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Jan 24

Trading Hurdles

You’ve heard it said before that “Trading is not a sprint, it’s a marathon”. Since it seems to be the done thing to compare trading to a running race, I’m going to jump on the bandwagon. And mess it up a little.

While trading certainly isn’t a sprint, it’s not really a marathon either. Marathons are long – for most people trading is rather short if the numbers are to be believed.

Trading is really more like stunt car racing if you ask me, but that doesn’t work for the analogy so I’ll have to go with hurdles.

A lot – most – traders start off believing their trading adventure is like a 100m sprint, only to find out 5 metres in that there are massive road-blocks that they had no idea existed.

And just when you think you’ve cleared one major hurdle, another one is right there in front of you.

To be honest, that’s part of what I love about trading. There is always a new challenge, something to over come, and something to grow you in some way.

The thing that most people aren’t ready for is the fact that growing hurts. It hurts your bank balance, it hurts your emotions and it can hurt you mentally, too.

So if you’ve started trading in the hope it’s going to be fast, heart-pumping action with thousands of people cheering for you as you haul in the gold, you might want to hold up a little.

An Index of Trading Hurdles

Hurdle – Your First Big Loss.

The first hurdle is a stealth hurdle. No-one ever sees it coming because the trader thinks he’s running a sprint, and since it’s completely invisible they can’t help but run into it at full tilt. Invariably, the traders are left shocked, gasping for breath and quite often shaking and sobbing on the track. Although it’s possible that was just me.

After this nasty encounter most traders start to realise that they are not running the race they signed up for, and will probably quit.

Hurdle – The Next 10 Losses

The traders who don’t quit here tend to proceed a bit more carefully. They’re aware that the race is booby-trapped and are on the lookout for the unexpected. The problem is, often they don’t realise just how badly hurt they are. Because they smacked right into Hurdle 1, every subsequent step they take puts pressure on the wounds and knocks against the bruises. At times, the old wounds can totally re-open and once again the trader can find themselves in a whole world of hurt. (More sobbing, more shaking, and add some nausea for good luck.)

Hurdle – Learning How To Trade

After the initial hurdles are smashed through (rather than leaped over) the trader starts to realise that they have no idea what they’re doing and need to learn some stuff. For most traders, this is when they sit on the sidelines for a bit. Books get read, blogs get followed and real trading knowledge starts to osmosis its way into the trader. This stretch of the race isn’t particularly taxing but it’s loooong.

Hurdle – Finding Out That Knowing How is Different than Actually Doing.

This is hurdle is a nasty one that tends to catch you right on the shinbone. Now that traders know about risking no more than 2% and all the other trading wisdom you read about everywhere, naturally they expect to win.

But they don’t, and it’s a shock.

What’s happening is that they are losing less quickly but still not really getting anywhere. They understand that they have to jump to clear the hurdles, but lack any kind of technique so mostly are still knocking them down.

Hurdle – Working Out a Method

The thing about refining technique is that there is no real short cut. You can try to trim off some of the time by learning someone elses profitable system, but when push comes to shove most times you need something of your own or you’ll struggle to trade it because of internal conflict.

For example, I learned a brilliant long-term system of trading that made sense and was profitable – except I love short-term trading and it’s all I’ve ever really wanted to do. Longer timeframes drive me nuts with impatience so there is no way in heck I can spend my career looking at my charts once a week. I would bite my fingers off trying not to fiddle with the system.

The problem with designing your own systems is that just when you think you’ve got it – thwack! There’s a hurdle with the drawdown. And another, with the position sizing. And, oh look! Another hurdle, because you’ve become addicted to whisky and Tim Tams.

Hurdle – Trading Your Method

Finally, you have a profitable, tested method or system to guide your trading. You’ve been practicing on the sidelines, paper trading and back-testing, and you’re ready to go live with your precious little money machine.

Right now is when all the hurdles you’ve previously knocked down or just barely passed decide to gang up on you, just so you don’t get complacent. But this time, the hurdles aren’t external anymore, stemming from a lack of knowledge. Now, they’re internal.

They’re YOU. And you have to fix it.

Hurdle – Trusting Your Method

This is where the hurdles are becoming a bit easier to navigate. There are still a lot of them, but when you can see improvement in both your bank balance and your actual trading it’s the first real moment of encouragement you get. Your dedication to training (and trading) is starting to show, and you have the first glimmer of proof that it has all been worthwhile. Phew.

But – this hurdle is a big one. You know you have to trust your system, follow the rules and the profits will come. But how do you do that, when it’s new? When you haven’t got the runs on the board yet?

When you are just starting with a new method, you are constantly doubting yourself. During a run of losses, you wonder if the market has changed and you’re doomed to lose forever. When you’re winning, you wonder – just a little bit – if you’ve actually just been lucky.

This hurdle is the hardest because you just have to do it. You have to bite the bullet, trade your method and just suck it all up so your method has a hope of showing you it can achieve the results you think it can. The key here is just putting one foot ahead of the other, until all of a sudden you’ve been trading your method for a year and can see real, physical results in your bank account. Suddenly, you have no reason to doubt your method anymore.

Hurdle – Dealing With Profits

This is a lovely, gem-encrusted, $GLD plated hurdle. They get prettier as you go along, it seems :)

But dealing with large profits is a real hurdle, despite it’s gleaming good looks. Big wins are known to cause sloppy trading because arrogance and ego tend to take over, and suddenly what was a huge profit has dwindled to a pittance.

Ego is not the only factor here, either – sometimes having a large (or even a not-so-large) amount of wealth rubs the wrong way with our psyche. I have a friend/acquaintance who could never seem to grow his account higher than $20k. As soon as he reached that point, he’s start losing. I know, it’s weird. He ended up taking away half his account to trick himself into believing he only had $10k, and sure enough he had no trouble building his account right back up again.

(He has since gotten over this and is earning well over that amount.)

The point is, that sometimes dealing with profits can be just a troubling as dealing with losses, and keeping our hard-earned wins is just as much a hurdle on the road to success as is our very first face-ripping loss.

The market has new and unusual ways of keeping you on your toes, no matter how successful you are. Don’t get too comfortable because you can be sure the next hurdle is just around the corner.
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