of the best things I have come across recently (thanks Freakonomics podcast!) is the concept of the pre-mortem. This is the practice of looking at all of the things that could go wrong, before embarking on a project.
With the help of the questionnaire, I have conducted a pre-mortem of my trading ahead of starting the Traders Support Club programme. I feel like it has given me a clarity that I was previously missing. If you are currently struggling to trade consistently, I’d recommend the exercise.
A few things came to light in my personal trading review. I write these here, partly because I hope they might be illustrative to traders struggling with similar issues, or spark pre-mortems of their own. Partly it is because writing a weekly blog and podcast has turned me into a nauseating over-sharer… So, here are my identified weaknesses. Some expected, others less so.
Discipline is a word that we hear a lot in trading, and is often sited as the first step to becoming a trader. It is usually used with reference to ensuring that you stick to your trading rules. Sticking to my trading rules was a bit of an issue early on in my trading, but not so much anymore. Far harder, for me, was sticking to my trading routine. When we started Two Blokes Trading to document our journey learning to trade, I didn’t realise just how much of my time it would consume!
As interest in the website and podcast has grown, so has the workload, and I must confess that at times it has started to take me away from the actual trading. Ironic, but I am sure I am not alone. Many traders with a media presence or trading educators that I have spoken to say the same thing - they’ve accidentally created a monster that is constantly trying to eat their trading time!
People who trade around full time jobs are probably scoffing at this. Poor little you Owen, not finding enough time to trade whilst you sit around your house all day blogging! And, yes, I see your point. So I must do better. And that is the beauty of Traders Support Club. Anyone who heard the episodes with Ali Crooks or Ceri Bryans will know that discipline and focus are the two watchwords of TSC. A live trading room that you are expected to attend will also help focus the mind!
I am in the privileged position of being able to speak to profitable, experienced and wise traders on an almost weekly basis. Aside from the interviews in the podcast I often get to have off-air conversations of similar depth. Some of these traders I speak to regularly. They have been instrumental in me becoming a trader and some have become friends.
I am very aware that I am in a fortunate position to have access to these great traders and I have no doubt that it has accelerated my learning curve, and saved me a great deal of lost money. However, it comes with a cost to my focus. Imagine speaking to a profitable trader every week, with a proven track record, who swears blind that the only way to make money in trading is to focus on the fundamentals. Then the next week a similarly successful trader spends an hour convincing you that retail traders can only be successful with technical trading. And then the next week someone tells you that day-trading of any kind is a nightmare and we should all be trend-trading the daily-close candlesticks, and everything else is a fool’s game! How do you stay focused and keep to one path?
I dare say that Tom feels the same way - this is a double edged sword. If every time you settle on a strategy you speak with someone for whom you have huge respect, who then tells you that it is garbage and you’ll never make money! If we want to become profitable traders then speaking to profitable traders is essential, but it can make system focus a little more difficult!
Listen and Learn, But Test Ideas
This has eased up in recent weeks - we are fifty interviews in and I have spent enough time now with traders and with my screens to have built a personal philosophy of trading. But this issue of having my head turned is still a weakness, or a Threat technically on the SWOT analysis. I highlight it as I know that ‘system chasing’ (or whatever you wish to call it) is a big problem for a lot of online traders.
For people who don’t have the access that I am lucky to have, it can still be caused by a wide reading list, or going on multiple courses. Maybe you listen to a lot of trading podcasts and hear conflicting advice on a weekly basis! (Ahem…) Either way, system chasing is the bane of many retail traders. We know it is a bad idea but we tell ourselves excuses about why the grass is greener. I am no exception to this, possibly I am one of the worst offender!
This pre-mortem has helped me to realise is that I need to believe in myself. Of course I need to take snippets of wisdom from each person I speak to. But I also need to not chuck my whole trading philosophy out the window every time I speak to someone I respect but who has new ideas!
The Clichés of Trading
The clichés of trading come up enough in our interviews for me to know that they are most likely true. Good money management; try and have a high Reward:Risk ratio or a very high strike rate; find an Edge and prove it with back testing etc. But I have also learned that trading dogmas simply cannot be true, at least not exclusively true. What I mean is that if someone tells me you can’t make money trading the fundamentals, well I know someone who proves that to be wrong. And if someone says the same about trading technicals then I know people that prove that wrong.
I know profitable day traders, and swing traders and position traders. I know profitable Forex traders, shares traders and options traders. So, when someone tells me that it is their way or the highway, I need to thank them for the great podcast content but then make up my own mind!
The same is true for our listeners. You need to take the nuggets of wisdom from all of these people. But don’t lose confidence if they make bold claims about your trading system that you disagree with. It is my personal belief that almost any trading style can be profitable if you trade it well with adherence to the ‘cliches’ of trading. I am sure many of you will disagree, but it’s my blog, so tough. 😉 It doesn't matter how you trade, becoming a trader is about making consistent profit. That's it.
Belief in my Trading
This all leads on to my final weakness, belief. Here I don’t mean belief that, for instance, fundamentals Forex trading will work. But belief that if I trade the 38.2 Fibonacci retracement in line with current sentiment (or whatever your system may be!) that it will make me money in the long term. That is only possible by back testing, forward testing, sticking to your system and recording the results over the long term.
Possibly the single most valuable thing I am going to get out of Traders Support Club is the club itself. It is the presence of a trading room full of traders who won’t let me skip my back testing, who will look at my trades and tell me if I have veered off plan. Traders who won’t let me quit a system or style until I have proven that it doesn’t work. Indeed, hopefully, I will prove that it does work!
Do Your Own Pre-Mortem
Tom and I recently went to the Round The Clock Trader Live! event in London. I met several people there who are profitable traders, but also several who are not. I met one chap who told me that he had been losing for 7 years. But when I asked him how he traded he could not give me a detailed answer, or really any answer at all. That was a man who was in desperate need of some self-analysis. If he had given himself a fresh start, looked at all of his trading history, done a pre-mortem of what could go wrong in the future and headed it off at the pass, I expect he would have come out the other end with a proper strategy and had a chance of being profitable.
Your First Step
This questionnaire was a hugely valuable exercise. I am glad that it is the first stage of joining Traders Support Club and a key part of becoming a trader I want to become. Fingers crossed that my slightly painful self-evaluation will set me on the right path. I want to make the most of the course and come out the other end as a consistently profitable trader. I encourage anyone else who is reading this and struggling to make consistent profits to do the same exercise. Take yourself to a dark place. Be really honest with yourself about your trading weaknesses. Do a pre-mortem so that you can see how these weaknesses will cost you money in the future. And then fix them! I’ll be letting you know each week in this trading training blog how it is going, and whether I have fixed my weaknesses!
If you are interested in joining the journey and becoming a trader with Traders Support Club then click the link. Mention Two Blokes Trading to secure a sizeable discount!