Learn to Quantify What You are Doing


Call me a cynic but when I first started trading, if I’d have read an article about the importance of trader education and training written by someone in the education industry I think I’d probably have laughed out loud and cast the article aside.  Nevertheless I will attempt to soldier on in the hopes that my words might have a profound impact on your future as a trader and your view about the importance of being a “trained professional” rather than one of the nameless millions who’s trading carrier dies out before it even has a chance to start.

I should probably define what I mean by “training”.  Education in our industry gets a bad rap. I’m not saying it’s not well deserved, but there are a handful of people who are trying to make a difference in the lives of traders and investors through education.  One of the most notable is Tom Sasnoff.  Tom is one of the co founders of thinkorswim and now runs a website called tastytrade.com.  He caters exclusively to equity options traders but he’s building an empire on the back of a simple philosophy that what you’re getting from mainstream media and what we consider common knowledge is totally wrong. What we need as traders is a scientific approach to our decision making.

When I first heard Tom use the term “scientific approach” I got really excited because my company holds the same view and we’ve been working with currency traders for years building and developing strategies that we believe meet the scientific standard. 

It’s tough to wrap your head around but over the past 5 years I’ve worked with more than 20,000 traders in over 80 countries and what I’ve found is that all of them suffer from the same basic set of issues.  If you were to ask them what the problem is they would tell you it’s that “they don’t have a good trading system”, or that they just “don’t have that one little nugget of information that will suddenly make all the confusion clear.”

In reality what they lack is a clear plan.  They’re uneducated about WHY the marked moves. They focus far too much on news and fundamental data instead of focusing on what really counts....probability.

I’ll give you an example.  What if you discovered a way to guarantee an 80% chance of being right every time you bought the EUR/USD?  Would that be a strategy you’d like to hear more about?  What if you also learned that every time you took that trade you would end up risking 1 dollar for every 1 dollar you made giving you a 1:1 risk/reward ratio? 

You would basically have a strategy that risked $1 to make $1 and you would be right 80% of the time.  How many times would you want to take that trade?  If you said anything less than 100% of the time you need to get out of trading because you’re nuts. 

But you see, most traders have never sat down and quantified what their probability of success will be.  Because of that most of them bounce around from one trading style to another.  Trading each one until they go into a drawdown and then bouncing to another in a hopeless attempt to avoid the pain of losing money.

What real education does is teach you how to quantify what you’re doing.  It teaches you not only the strategy but also how to determine the probability.  That’s exactly what we try to do.  We’re in the business of teaching people how to fish.  We don’t want to fish for you.  We don’t want you dependent.  We want you INDEPENDENT.  And everything we do is filtered through that standard.

The quickest and easiest way to getting consistently profitable as a trader is to spend time in diligent study, preferably from someone who knows what they’re doing in the form of a mentorship or coaching relationship.  This will also be the most expensive route but look at the bright side, at least you get to keep your day job instead of having to quit, sell everything you own, move to Chicago or New York and pray that you can find a mentor and you don’t lose every penny you have in the process. When you explain it like that most people recognize that a few thousand bucks for a mentorship program is really peanuts.

Taking the mentorship route will certainly give you the best chance for success but it by no means guarantees it.  Too many traders have unreasonable expectations about education.  They think it’s some kind of magic pill that when swallowed will cure all their emotional and technical trading problems. 

SMB Capital, one of the largest and most successful proprietary trading firms in New York says it takes 6 months to a year sitting behind a desk 10 hours a day, surrounded by some of the best traders in the world, for a new trader to start making money.  Oh, and 50% of the candidates wash out.

Keep that little nugget of information in the back of your mind the next time you sit through a 2 day training course.  Trading is simple but it sure isn’t easy.  Having a solid education and surrounding yourself with knowledgeable trustworthy people committed to your success is the foundation of any long term trading carrier. 

Jason Stapleton