Thoughts on Trading

Is trading worth doing for living? Once in a while I am asked this question and, to me, going through this mental exercise makes sense. A lot of sense. So let me share my thoughts.

First of all a disclaimer – I am not trading for living. It makes little sense in my case – I came relatively late to trading, when I was well into my career as a software developer. But I have been trading consistently for the past few years, so I have a good idea what’s involved.

The Good

I think there is a lot to learn in this field. On the technological side, it involves constant learning and improving one’s hardware, software and skillset. It’s good to stay on top of what’s new, and take advantage of the latest useful technologies. One naturally learns how to write “solid code”, it’s natural, because mistakes often have real life consequences – losing money. That’s a valuable experience for any software developer.

Trading also has profound positive impact on people as humans. If one survives long enough in this field, he becomes rooted in reality. Decisions are often driven by rational thinking rather than the emotional roller-coaster to which we have become accustomed to. As time goes on, one slowly starts to realize that long-term success is created by virtues like persistency, level-headedness and rationality, rather than because one is unique or exceptional. At the end most of us are just about the average. A tough thought, I know, but that’ where the “healing” begins.

Last but not least, one can not succeed without becoming good at managing money. This virtue is totally lost in today’s society. Just think about all recent bailouts and abuses everywhere around the globe. Manage money (your own or someone else’s) for a while, and you will not need a bailout, not because you will become rich, but simply because you will learn about money management and risk. There will be moments when you feel jealous and screwed seeing the next door Joe Smart raking profits while flipping houses to other Joe Squares, and the following governmental bailout, but trust me, at the end, no money is enough to pay for a good nights sleep and that’s certainly not achieved by diving into astronomical mortgage regardless of one’s risk tolerance.

The Bad

Markets are tough, unforgiving and realistic. That’s how they teach you all the good things from the previous section (and many will claim that even these are not worthy). But there is a danger. Push too hard, and you are risking to break. We all have heard the stories about traders abuse of substances, and worse. From my own experience, they are not jokes. There are periods, where I am loosing money on weekly basis, a week after week. That’s completely normal considering pretty much any system performance, however, it’s not an easy experience to go through. That’s precisely where psychology enters the picture.

Stability is another big factor. Trading is like running your own business – there is no paycheck to draw on regular basis, and you gotta learn to live with uncertainty. When things goes well, there is plenty, but when the tough times come in, well, you gotta be prepared.

Last but not least, it’s not easy to enter. For most of us, it’s a chicken and egg problem – the problem with capital. One needs a good pile of money to be able to live off it with less risk, but most of us don’t have that good pile of money, so more risk needs to be involved.

That’s all I can think of right now. The rest is up to you. Good luck.

Comments

  1. David says:

    So you are ML versed and have a few years of market experience, but still do not trade for a living? What hope does that give retail traders? 0? What hope does that give basic quants that maybe are just testing simpler signals (not ML)? Less than 10% success rate? I don’t think enough of this is talked about.

    1. quintuitive says:

      Agree, it seems that the topic requires further discussion, especially from this not-so-attractive light.

      From my experience ML in the case of trading is over-rated. Pretty much all successful strategies which I have seen reliably working in my back-tests have little to do with ML. My personal feeling is that this will change as ML becomes commoditized, but that means it will become available to all.

      At the end, it’s a personal decision. From my point of view – there is a lot going for it. Especially early in ones carrier. So that one can restart a few times, a common even with poker players for instance.

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