Want to Make it as a Trader?

Jul 1st, 2011 | By | Category: Guest Blog
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Guest Post from Fred Barnes

This musing on intraday trading may come off as a bit harsh and simplistic, but I think subconsciously maybe that is what I intended when I decided to pen this piece (initially as an email to a few traders friends). Here’s the premise for this piece:  trading is “blue collar” work. If you want to succeed at this game, put on your hard hat, load up your tool belt, and be ready to work when you get to your computer station.

Too many traders and wanna-be traders simply don’t understand this concept. There’s a grand miscon-ception as to what the daily function looks like of an independent trader. Allow me to break it down for you, at least the way I see it. Your job as an independent trader is to watch, analyze, wait, continue to watch, continue to wait, and finally execute on the pattern(s) that you have learned to have a high probability of being successful on a consistent basis. Your job is to look for that recurring high probability pattern and decide whether to deploy your capital or stand-down. That is your job. You are not a macro-economist. You are not an equity analyst with a global hedge fund. You are an independent trader trying to grow your ball of equity, while managing risk.

Most of those reading this don’t have “market moving money” deployed. Therefore, we (independent traders) are “followers”; followers of that market moving money. (I’m talking sustained market movement, not those price blips you can cause with your 2,500 shares in a penny stock). You are following the patterns as developed by the market moving money. These patterns appear on a daily basis, in every time frame, in every market. Sure, you may have decent skills at equity and market analysis and such, but your analysis is only your opinion because your money is not moving the market. What should set you apart from other traders is not your ability to dissect financial statements or conduct some ostentatious analysis on company valuations and the disconnect between market prices. No, it is (or should be) your superb pattern recognition skills that allow you to identify, wait, watch, and execute your profitable trades.

Learn the patterns. Watch for the patterns. Execute once the pattern develops. Exit quickly if the pattern fails to develop. You are a pattern follower and risk manager. Too often many have tried to romanticize the intraday trading game as something more than what it really is: a process of repetitive actions designed to garner a similar outcome on a consistent basis. I often hear beginning traders comment they don’t want a typical 9-5 type job because they don’t want to show up to a job and do the same thing over and over every day. Really?

Ask yourself a question: do I have the mental capacity to watch for a developing pattern multiple hours a day in order to make my trading decision? Am I willing to do nothing (in terms of executing trades) while I wait for the pattern to emerge? Many traders simply don’t have the desire or luxury (due to financial constraints/obligations) to spend hours on end watching repetitive patterns develop and determine which setups suit their temperament and trading style.

This is the learning process. If one does not have time or is willing to put in the time to go through this process, failure is inevitable. Hence that often quoted stat of the 80% failure rate in this game. I often recall some of my earlier mentors talk about “all you need is more screen time”. Initially I didn’t understand what this meant, but I know now. It’s all about using that screen time to look for and watch the outcome of those repetitive patterns  develop over and over again, on a daily basis. Eventually it should become mind-numbing boring work. As the saying goes, “same stuff,  different day”. In reality a trader’s process is no different  than the lady working in the Social Security administration office processing checks or the guy on the automotive assembly line: same routine, same pattern, every day.

We can gloss up the intraday trading game all we want; make it seem as if it’s some glamorous occupation of intrigue and excitement, but at the end of the day, if you’re doing it right, you will realize you did the same thing today as you did yesterday and should do tomorrow.

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13 comments
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  1. I would think that a pattern recognition software would do the trading far better than I could ever do. After all it is not handicapped by emotions that I as a trader bring to the table. What then is my edge?

  2. nice post fred ‘beatle’ barnes

  3. Exactly the truth!

  4. Excellent post on the reality of watching a screen all day.  Thank you!  Some days are boring/repetitive.  But the more I understand price movement, the more involved my mind is on the action.  I may not be executing trades, but if I can anticipate and follow the action, I do not get bored.
    Also, the more plays I have in my toolbox, the more active I am in the action, looking for those plays.  So again, a way to lessen boredom.

  5. Excellent post on the reality of watching a screen all day.  Thank you!  Some days are boring/repetitive.  But the more I understand price movement, the more involved my mind is on the action.  I may not be executing trades, but if I can anticipate and follow the action, I do not get bored.
    Also, the more plays I have in my toolbox, the more active I am in the action, looking for those plays.  So again, a way to lessen boredom.

  6. ultimately it is all about pattern recognition. yet every pattern has its own story. the good traders have the patience to execute the a+ setups only.

  7. Humans have the capability to learn. That’s the edge, imho.

  8. Through experience developing intuition. More specifically.

  9. I think a good way to get past the waiting all day is to develop your trading ideas into algorithms that can be automated to a certain degree. I’m not talking about full automation, but running your trading algo’s in the morning, having your orders ready, and executing the algorithm so when opportunities present themselves you are either alerted or it is done for you. At the end of the day you shut down the system and reap the profits. That is of course if you can quantify your strategy and you are not 100% discretionary. Reason i like this style of trading is because all emotion is taken out of it. Doesn’t matter if I’m sick or tired, the computer is always on its game

  10. we agree and that is exactly what we are doing. but there is a ton of value from observing the market closely during the day as well.

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