I have been a futures trader since 1988. About 9 years ago I started researching Systematic Trend Following; I didn’t realize how bad things were among most traders. A small proportion of professional system traders make all the money in the markets while the remaining 95% lose money.

Caught in the trading circus

Most of these losing traders use (incomplete) trading systems they have never eventested over a longer period of time. The rest are working with inadequate software, indicators, bad diversification, bad risk management, or other programs/strategies that are pretty well impossible to use. Most of these people are caught in what I call ‘the trading business circus’. They surf the internet in search for the ‘holy grail, ‘quick solution’, and ‘guru’s’. Because people in general do not want to think for themselves they find it accommodating to search for analysts, advisors, and guru’s who will tell them what to do, or have their opinion backed up by.

If you want to become a successful trader stop searching for the ‘holy grail’, and stop listening to the (tv) spin and other peoples opinions. No System, or person can or will predict anything in a consistent manner, so why try to find it or listen to all these so called experts. Most of these 'guru's are just great marketers that make money on the back of your believe that there is something out there. We’ll, you have to wake up and smell the coffee: there's nothing out there!

There is no substitute for Experience

Good judgment comes from experience, and experience comes from bad judgment. If you want to become a trader, you must start to trade. There is no substitute. You must also make mistakes. Making mistakes is part of trading. If you don’t start trading using actual money – and enough money that it affects you when you win or lose – you won’t learn all the lessons of trading. Paper trading is not a substitute for trading with real money, you won’t learn how hope, fear, and greed will affect your personality. At the same time it’s important to understand the fundamentals of trading. Armed with this knowledge you will learn more quickly from the mistakes that you do make.

Trading Psychology

Trading psychology is the most important aspect of trading, and understanding yourself and you own personality as it relates to your trading is critical when developing your own trading strategy. This journey is much more about making a sincere and open-minded attempt to understand your own personal psychology than it is about finding the magic book with all the answers.

Money Management

Money management is the most important aspect of a mechanical trading system. Controlling risk in a manner that will allow you to continue trading through the inevitable bad periods, and survive to realize the profit potential of good systems is absolutely fundamental. Study and research into the state-of-the-art money management will pay enormous dividends.

Trading Research

There is no substitute for statistically valid historical research when developing mechanical trading systems. In practice, this means learning how to program a computer to run simulations of trading system performance. There is a lot of good information on curve-fitting, over-optimalisation, trading statistics, and testing methodologies on the internet and in books, but the information is a bit hard to find amongst the hype and bull. Be sceptical, but keep an open mind, and your research will pay off.

A healthy dose of skepticism

There are thousands of persons and companies out there trying to sell you advice and/or systems. Don’t blindly accept the advice of these self-proclaimed experts. The best advice comes from those who are not selling it, and who make money trading. There are many books that give insights into the habits of those who have been-or who are-successful traders. Learning how to become a good trader is possible, but it requires a lot of hard work and a healthy dose of skepticism. For those of us who have chosen this path, the journey never ends. Those who continue to be successful will never reach their destination, but will learn to find joy in the journey itself.