A GRASP OF REALITY
“You can never achieve anything worthwhile in life by taking shortcuts and in the world of trading, it is absolutely no different.” – Sam Evans
Today we’re going to comment on the real past performances of a group of top traders. There are lessons we can learn from this. These would help us maintain a realistic outlook; remain calm, disciplined and objective while trading. The performances table is displayed below. Please go through it and I bet some thoughts will come to your mind. These are great results. For those who think deep, there are many lessons to be leaned from this table, though I’ll point to 5 lessons.
_ YEAR RETURN*
? 1996 ……………. 35%
? 1997……………… 74%
? 1998…………….. 80%
? 1999…………….. 211%
? 2000……………. 312%
? 2001……………. 125%
? 2002…………… 27%
? 2003…………… 8%
? 2004…………… 2%
? 2005……………. 29%
? 2006…………… 43%
? 2007…………… 92%
? 2008………….. 189%
? 2009………….. 48%
? 2010……………ytd = 27%
Rate Of Returns Are Never Guaranteed: Past performances aren’t a guarantee of future returns. Confidence is simply the feeling you have just before you understand the situation. I often shake my head when people ask me to specify the percentage amount I can gain in a month or year. If the markets were that easy! You may target only 2% profit in a month and the market could give you 20%. You may be running after 100% per year and it’s only a deficit you’ll come up with. Anyone who’s asking for a guarantee of an amount of returns on daily, monthly or yearly basis isn’t psychologically prepared to trade; such a person would be disappointed. Those who’re giving you guarantees are doing so in order to delude you. The really sad fact is that very often the person who’s deceived or deluded tends to hold on to his belief in spite of strong evidence proving otherwise. Perhaps he gets so emotionally attached to his belief that he simply shuts his eyes and closes his ears to any evidence that might challenge it.
Even Pros Can Have Losing Months: The table above shows that the group of traders hasn’t had a losing year since 1996, but there were years in which they gained only 2% and 8%. It means that there were several losing months in those years. This shows that even great traders can suffer losing months – then how much more novices! If wet wood can undergo something like this, how much more dry wood. But the most significant point is that they still came out with 2% in the year 2004. I don’t think they’d have survived those years if their losses were not limited by them. Safety first! Your survival is contingent on doing risk management. Not going broke is far more important than getting rich quickly. If I had $5 million worth of portfolio in that year, then my 2% income would be $100,000. Isn’t that a good annual income? Most of us don’t have enough money to trade, and that’s why we’re under pressure to double our accounts in order to have presentable profits. That’s suicide trading
Let’s Be Thankful For Small Mercies: Let’s think again about their performances in the years 2003 and 2004. It’s easy to think that these funds managers toiled and sweated for nothing by having so small percentages in those years (upon all the knowledge of technical analysis, fundamental analysis, intraday and swing trades, and everyday battle and challenges on the markets). What about the majority of traders who received margin calls or had significant drawdowns in those years? We don’t need to be in fantasy. Even if you don’t have good yearly ROI, you should be grateful that your trading capitals are intact. Real investment is all about going after small and consistent profits over a long period of time. Trying to maximize profits in trading is gambling. If a gambler buys a ticket; it’s simply a matter of winning the gamble or losing his stake. Is this what you prefer?
Every Dog Has His Day: The years 1999 and 2000 provided very encouraging results. Yes it happens like that. There are times when everything you touch will turn to gold. There are times when the markets conditions would be favorable to your system and the best thing to do during those times is to gain so many pips by letting your profits run.
There’s No Easy Money: Nothing good is easy to come by. Trading is hard work, hard personal work. All successful athletes practice always to keep in shape and remain at the top. You need to practice new ideas on demo or add more new ideas to present strategy while simulation trading in order to come out with better results. The strategy that worked well many years back may need some fine-tuning in order to survive today’s markets, albeit there are timeless trading principles. There’s a system that was backtested for over 14 years back with great results, plus it’s been used on the markets consistently successfully for the past 4 years. Yet there could’ve been some adaptation as well.
The funds managers have made a profit of 27% this year, so far so good. It could be less or more than this at the end of this year – you never can tell. Let me conclude with this quote.
‘Failure is part of the process of success. People who avoid failure also avoid success.” — Robert T. Kiyosaki
*Ronin Asset Management
Your questions and opinions are highly welcome.
With best regards,
Forex Signals Strategist, Funds Manager &Coach
NB: There is risk of loss in trading, but it is possible to be a successful trader.
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