What is the hardest part of trading?
Nick Radge: I’ve been trading since 1985. I’m a trend trader. I trade three different trend following systems. I’ve done it all my life. I’ll continue to do it for the rest of my life. I was teaching my children how to do it as well but they stopped listening to me when they became teenagers. That’s not to say that trend trading is the Holy Grail; the Holy Grail is something contained within trend trading. It’s contained in all parts of trading.
Firstly, let’s define two facets of trading: quantitative and qualitative.
Quantitative are the learnable skills. Let’s use the analogy of driving a car. What are the quantitative parts of driving your car? You put your foot on the accelerator to go forward, turn the steering wheel left to go to the left, put your foot on the brake to stop, shift the gears to reverse to go backwards, etc. These are quantitative parts of driving a car. They are teachable.
Now, I pose a question to you. Have you done an expensive course or seminar on trading? Perhaps, two or three expensive courses on trading? If you have done those courses why are you reading this text? Surely you know how to trade?
When you do a trading course you are learning the quantitative part of trading. You haven’t been taught, and I’m not sure that it can’t be taught, the qualitative part of trading.
If we go back to our driving analogy, what are the qualitative factors when driving a car?
You need to understand the flow of the traffic, anticipate what other drivers around you are going to do. It’s gaining a sense for dangerous situation.
Michael Schumacher said “The most successful drivers are those that understand what’s going on around them.” In other words, he’s talking about the qualitative part of driving, the parts learnt only from experience. And so it is with trading. We go to all these seminars, conferences and we buy books. We do all this stuff and we still go around and around trying to become successful. The reason that we’re not gaining success most of the time is because we’re learning just the quantitative part and not the qualitative part of trading.
I can’t teach you this stuff but I can plant the seed in your mind. Because that seed was planted in my mind many years ago, I get it now; I understand it. Once you get it, it will be your light bulb moment.
So, what would be some quantitative facets of trading? Entry patterns, trailing stops, trading plan, indicators, stop loss, all the stuff we find in books. That’s all the part of quantitative.
What would be some qualitative parts of trading? Psychology. Can you teach the psychology of trading? I don’t think so. So, absolutely that’s a qualitative part of trading
Another qualitative factor is understanding our ability to trade and our limitations. Most people suffer from the Lake Wobegon Effect; that we overestimate our ability to be good at something. We believe we should be successful with minimal effort. People study for years to be doctors, lawyers, nurses, teachers and yet for some reason they believe they can do a weekend trading course and be a successful trader by Monday.
Therefore the hardest part of trading is learning the qualitative parts, those parts that can only be learned from experience or time in the markets. It’s learning how to keep persisting even when our account suffers a few losses, being realistic and understanding that we are probably only an average trader but that is OK. Understanding how your trading strategy makes money and having the confidence to keep going when things get tough.
