After losing $70k trading new highs (Investor Business Daily style) with 7% stops, I learned my first lesson.  If you have 7% stops, how many times in a row can you be wrong and still be able to trade (financially and/or psychologically)??  The answer is 17 times to get to below $30k.  It seems like a lot, but unfortunately, I was using full leverage on the advice of my greedy broker, so that reduces to 8 consecutive losing trades to get to $30k.

What would it take to recover back to $100k from the $30k level?  333%!  How often does one make 333% on 100% of their portfolio?  Not very often ;-)

Lesson:  Leverage and large stops are killers.

Moral:  The tortoise beats the hare.

Now of course, I did not learn this lesson all at that time because, as I have indicated, I am about the most persistent and stubborn guy you could possibly meet. So it took me a decade.  That didn’t keep me from making good on my losses though.  In fact, I made that loss many many times over.  Another thing that makes it tough to learn.  So there is another lesson.

Lesson:  You cannot correct your behavior as a trader unless you agree you are doing something wrong.

It is impossible to distinguish between luck and skill in most cases.

So, if I can impart any wisdom to you at all that will keep you in the game, the above would be it!

Because, you cannot win, if you are not in the game! Here, I will say it again.  You cannot win if you are not in the game.

Having said that, here is another tidbit of crazy inside knowledge.  Since you cannot distinguish between luck and skill a good portion of the time, the real truth of the matter is you are not responsible for your winning at all.  The market is.  Here, I will prove it (cause I know you are probably shaking your head right now).  Go try to extract a bunch of gains out of the market right now.  So you will say well….. this and well…. that.  Fact is, depending on your method, the market will deliver the conditions you need to make a bunch at the exact time it does it.  Not before, not after.  And, you will have to be there at that exact time in order to benefit.

I said before, you have to manage your risk and then, at some point (and here is the blaspemous statement that will make most traders cringe), a good accident happens.  Accident you say??  Yes.  I use that word, because it is the only one that is strong enough to remind me there is nothing personal about trading. It is all management of risk.  It is a disipline.

How does all this impact your personality as a trader?  You have to bring yourself in line with some sense of truth.  We all like to think we are exempt from the physical forces of the universe.  We like to watch Hollywood movies that confirm our invincibility may be real.  But, nothing shows you quicker that you are wrong than trading.  It is instantaneous feedback.  So, try to be humble and the way will open your way to success.

Past my initial starting days (of losing) as a trader I shared earlier, I began to study the market and develop computer models using my background in statistics and experimental design.  In Part III, I will try to cover a bit about how I became a systems developer.