In this episode of Truth About FX, Walter talks about the 3 things he wished he knew — and so should you! — before he started trading. Is it helpful to ask from other traders the answers to your questions? Walter also talks about the importance of forming the right beliefs and setting your own limitations. He also shares an interesting story about a guy named Steven Bradbury and how this can inspire you in your trading journey.
Download (Duration: 10:30 / 25.2 MB)
In This Episode:
00:53 – guaranteed drawdown
02:05 – stubbornness or determination
04:19 – psychological cage
06:15 – speed skating
08:30 – race as fast as you can
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. What are the three things you wish you knew when you first started trading?
Walter: Probably would be number one would be that trading a system, it sets you up on a path that is based on the characteristics of that system and the way that you apply risk to that system, that sets up your equity curve.
Another way of saying that is depending on how you use risk with your trading strategy, you are guaranteed to have certain types of drawdown. I wish that someone should have told me that you are guaranteed that. That really you can change the whole look and feel of your equity curve by the way that you manipulate risk. I wish someone would’ve told me that. I really do.
Number two is I wish someone would’ve told me that your trading system that you choose is not nearly as important as how you deal with the hard times as a trader, the difficult times.
The other way of saying that is the best traders are resilient traders. Resiliency is, I believe, is the key psychological component to trading. And if you read the interviews of the Market Wizards you’re going to see this over and over again.
They had this determination that no matter what happened, they’re going to make it work. A lot of people don’t do that. They try trading like you know, “The trading thing didn’t work out so I’m gonna go flip houses” or whatever. There’s a lot of that kind of stuff going on. They’re not really set on making the trading thing work.
There’s two pieces to that. There’s the resilience part and then there’s stubbornness or determination. Determination will not get you there as a trader. It is resiliency that you need. You need that other part if you can’t bounce back because the biggest deal in trading is what you do after you run into a losing streak. That’s what works.
Probably the last thing that I wish someone told me is that you really shouldn’t listen to other traders. I know as a person sitting here on this little podcast softbox, I’m someone telling you this is a no. But really, you really shouldn’t.
Here’s the thing. I can go into a forum right now on the internet, get an account, log in to a forum and I could post my trading strategy and I could tell people, I could just ask, “What do you think about this? Am I doing the right thing?”
You know what I am going to hear? I’m going to hear the entire rage. I’m going to hear people that are going to say, “Wow! That looks amazing.” And I’m going to hear people say, “You’re an idiot and it’ll never work.”
You know what? They’re all right because the guy who said this is amazing, he can take that strategy and he can probably make money out of it. And the guy that says, “This is total crap. You’ll never make money trading this”, he will never make money trading it.
There’s a quote. I think Ed Sekoyta said something about this in the Market Wizards. It’s a famous quote and other people have said it, “Whether you believe you can or you can’t, you are right.” That is basically true in trading. It really is.
There are people that will tell you it’s impossible to make 1% a week trading. There are other people that are doing much better than that, every week trading. That’s it. Trying to set your expectations based on what somebody else tells you, it’s not good and that’s sad because we’re actually brainwashed from a young age to do that.
We’re brainwashed, parents tell their kids, you can’t do this and teachers tell the kids, no you can’t do that. Everything that we do from birth is basically setting us up in this psychological cage and we’re not allowed to get out of that.
When you ask other traders, “What do you think about this?”, just know that what they tell you, the answer they tell you, that only applies to them. That does not apply to you. You decide.
That’s another thing I want to say. Your limitations are yours and you own them and you determine them. Anybody else, you can have the best trading systems for you that you can trade for 30, 40 or 50 years and you can make tons of money trading that system. For other people, you can give it to them in a silver platter and they won’t make a dime.
That is an important concept because it is not the system. We think when we first start, it’s finding the system. It’s not the system. It is more about the risk. How that system interacts with you like does it makes sense to you and then your mindset. What you believe about it.
If you are trading a system that you think is not going to make more than 3% a year, guess what? That’s your ceiling. 3% a year is your ceiling. So that is another thing I wish someone had told me that, I really shouldn’t be listening to other traders.
I should come up with my goals. What’s possible is up to me and it’s not what somebody has told because that happens all the time. I’ll show traders things and they’ll go, “That’s a crap”. Fine, that’s crap for you. You know what I mean?
And obviously that applies in life. That sort of thing but there’s tons of stories. You could read all these stories, motivational stories about the people who were told they couldn’t do it but they did do it and all that sort of thing.
There’s actually a really cool story here in Australia. There’s a guy named Steven Bradbury. Do you know who he is Hugh?
Hugh: No. I haven’t heard of him.
Walter: Well, he was in the Olympics. I think it was the winter Olympics in Salt Lake City, Utah. The winter Olympics. It’s a speed skating where they go around that little circle really fast and I don’t know if you guys remember. Some of you might remember back in the day, there was this guy named Apollo Ohno. He was the US guy and he was like, “Yeah, he was our big hulk. He was going to win the gold.” He was the favorite sort of thing.
I think some of the Koreans are really good at that thing too. Anyway, so they had this finals. It was down to the finals and there were like five people in the finals. For whatever reason, this Steven Bradbury dude from Australia had somehow slipped into the final like he had a lucky draw or whatever. He made it in.
Everyone knew that this guy was not going to win. Here is what’s interesting about it. He’s actually in the race and they’re doing these laps around the little circle with their long skates and all speeding and they pull away from Steven Bradbury.
He was totally like a half a lap behind them or whatever. He’s in last and the other four were fighting it out for first. You could YouTube this by the way. It’s kind of like in the last turn basically everyone falls.
They all clumped into a group and all falling. They all slide and hit the wall and so you can see Steven Bradbury, he’s just going. He hasn’t care. He’s the slowest dude. He knows it. He has no chance to get to the podium but they all fall. He’s still going as he was on the whole race and he wins gold because everyone else fell basically.
He was like a motivational speaker now in Australia. He’s like, “Keep doing it. Keep going.” That is what’s so cool about trading. Everyone can sit here and go, “You might have dyslexia” or whatever. You never went to a University or whatever.
Trading is such a great meritocracy that anyone who can lock into what is right can make it work. This dude, Steven Bradbury wins gold why? Because he kept doing it. If you would have been unable to place odds on that race, I’m sure you probably would somewhere, his odds would have been a hundred to one easy because everyone know that Steve Bradbury was not a fast skater but he won gold.
If you watch the video, you can actually see some of the guys are kind of crawling to the line, trying to stick to their skate across the line and stuff like that, it’s really funny.
Hugh: It’s hilarious.
Walter: Yeah, it’s hilarious. It’s great to have that example of somebody who you know, he wins the race knowing what everyone thought about it but he still stuck to his plan which is, “I’m just going to race as fast as I can and maybe some people will fall because it happens a lot in those sort of races, people get bumped or whatever”.
Anyway, that’s something that I think is really important. The third point is do not let anyone tell you what you should do because what they are telling you is what they are going to do. It has nothing to do with you. You set your own limitations. You set what is possible for you. It’s really an important lesson.
Hugh: Yeah, for sure. I think I was in in a meet-up and this guy, he asked, “How much can you make in forex trading?” People said different things, 10%, 5% a month and then he said, “No, you can only make 2% a month maximum.” You could hear the collective sigh like, “Oh, is that it?”
Hugh: I think that was a little bit deceivious because like you say, that is how much he was making a month with that system but not necessarily what other people can make. It’s a great point.
Walter: Yeah, of course. What he did is he took his belief, his limitations, and he placed it on the crowd and some of those people in the crowd would have said, “He’s right. He is the teacher.” Other people like you have said, “That’s a bull. That’s a bunch of bullocks” or whatever. It’s a great point.
We see that in life. Like, in every corner of life you’ll see that where people play certain limitations on others. And the others will either just sigh, “Yup, I’ll take that limitation so that is my limitation now.” Or, they’ll say, “No. I don’t want that.” It’s totally up to you. Good point. Thanks, Hugh.
Hugh: Many thanks, Walter.
Walter: See you next time.