I’m writing today about one of the trades I’m asked about most via Twitter and Email, that being the giant +410.7 pip and +8.21R short trade that my D1 Swing strategy handed over at the start of the year.
I live-tweeted the trade throughout the week it took place, from just after execution, through the trade and right up to closing the trade out on Jan 3rd, when I shared my deal-ticket directly from my broker, IG.
So, how did the trade come about?
As usual, I manually scanned through the major currency pairs looking for the D1 Swing setup. I spotted this within a few minutes via USDJPY and took the trade without any hesitation, second-guessing, or time wasted.
I managed risk, executed, and walked away.
A few days later, the position had began running in our favour and never looked back. Within just below a week we were up approx. +150 pips and looking good, with no exit-signal in sight and nothing to do but sit on our hands.
As we passed Christmas and moved into our second week holding the trade, there was still no looking back for the trade as price continued to dive. There’s no better feeling than seeing your edge play out in the form of a trade of this size and as usual, there was nothing to do but to stay patient whilst awaiting our exit-signal.
Finally, the exit signal presented itself as we saw USDJPY take a plunge just a few days into the New Year, and out we came with a huge +410.7 pips and +8.21R.
There’s only one thing better than starting the year by closing out a trade of this size, and that’s receiving a message such as the below in my Twitter inbox in the hours following;
Matt joined me on the trade after learning the strategy, banking above +£10,000 on the one position alone. Talk about starting the year on a high.
…and as the strategy is mechanical and rule-based, anyone else with the strategy rules would’ve taken the exact same trade alongside myself and Matt.
The answer that I’m sure most new traders will hope to hear is that successful trading lies in being skilled, and that the skills required are learnable, but in my opinion it’s a little of both, each in fair measure.
Speak to any experienced trader and they’ll more than likely be able to share a handful of stories that relate to luck, or a lack thereof.
For me, luck played a huge part in my beginning as a trader.
If you haven’t already read the ‘About Me’ section of my website, when I began trading I initially turned a small £500.00 account into around the +£6,000.00 mark in a short few weeks with no strategy, certainly no edge and nothing but sheer luck.
I bought strong markets with huge, huge stop-losses and if trades went against me I simply held them until they eventually came back into profit where I’d close them.
…far from a profitable edge. My strategy was, well, luck. Pure and simple.
No rules, no structure, and absolutely no edge whatsoever.
As ever though, my lucky run soon came to an end when one day, a losing trade didn’t turn back around. It crawled against me, and against me, further down, and further, until I snapped and took a fairly sizeable loss of around the -£750.00 mark.
This certainly put me in my place, and this resulted in me firstly realising how dangerous trading can be, and secondly making one of the most mature, sensible decisions I’ve ever made;
I withdrew most of the profits I’d made, and I invested the money in myself – In proper education via professional traders – leaving a modest amount of money in my trading account to trade sensibly with going forward, with the proven strategies I’d learned via the education in-place.
…this changed my trading, and I never looked back.
Returning then to the question at-hand; Is trading skill, or luck?
Again, I’d say it’s mainly skill, strategy and process, along with of course sources of edge and the discipline to let these sources of edge play out whilst managing risk to keep you in the game long enough for this to take place. But luck in my opinion certainly does play a large part in ones success.
As traders, we never know where or when those huge winning trades, those real year-makers, are going to occur and it’s for this reason that luck begins to creep into the equation.
A good example of this, and the inspiration behind this article in fact, was shared by Linda Raschke within her brilliant ‘Super Trader Summit’ lecture recently [Which you can watch here].
She expands on luck, and a particular lack thereof within her own trading over the years, sharing some fascinating stories. One in particular really stood out to me, this being the story of a set of German traders who traded a mechanical strategy that offered consistent black and white signals, removing the need to predict or guess or use discretion, but meaning that they had to trade every viable signal that was presented by their system, much like the strategies I trade myself.
The traders in question traded what I believe was a momentum strategy that didn’t utilise profit targets, meaning that they never knew when the next huge winning trade would appear, so although they essentially didn’t rely on luck but on a statistical edge, luck would of course invariably prove to enter the equation, as it did when they decided to take one single day off to watch a major German football game.
You guessed it, it was the biggest move within one of the markets they traded of the year, and they failed to capture this. The one, single day they took away from the screens.
You see, anyone who’s been trading a single approach for into the years will most likely be able to tell you something.
80% of profits often come from 20% of trades.
Being around for those trades really can be make or break.
I’ve certainly experienced this myself, and one particular case of luck – Good luck for some, bad for others – came via my DAX strategy when it presented us with a rare +16.6R winning trade last December and, if missed, although missing the trade wouldn’t have seriously damaged the year’s return as we ended the year with +108.5R in the bank, at 2% risk per trade, taking that particular trade was the difference between an additional +32.8% account gain on that one position alone
…or missing out on this.
And of course, I do know a trader who trades my DAX strategy alongside me – One of the most consistent and focused traders I know personally, in fact – Who did miss that trade, for being away on holiday that week. You can imagine his disappointment and frustration when he returned to see that the move had taken place and that he’d missed out on the win. On the other side of the coin, I also had a trader begin trading my DAX strategy on that very trade …to say he was pleased is one hell of an understatement.
So there you go;
A first-hand example of luck, or lack thereof, playing out for some, and not for others.
Another example of bad luck came via a friend of mine who at one point began trading a shorter-term momentum strategy on a – Get ready for this – 14 trade losing run. Thankfully he was managing his risk at 1% per trade and he knew that the strategy provided edge, so the drawdown wasn’t career-ending like it could very well have been, and he did come away profitable as probability played out in his favour, but, not easy to handle.
Would you have been able to manage risk well enough and have enough belief in your edge so as to see a 14-trade losing run out until probability began to play out in your favour and the losing run passed?
There are so many more examples and stories I could share, some of traders very much on the right side of luck, some unfortunately on the other, but fundamentally my point is this;
Know that luck will most likely play a part in your trading, for better or for worse, and respect this possibility. Make sure that you manage risk so that you can make it through the inevitable bad days, and to keep you there for the good days, because the good days always come around in the end.
Remember; In the majority of cases, 80% of profits come from just 20% of your trades.
Trading is up, then down, then up, then down, until one of those home-runs presents itself …just make sure you’re there when that year-making trade does finally come around.
Food for thought.
p.s. I initially wrote this article on Wednesday March 6th, but I’ve just revisited to add the below in;
If you follow me on Twitter you’ll have read the tweets I posted earlier today. A first-hand example of bad luck on my part happening in real-time.
…it happens. I can’t dwell on it. As I always say; Next trade.
Regarded as one of the most influential traders to have ever lived, Jesse Livermore is both storied [in the first book] and stories [in the second book] his Wall Street experiences both ups and downs, from making millions to blown accounts and back again.
The crucial lessons, the nail-biting real-life stories, it’s all in here. Again, if you haven’t read both of these yet, I highly recommend that you waste no more time.
Next, two books by professional trader and manager of New York’s proprietary trading firm SMB Capital, Mike Bellafiore;
The titles say it all; Both books expand on what it takes to trade like a professional trader, from how to approach the markets from a psychological perspective right through to building data on your most profitable setups and building a ‘PlayBook’ that consists of these, along with much, much more.
If your aim is to trade professionally then simply put, you can’t afford to have these books missing from your library.
They will change your trading irreversibly.
Next, two books by without a doubt one of the most grounded, honest, successful and influential traders on earth today, Yvan Byeajee;
Two truly groundbreaking books from Yvan here, one of which focuses on the all-important psychological-side of trading, and the second which outlines his own journey from losing trader to consistently profitable trader in-detail.
Honestly, I genuinely might not be where I am today without the above two books.
Next, a book that every single trader out there needs to read, as soon as possible, written by Michael Covel;
Whether you trade trends within markets or not, having an understanding of how they develop, form, unfold, conclude and are traded by professionals, along with an in-detail look at the statistics behind them will transform your trading, not to mention increasing your skill-set which will hugely contribute to your overall growth as a trader.
Next, a book by Jack Schwager that needs little introduction;
This book is packed full of in-depth stories, conversations and discussions with the worlds’ top traders, covering everything from essential risk- management principles, strategies outlined in-detail, performance-enhancing advice, key psychological guidance and so much more.
Honestly, since reading this I put the tips, techniques and guidance that Harvey outlines within the book into practice and genuinely saw an increase in profitability grip my trading straight away. I really mean that.
It’s a short but sweet book that only took me just a handful of hours to read cover-to-cover, so it’s perfect for those with busy lives who struggle to find the time to read larger books.
And finally, a book by Steve Peters that’s less focused on trading per-se, but if read and understood will impact your profitability ten-fold;
If you’ve traded real money even just once, you’ll know how important it is to be able to manage your emotions and be indifferent towards money. Simply put, without this skill, you’re toast.
This book by Steve Peters will help you to understand how your mind responds in trading situations, why you’re mind is tricking you into making these emotion-driven mistakes and more importantly, when you understand this, you can stop making the mistakes, changing your trading for the better, instantly.
Again, all of the above books have hugely impacted my trading, and I hope they’ll do the same for you.
This morning, following the open, I was looking at this;
The market was, in my opinion, screaming “get short”. We’d failed to make a new high, we were in a consistent down-trend following yesterday’s huge down-day, we’d retraced slightly overnight which usually signals a continuation, and so on, and so on, and so on.
All the signs, from a ‘guessing’ perspective, from a discretionary perspective, from a ‘trying to read and predict the market’ perspective were shouting “get short”.
…but the problem I had?
My statistically proven $DAX edge triggered a buy signal, when this happened;
At this point, my mechanical rules said “Get long”.
“Wait” I said to myself, anxiously, “I’m buying into this monumental down-move?”. Every ounce of my being was saying; “No, skip this one today, Will. Stand aside. Look at the market for God’s sakes. Do not buy this market, look at it!”.
But my edge –
My statistically proven edge, that’s backed up by rigorous black and white data that proves beyond a shadow of a doubt that this very setup provides wins that’ve been as high as +16.2R
– Said to buy the market.
…and what’s more, the stop-distance given to us was a tiny 7 points, with a target of almost +60 points away.
Again, I thought to myself, am I really buying into a market that yesterday fell by hundreds of points, and is in every single area that I can identify saying get short?
I took a breath…
…and I reminded myself of what’s got me to where I am today, and is the reason I now trade full-time, and that’s this;
I have a statistically proven source of edge, and a set of crystal clear, black and white rules in place that allow me to capitalise on this edge.
All I need to do is follow the rules.
…so that’s exactly what I did. I executed and got long.
What happened next?
We shot to target, banking a monumental +6.1R win in a single hour, growing our account by +6.1%
This is why I trade mechanically.
This is why I remove all of the guessing, the predicting, the worrying and the emotion from trading, because acting on this noise, this nonsense, rarely delivers profits, and hell, it’s even rarer that it delivers trades the size of +6.1R without any ‘work’ whatsoever, not to mention the +7.2R we had just five sessions ago.
We’re now five weeks into the year and are just under +20R up by doing nothing but following a simple set of rules.
My point is this;
No-one can predict the market, and yet this is exactly what the vast majority attempt to do, and they wonder why they consistently lose money.
Why struggle? Why waste the time and the energy that comes with getting caught up in the worrying and the anxiety that attempting to predict without a clear process or framework brings, when a mechanical edge delivers astoundingly better results with literally none of the trouble?
A mechanical edge frees you from the worry, the stress, the anxiety and the panic that trading with discretion forces on you.
I’m sure many traders had losing days today as they tried to ‘read’ and ‘feel’ where the DAX would head. We did none of that.
We waited for our entry signal, executed, and profited.
…and that’s all that we ever need to do.
What impact would an edge that could finally free you from all of the roadblocks that’ve held you back so far –
The guessing, the predicting, the worrying, the stress, the anxiety, and all of the other hurdles that discretionary strategies leave blocking your path
– have on your trading?
If you’d like to completely remove all of the above, all of the things that hold back the consistently losing majority, and you feel you’d benefit from trading a statistically proven strategy using a clear set of rules;
So many people go to the gym, yet very few ever see significant, lasting results. They might lose a little weight, but it’s all soon put back on. They might gain a little muscle, but it’s all soon gone again.
The problem is, they have unrealistic expectations of what’s possible.
…and no plan or process in place, which is strange because, much like in trading, that is all you need to succeed;
Realistic expectations, a plan, and a tried, tested, proven process to follow.
We know, from a simple, logical perspective that if we follow a meal-plan and exercise regularly that, over time, we’ll lose weight, build muscle and achieve our dream body.
We also know, from a simple, logical perspective, that if we follow a trading plan with consistency, along with trading a statistically proven strategy, we’ll trade successfully over the long-term and finally achieve our dream of trading profitably.
At the gym though, much like in a new traders’ trading account, it takes time for the results to appear and become tangible…
After a month… nothing.
Two months? …nothing.
Three months? …still nothing, and then it happens;
“I quit, I can’t do this. I can’t keep this up. I’m not seeing any results and I’ve sweated it out for three months?! Four months?!”
…and you give in, when results were only a meal-plan and another month or two of hard work away. It’s all over. Yet again, another dream falls by the wayside.
How much more of your valuable time are you going to have to waste, and how much more of your hard-earned money are you going to have to lose to the markets before you say enough is enough and put a trading plan and a proven strategy in-place?
…simply put, it’s all you need.
The freedom from the rat-race, the ability to make money on your own terms, to live life without having someone controlling the days and the hours that you work, the luxuries that you’re missing out on; It’s all waiting.
It’s interesting because, deep down in side of us all, we know for an absolute matter of fact that trading profitably is possible. But again, only with realistic expectations, a plan, and tried, tested, proven strategies to follow.
In the gym or in your trading;
You know success is possible, you know the dream can become a reality, so ask yourself those crucial, all-important questions, because these answers will tell you exactly whether you’re headed for success and dreams achieved, or failure, yet again;
Do I have realistic expectations?
Do I have a trading plan in place *that I follow, win or lose* on a daily basis?
Do I have a statistically proven strategy in place that provides edge, and *that I follow, win or lose* on a daily basis?
If the answers to the above questions are yes;
Congratulations. You’re either trading profitably now, or you’re very much headed towards profitability. Keep up the focus and the consistency.
If the answers to the above questions are no;
Admit it to yourself, you know the reason you aren’t achieving success. You know the reason you aren’t moving towards your dream of trading profitably, and it’s because you don’t have the above in place.
…whether you do anything about it or not, well, that’s on you.
Don’t be the person who goes to the gym for a month, doesn’t see results and quits…
Be the person who decides, this is it. Don’t allow your dreams to remain dreams any longer. Do what you know you have to;
Learn a statistically proven strategy that provides edge.
Put a plan in place, and follow this plan no matter what.
Gain consistency and remain focused, stay the course, and achieve the dream of trading profitably.