Over the years, I have people who want to start learning to trade? Fall into a trap that I call … “A Professional Beginner“. They seek a ‘perfect’ system. Where ‘luck’ on an individual trade, is somehow eliminated.
They inevitably fail.
And then they go back to the drawing board. Again, seeking to ‘perfect’ a system. I have seen people stuck in this endless loop? For more than a decade. At which point I refer to them as a “Professional Beginner“.
Well, the other day in the ol’ X, or Twitter stream, I saw such new or aspiring traders try to claim that with the “right setup” and “discipline” … that luck “plays no part” in trading. That Citadel and HFT Firms do not rely on ‘luck’ for individual trades.
Well, I had a thread addressing that topic, that you can find here. If you do not engage on Twitter? I will repeat that thread here … now …
So, seen a bit in the stream about “Luck”, so let’s address that a second. And lets do something better than “Bro, I think that …” Something more objective and factual.
Luck is success or failure, independent of one’s own actions, and is complete chance. In #trading? You win, or lose. Profit or loss, that is complete chance.
Now you new kids? Listen up there in the back rows .. Any individual #trade … win or lose … is #luck. Pure and simple Sometimes you’ll hear aspiring traders say: “Nah, I’ll be #DISCIPLINED and wait for the RIGHT setup!”
Malarkey.
You don’t control the order flow. It is supreme arrogance to think that the TRILLIONS about to be deployed into the market at any second cares about your “Trading setup” “bro”. It doesn’t. It doesn’t know, and doesn’t care.
Nor does the news that is about to hit the wire at any moment in time, know or care about your “Trading Setup”.
I’ve seen traders (complex arb) who have won every trade for YEARS and they will be the FIRST to tell you, that their trading, each and every trade … is dependent on luck.
And then, they have this WILDLY mistaken idea that good #trading , or a “Good Trade” is one where the #trade made money.
Again.
Malarkey.
What is a “Good” Trade? One in which you executed well, to the process that you have developed. After that, it’s out of your hands, and into the hands of how you manage the #trade, and your process calls you to manage the #trade from the uncertain flow that follows.
You executed well? You managed it well, according to your research?
WIN OR LOSE … THAT IS A “GOOD” TRADE,
This isn’t opinion. This is like … 10th Grade (or Grade 10 for the Canadians among us) simple probability and statistics.
You can’t predict outcomes, so stop trying.
Heck, you should have learned by 10th gr that you can’t predict ITERATIONS of #trades.
So yes, you can have not only one trade, but an ITERATION of trades, not go in your favor. Again, dumb #luck pure and simple.
This is not opinion. Talk to ANY Quantitative Finance graduate. It’s not opinion. It’s simple math.
Ok, now … if you want to talk about
1 ) What you believe you have for multivariate edge
2 ) Trade Management that speaks to #1 well researched
3 ) Not show curve fit data, but out-of-sample data that shows years and years and YEARS worth of iterations of trades (Lets call an iteration 30 trades).
OK! AT THAT point, we can stop talking about #luck and start talking about skill, when it comes to trading. BUT ONLY at that point.
And yes for the new kids in the back? HFT that jockeys for position in the order book? Relies on luck. Welcome to the burst and scratches with rebates.
This is actually a topic, I want to make a bit of a theme here at GTC Traders.
If you are new to trading? If you are an aspiring trader? Or if you think you are caught in the trap of being a “Professional Beginner?”
We continue this entire discussion in the next entry, “Trading, Gambling, Chance and Iterations …”