5 Trading Lessons I’ve Learned From 5 Years Of Losing 

Last Updated: January 7, 2021

By Rayner

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In today’s episode, you’ll discover 5 things I’ve learned from 5 years of losing as a trader.

So tune in right now…

Resources

How Long Does It Take to Become a Consistently Profitable Trader?

How to Create a Trading Journal and Find Your Edge in the Markets

Forex Risk Management and Position Sizing (The Complete Guide)

Turtle Trading Rules: Does It Still Work Today?

Transcript

Hey, hey, what’s up, my friend. In today’s episode, I want to share with you 5 trading lessons that I’ve learned from five years of losing.

Here’s the thing, it took me about four-plus years before I became a consistently profitable trader, or to the point where I see profits in my trading account. Four years plus is almost five years.

In other words, I have been losing for close to five years before I see the light, before I see my account turn green.

In today’s episode, I’m going share with you 5 lessons that I’ve learned and hopefully you don’t have to take five years like me. Hopefully, I can help to reduce your learning curve.

Sounds good? Then let’s get started.

1. You must have a consistent set of actions before you get a consistent set of results

Let me ask you, do you want to be a consistently profitable trader? If yes, then guess what? Your actions must be consistent. If your actions are not consistent, then how do you expect to get a consistent set of results?

If on one day, you’re using Fibonacci and the next day you’re using price action, then the next day you’re using quant trading, then the next day you’re using breakout trading, then pullback trading, eventually your results will be all over the place.

Because your actions are all over the place. Make sense? There’s nothing rocket science to this, it’s just common sense. If you want a consistent set of results, then you must have a consistent set of actions.

A quick tip I have for you is if your trading is all over the place now and you’re trying everything and anything, it’s not wrong. Because it’s kind of like the rites of passage. But eventually, you don’t want to be all over the place.

So first and foremost, you want to ask yourself, what do I want out of trading? Am I looking to generate consistent income? Am I looking to just grow my wealth over time? Am I looking to just capture trends in the stock markets?

Once you have defined your goals, then you can find the trading methodology to meet your goals.

For example, let’s say you’re a stock trader and you just want to capture trends in the stock markets during bull periods and survive the bear periods, then what you want to do is to master stock trading methodologies to let you profit in up trending markets.

It could be momentum stock trading strategies or trend following stock strategies. Once you’ve defined what you’re trying to achieve, then you can find the trading methodology to meet your needs. That’s a quick tip for you.

2. You must have an edge in trading

It baffles me to know that there are a lot of traders out there who thinks that trading is 80% trading psychology or simply looking for a minimum of a 1:2 risk-reward ratio and it’s all about managing your risk.

Well, you can have the best trading psychology or you can have a minimum of a 1:2 risk-reward ratio on each trade. But if you don’t have an edge in the markets, you will still bleed and lose money in the long run.

Let me just give you a very simple analogy. Let’s say you want to go to a casino to beat the casino to make a profit.

Imagine you bought the best psychologists with you to pump you up, you practice sound risk management, you bring adequate capital, you risk a fraction of your capital on each gamble or trade. But guess what, in the long run, you will still lose money to the casino.

Why is that? And it’s all for a very simple reason. Because the casino does have a mathematical edge over you. Some of you might be thinking that trading is not maths because it’s not as straightforward as a casino.

I agree. That’s why when you trade the markets, you want to make sure that the trading strategy that you’re using, whether through backtests, or forward tests, gives you an edge in the markets and it shows you a positive expectancy at least over the last 5 to 10 years of data set.

This shows you that the strategy makes money historically. So when you trade the live markets, you could possibly make money as well.

You might be thinking that backtesting is useless because it doesn’t work in real markets. I agree. It doesn’t mean that just because it works in the backtests, it will work in the live markets as well.

But what I can be sure with you is that if your trading strategy fails during backtest, you can forget about it during the live markets.

If your trading strategy works during a backtest, there’s a possibility it could work in live markets – and that’s the purpose of doing backtests, to kind of evaluate which strategies are worth exploring and venturing into.

So you must have an edge in the markets, no doubts about it.

3. There is more than one way to skin a cat in trading

Take me for example, when I got into trading, I had this mindset that there’s only a certain type of trading strategy that works or a certain way to trade the markets that only the pro traders know that I don’t.

I had a kind of ‘conspiracy theory’ and thought the pro traders could read the order flow, the depth of markets, the bids and offers coming in and that’s why they make money in the market.

I thought it was something that retail traders don’t have access to and I thought that was the way the only way you could make money from the financial markets.

And boy, I was so wrong. That’s only one way to trade the markets. That is mainly the scalpers’ domain, as they study the order flow, the bids and offers to make split-second decisions. That is just one way to trade the markets.

If you want a more quantitative approach, the quantitative traders trade the markets using fixed mechanical rules. Then you’ll also have traders who just simply rely on technical analysis only, like trend followers. If the price goes up, they buy. If the price comes down, they cut their losses and stuff like that.

Then you also have traders who rely on both technical analysis and fundamental analysis like what William J. O’Neil does in his book How To Make Money in Stocks.

And then you also have discretionary traders who trade using the price action of the markets only. You can see that there are many ways to skin the cat and there’s no one right way.

There are many ways you can make money from the financial markets. So don’t think that there’s a holy grail out there because there isn’t any.

4. Those who make money fast, also lose money fast

In essence, what I’m trying to say is that if you make money fast from trading, you will likely lose money faster from trading as the reason why you make fast money is because you’re taking excessive risk.

So if the market turns against you, or when you get overconfident, you’ll take on even more risk, where you’ll end up losing even faster.

In trading, it’s not the rabbit that wins the race, it’s the turtle who is slow and steady, and consistent over time to compound returns. This is the kind of traders who will win in the long run. Trading is a marathon, not a sprint. I know it sounds cliché, but it’s true.

And finally…

5. Model after success (not just in trading but also in life)

If you want to get successful, the cheat code is to find people who are already successful doing what you aspire to do and just copy them.

I wanted to be a consistently profitable trader and I wanted to make money from the financial markets. So I asked myself what professional traders or hedge funds are doing to make money from the financial markets.

That led me to trend following where I realized there are tons of billion-dollar hedge funds that apply a trend following approach and they make money for years or even decades. There’s even a book by Turtle Traders that talks about this trading methodology.

That also led me to explore other domains like mean reversion trading, systems trading etc. So really, if you want to find trading success, then find someone who is already achieving the results that you want.

Then model after them, understand their thought processes, their strategies and mindsets. There’s a high chance that if you can follow them you will likely get similar results as them. You won’t get the exact results exactly because we’re all wired differently but you should be at least in the right direction.

This doesn’t just apply to trading, it can apply to business or maybe even for the exams too. Find a top student, find out what they are doing and model after them. It’s the same concept over here.

With that said let me share with you again, the 5 lessons that I’ve learned from 5 years of losing…

Recap

  1. You need a consistent set of actions to get a consistent set of results
  2. You must have an edge in the markets
  3. There are more than one way to skin a cat in trading
  4. If you make fast money in trading, you’ll lose money even faster
  5. Model after success

With that said, I wish you good luck and good trading. I will talk to you soon.

  • I love the first tip you gave! Keep up the good work Rayner! You know, in this industry you’re the only one that is really transperent, and that’s why you’re my mentor.

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