Street Calls of the Week
“95% of aspiring traders fail”. You have probably heard this saying a thousand times, but unfortunately this is the reality that faces anyone with ambitions of becoming the next Paul Tudor Jones, Marty Schwartz or Stanley Druckenmiller. In case you are wondering, these three guys are some of the most respected traders of all time… the guys that have set the standard for the rest of us!
Whilst Jones, Schwartz and Druckenmiller may all have success as a common ground, their trading strategies couldn’t be further apart.
Paul Tudor Jones has made a career from looking for turns in the market. Not swings, turns – reversals. This man’s strategy was based on identifying Tops and Bottoms in market trends! Many new traders have been totally wiped out sitting on a losing trade with the belief the market is at a turning point, yet Mr Jones has become a legend in the market for doing just that. The saying “the trend is your friend” clearly doesn’t make sense to Paul Tudor Jones. Furthermore, he calls into question the importance of fundamentals… Yep, in his mind attempting to understand why the market is moving leads to missing his opportunity.
Then we have Stanley Druckenmiller. This guy’s trading approach was based on analysing the Fundamentals and identifying opportunities before the rest of the market. So, essentially he completely disagrees with Paul Tudor Jones’ opinion on the Fundamentals. Druckenmiller jumped in to macroeconomic driven trends, and has done so throughout his 30 year career. And guess what… he has NEVER finished a year down! That is some achievement.
Last but certainly not least we have Marty Schwartz. This legendary day trader began his career as an analyst looking at the fundamentals without making very much money at all. He finished his career consistently making 25% per month trading his day technical based trading system! No that is not a typo… Schwartz averaged 25% on a monthly basis implementing his rule based approach to trading intra-day!
Right, I have very briefly described how 3 of the best traders of all time made money from the markets, and I am sure you have noticed that each of them have a completely different strategy, based on completely different principles.
You see, these guys adopted trading approaches that suited their personalities and beliefs, something each of you should be thinking about if you want to make a success of trading. A few questions to get the ball rolling… Can you handle lots of little losses before finding that one trade that makes all your losses back and then some? Or would you find it easier to have a higher strike rate, but less profit? A higher risk reward will reduce your strike rate, but the profits on each trade will be substantially more. These are things you should consider when personalising the system to fit your profile.
Also, how much screen time can you put in? If you are able to trade 8am-11am then 1pm- 4pm getting stuck in to the 8 range chart will provide plenty of trading opportunities. However, if you have a full time job then using the 45 range or daily chart will be more suitable.
My brother and I are whole hearted believers in PRICE ACTION, along with trading in the direction of the trend, and more specifically entering on the pullbacks in moves. But this is as far as our common ground goes. Alex has a low tolerance for losses and therefore is happy to take profit when he feels the market is losing momentum. Not only does this reduce the number losing trades he takes, but also the size of profit on his winners. Me, I don’t mind a few extra losses if it means I can ride a profit for a higher reward, but that’s just me.
Additionally, key levels in the market often add momentum to rallies or declines so I have a tendency to enter trades on breaks of these levels in a bid to catch the injection of momentum from the execution of stops. However, Alex prefers to wait for a break and then pullback to confirm. Again, this brings Alex’s strike rate up, but he misses some of the big moves.
Last week we sent you an interview with one of our most successful members, and he told you all about his trading approach. I think it was clear to many of you that Kevin did not follow our system exactly as we have designed it, instead he took elements and lessons we taught him about price action and combined it with concepts he believes in. Needless to say he is now trading very successfully.
So I will conclude by emphasising the importance of thinking about our strategies and approach to trading and working out what sort of trader you are. The systems (FPF, Snapback, Liquidity Fader and TC Portfolio Manager) we trade are based on price action and trading in the direction of the trend. This is the core principle… and has helped us make money from the FX market for over 7 years now. For some, the exact way the system has been designed will suit you perfectly, for others minor tweaks might be needed i.e. which range suits you? Or considering how the risk/reward helps you with your emotions?
So, please think about things you struggle with when it comes to trading, then think about the aspects you are happy with. Write them down and see how you can adapt/tweak our approach to make it more suitable for you. If you to bounce some ideas about then please just email us, we’d really like to help if we can.