Pretend-traders like to talk about all kinds of trading theories. In their heads, they develop elaborate strategies about how the market should be traded.
What they don’t realize, is that what they think is often different from what happens in reality.
Despite their best efforts, thus, they are unable to stay profitable over any meaningful period of time.
You can easily identify a pretend-trader by the common platitudes he repeats everywhere. For instance:
“Trend trading is the best approach!”
“Technicals beat fundamentals!”
“Go for a high risk-reward ratio!”
(These are just a few of the many examples out there)
The thing is… such “tips” sound good in theory, but are seldom effective in practice.
A real experienced trader will not make such blanket statements because he knows that in reality, traders don’t get to decide which trading methods are profitable. It’s the market that decides… and it changes its mind all the time.
Real traders don’t follow any specific ideology
Amateur traders tend to get so caught up with their ideas, that they try to impose them on the market.
As the saying goes: To a man with a hammer, every problem looks like a nail.
Similarly: To a trend trader, every market looks to be in some trending (or pre-trending) phase.
Now I’m not saying that trend trading doesn’t work. That’s not the point I’m making. The point I’m making is that no trading method that works all the time.
Sometimes trend trading is profitable, sometimes it isn’t.
Sometimes classic technical analysis is profitable, sometimes it isn’t.
The question is: How long can the “dry” periods last, and what are you going to do during such times?
If you’re a part-time trader, dry periods aren’t much of an issue because you can just stay out of the market and rely on other income-producing activities.
But if you’re a full-time trader, extensive dry periods can be problematic.
This is why serious traders don’t commit to a single trading method – they constantly adapt their approach to the ongoing market phase. They’ll never say “I’m a trend trader so I will only trade trends.”
Real Traders Let The Market Tell Them What’s ‘Right’
On 18 October 1987, Stanley Druckenmiller (who later become a partner to George Soros) switched from being short the market to being 130% long on his positions.
The very next day, stock markets around the world made their biggest percentage drop in history – a day now known as Black Monday.
Despite the market crash however, Drunkenmiller finished the month with a net profit.
Well, he listened to the market.
In the first hour of trading on October 19, he sold off his entire long position and went short. This was one of the brilliant moves that helped him secure a trading position next to George Soros in the Quantum Fund.
Drunkenmiller didn’t start the day thinking, “I am bullish in this market, so I will only look for longs.” He let the market tell him what the profitable plays would be.
Real traders don’t impose. They improvise.
If you want to get serious with trading, you’ll have to learn how to make hay even when the sun isn’t shining. You take what the market gives you, whether you like it or not.
Sometimes, the market gives you sh*t… and it’s your job to turn it into gold.