[This is an old post from 2015 that I’ve recycled and updated. It was originally written in its entirety on my iPhone while I was at the airport waiting for my flight. ]
For many, the key to achieving consistent profitability in the markets has to do with hard work, persistence, vision, focus, confidence, courage… but I’m here to tell that these are all by-products of something else — something much more powerful that we can all develop.
It is this very special something that is essential for building any new skill. In fact, it is a critical factor in trading success and in any other performance-based field.
To better unpack my thoughts on this, let me tell you a little anecdote.
I love Germany. I love the people there, the history, the food, the beers… I’ve traveled there countless times, sometimes for lengthy periods, and each and every time I’ve enjoyed myself thoroughly.
I also love the language. For reasons that escape me, German sounds incredibly pleasant to my ears. But still to this day, I never really learned it.
The reason, now, seems more and more obvious. Being the introvert that I am, I’m usually in my little bubble. I don’t necessarily go towards people and engage in conversations. It’s not that I am antisocial, I’m just reserved.
With enough perspective, I now understand how this personality trait of mine has been detrimental to my learning of the language. It has impinged on my capacity to involve myself, create connections and, by the same token, learn new things.
In other words, the lack of practice made it impossible for me to learn German!
The importance of practice
Real learning happens when we are fully engaged in something!
For instance, even though I’ve traveled many times to Germany, it was never enough to learn the language.
It was never enough to hear German on TV, on the radio, all around me –on the train, in restaurants, and other public places.
While I got used to some words here and there, I never developed an ability to speak the language because I lacked involvement.
I wasn’t engaging with the information coming my way. I wasn’t practicing!
Involvement and practice (as a whole) is the driving force behind success.
In some sense, involvement and practice (as a whole) is the driving force behind success. It is that which makes us learn what works and what doesn’t, build skills, develop mastery, and gives us results.
And the principle is the same for any given skill, in any given field – including trading.
You see, it can be easy to assume that the gap between where you are now as a trader, and where you want to be in the future, is caused by a lack of knowledge.
The presupposition is that if we knew about a better strategy or a better risk management technique, then we would get better results.
We believe that good results require new knowledge. But this is only true to a certain extent!
What I’ve realized is that new knowledge does not necessarily drive good results. It can but it doesn’t have to. In fact, constantly educating yourself about the ins and outs of financial markets; buying courses, reading books, all these things don’t make you a better trader. All they do is increase your knowledge.
Knowledge doesn’t necessarily equate to results, just like knowing how to drive a car in theory doesn’t equate driving it in practice. Again, involvement and practice allow you to build the skills, which in turn give you results!
Too much theory can actually be a grotesque misuse of your time.
You have to understand this: A good trader is not necessarily a financial expert. A good trader is someone who is proficient at placing and managing trades – which can (but doesn’t have to) entail in-depth knowledge of financial markets and the economy.
So reading books and learning grandiose theories might eventually make you an expert on anything trading/investing-related. But understand, this doesn’t say anything about your ability to A C T U A L L Y trade.
To learn how to do trading, you have to practice trading!
If you just collect trading books and hang out in online trading groups and forums discussing theories, without putting your knowledge into practice in live trading, you’re doing yourself a great disservice. Trust me, I have to fight this urge all the time.
If your goal is to really better yourself as a trader, and not simply gain additional knowledge, too much theory can actually be a grotesque misuse of your time. You’ve got to get involved and practice!
How to practice anything effectively
Here’s a short Ted-Ed video on the science of practice, and how to do it effectively.
Now here’s my take on how to practice trading effectively and develop mastery…
How to practice trading effectively
1. Find or create a trading system that makes sense to you as well as mathematically.
When you find a system that works and that makes sense to you, you can work on mastering that system. Practice creates trust in that system (experientially, not just superficially). Practice also helps you develop confidence in yourself and in your capacity to actually trade the system as it is.
2. Put enough money in your trading account so as to give yourself a fair chance.
Putting enough money in your trading account allows you to trade small enough so that you can create a certain number of trade occurrences, test your system in real time, work on building skills, all the while not being too bothered by commissions, slippage, etc. This is something you can’t really do with a small account.
3. Take every signal that your system identifies –or as many as you can.
When you get a signal, try not to weigh, judge, or even think for that matter… just execute!
When you trade a proven system, every signal you get is worth taking. And so, involvement and practice will allow you to learn faster than the masses who think they should be waiting for the perfect trade.
That trade might ultimately come but without the appropriate skills to place and manage that trade, it’s a futile endeavor.
You see, any amateur surfer out there can wait for that perfect wave, but only the pro knows how to ride it. In the meantime, while the masses are waiting for their perfect trade, you are building your capacity, trade after trade, to act in your best interest.
You are building skills and you are learning how to be a trader — a real one, not a wannabe.
The only thing is that you have to try to bring some structure to the way you approach trading. Yes every signal you get is worth taking when you trade a proven system. Yes taking those signals allows you to learn. But still, that doesn’t mean you have to stay glued to your screen.
For instance, I don’t trade for more than 2 hours per day (usually in the morning). That includes placing and managing my trades. If I get a signal outside of that window, I don’t take it. Simple as that.
I don’t want to spend all my time doing just trading because unlike other endeavors out there, proper trading also rests upon cultivating a mental edge – something too many traders ignore (to their own detriment). I talk about that at large on this website.
You cultivate that mental edge by resting a lot, limiting your screen time, meditating, exercising, eating healthy, etc.
4. Make sure to keep your risk per trade small.
This is a prerequisite for effective practice in trading –you have to trade small enough so that you can stay in the game and learn.
I promise you, you’ll have all your time to increase your size later when you’re a competent trader. But you have to start small.
At first, there’s nothing wrong with trading meaningless sizes (earning just enough to pay for commissions). It’ll greatly reduce the emotional involvement, while letting you bravely overcome one small fear at a time. Then this will give you the courage to take on the next.
You’ll also learn to refine your execution skills.
As you get better, you can increase your size slowly. But don’t jump the gun. It’s a big mistake to think that you’re going to make money right away as you start trading. No, it takes time. You need to build skills first. When you have that, then the money comes as a by-product.
5. Record everything in your journal and learn from the mistakes you will undoubtedly make.
A journal can be a powerful tool for learning & improving. Just make sure you actually use to reflect and record pertinent information that’ll allow you to grow.
Practice is the solution and the cure to our predicaments as traders. It shapes mastery insofar as we allow ourselves to fall, to fail, and to learn.
In other words, there is a strong connection between practice, expertise, and success, and that connection is more direct than most people suppose.
By getting involved and by practicing, step by step, action by action, you’ll dismantle the obstacles in front of you. And with persistence and flexibility, slowly your actions will become more in line with your goals. That’s the essence of mastery.