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of yourself,” I think it is equally important to learn what has worked for other successful traders. No one in this business has a mortgage on the truth, and anyone who is a consistent net winning trader has something valuable to say. That information is contained in the books they write or the books that have been written about them. So the only person besides yourself you should listen to is every other successful trader. Between these two people you will eventually get 100% of what you need to de- velop and maintain a winning approach.
Now, when I say “Listen to other successful traders,” I don’t mean
“Listen to people who have a product to sell.” That may not be a good thing for the limited resources most people have when they begin trad- ing. One of the more confusing parts of developing a winning trade ap- proach is that there is a lot of market-related information out there to look at. Between the books, magazines, trading systems, audio series, seminars, free data, and so on, you could spend all kinds of money and waste all kinds of time and never get any farther along than you are now. In fact, I am part of that process. I personally offer a live six-week seminar designed to improve your market presence, and one of the objections I always get from potential attendees is, “How is this course going to help me trade?” Rather than take time here for those kinds of arguments or issues, let me just say that you have to weed through a lot of poor-quality information to get to the things that will help you. Personally, I don’t teach people to trade. I teach them to think for themselves.
The point is that you as a trader can shorten your learning curve by education, but you need to be careful how you approach the educational process. You run the risk of investing a large amount of your personal re- sources into places that will not help you advance your trading career. In order to prevent that from happening, I want to offer you a few sugges- tions about how to narrow your focus and get truly high-quality market education for the money you have to invest in that direction.
Be sensitive and focus on the difference between trading systems and trading. Trading systems are methodologies for improving trade se- lection—in other words, ways to find a better place to go long or short.
These trading systems are based on probabilities and past market perfor- mance, and they are often designed by people with little tradingexperi- ence. Often trading systems are computer software programs you can buy or try for free, books that describe the method and illustrate it with past markets, or even multiple-day seminars taught by the developer of the sys- tem directly. This is learning a trading system, not trading.
Trading is the far more critical element and needs to be the central issue in your education. Many very good trading systems are worthless to most users of that system because the real issues of trading are never
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addressed. Learning to trade involves learning how to avoid common mistakes, control your behavior, avoid emotional interference, and ef- fectively manage risk. A great trading systemwill not work if the user keeps second-guessing the trade signals, doubling up on trades that are losing, scaring himself out of a winner too soon, or making a host of other missteps. Simply stated, a winning trading system is completely negated by poor trading.
All successful traders learned how to avoid bad behavior while devel- oping or using a system. The surprising thing they all will tell the develop- ing trader is that the trading system is the smallest part of their approach.
Every winning trader uses a slightly different approach, and they cover the gamut of potential behaviors. Some winning traders are day traders, some scalpers, some position or swing traders, some spread traders; the list is endless. Trading systems can vary, but trading cannot.
In my opinion, the best use of your educational capital is to divide your education into both parts but spend more time on learning trading.
Personally, I invest a few hundred dollars each year on books, tapes, and seminars. Since I don’t need to learn a system methodology anymore, I buy resources that are biographical in nature. I study winning traders, not trading systems. Every year I go hear winning traders speak, read books they have written, or listen to audios they have recorded. By far the great- est return on investment has been focusing on how winners thinkrather than how winners trade. Because trading is a subjective and personal ex- perience, it is unreasonable to think that some other trader’s approach will be compatible with my own or with my trading nature. It is far more plausible to expect that winning behaviors are learned from experience, and that by seeing someone else’s experience as similar to my own, I could learn how to improve my own behavior or avoid developing bad be- havior. Most winning traders will tell you they had a combination-type ex- perience of their own. They had to find or develop a trading system compatible with their personality or nature, but the biggest thing for them was learning to effectively trade.
The best way to communicate this difference and why it is so im- portant is to draw an illustration from something that really counts.
Imagine you are a soldier sent to the front of the action. Regardless of what you would like to believe about the nature of this particular mili- tary conflict, the fact is someone on the other side of the battlefield is trying to kill you. It is not a video game or a training exercise. This time you are under real threat for your life. You don’t have a choice at this point, and certainly you are not the person to negotiate a peaceful reso- lution to the conflict; at this particular moment it is a question of kill or be killed. Your enemy is faced with the exact same situation, and you can rest assured that he is thinking the same thing about you. You don’t
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want to die and neither does he. By the end of the day this situation will change and one of you will be dead.
Up walks the commanding officer and he gives you an order. He or- ders you and your squad of soldiers out into the heart of the conflict to es- tablish a forward position for the coming offensive. You turn around and see that your commanding officer is a 23-year-old first lieutenant, just graduated from West Point Military Academy. He is assuming his first command after graduation and his orders are, “Go establish a forward po- sition.” You are being ordered into combat by someone with little or no combat experience, and if he makes a mistake you run the risk of going home in a body bag right then and there.
Obviously, a trained soldier would execute that order, and I am not suggesting that new military officers are not qualified. I am illustrating the point that, like it or not, book knowledge is different from combat experi- ence. Our hypothetical soldier would feel a lot less conflict about estab- lishing a forward position if the commanding officer was a three-star general who has fought for his life many times and has personally beaten this particular enemy army twice before. That general will most likely not order a soldier into a losing position. At one point, that three-star general was a first lieutenant newly graduated from West Point as well, along with a group of other potential combat officers that year. They are all dead and he is not. He learned how to apply the book knowledge better under com- bat and that is why he is a three-star general. Most likely he will see the traps and pitfalls the enemy might try to set, and because he has beaten this enemy more than once he knows how to exploit the weakness the en- emy can’t see.
Trading is a lot like that. It really is a kill-or-be-killed environment. All the book knowledge you have will not help when you are on the wrong side of the net order flow; you are losing the war at that point. Only com- bat experience will help you. Net winning traders have developed winning behaviors from being in the heat of the battle and not getting themselves killed. You as a developing trader will learn more from studying winning traders than you will from studying theory, just like winning military offi- cers learn more from combat than they do from books.
The list of Recommended Reading at the end of this book includes ti- tles I found very helpful for the study of winning traders. All of the books are readily available, and if you read them all you will most likely learn more. I would encourage you to continue making the study of winning traders a regular part of your trading approach. I am not suggesting that you ignore new developments in the art and science of market analysis. In my view, I think you will come to the same conclusion that I have. After enough time most of the market study you explore is all saying pretty much the same thing. By balancing your education between trading sys-
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tems and trading, you will shorten your learning curve, without going around in circles while you trade your way to zero equity.
To make this rule work for you, your best bet is to discipline yourself to spend enough time daily to read one chapter of a good trader biography daily. Within one year you will have read several biographies of people who have won the war more than once. You will leverage their experience into your own.
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