I’ve always liked a bet. After school I would go to the bookmakers to place bets on the football. I used to place accumulators that give you the chance to win big sums.
When I was at University I got heavily into poker. Heads-up was my game. It was fast paced and I became quite good. This was when online poker was just taking off.
After University I didn’t know what to do. One day I saw an ad for a job as a futures trader. I applied and was invited for an interview. As soon as I walked onto the trading floor I knew it was for me.
Getting Into Trading
Getting a job in trading changed everything. Compared to poker, trading was a different league. The rewards (and risks) were 10 times greater.
In poker there are only so many cards in a pack and so many types of hands. But in trading anything can happen.
The thing I’ve always enjoyed about trading is the complexity. Trying to piece together the pieces of the puzzle. There is nothing like it.
Trial By Fire
The firm I started with was a bit of a bucket shop. They operated out of a small office on the outskirts of London. But I liked the people and I relished the opportunity.
Things started off well. I moved from the simulator into live trading and was making money. My boss told me how good I was and I started to think I was a natural.
It must have been beginner’s luck because the good period didn’t last. The markets started to become increasingly volatile. I didn’t know what I was doing and my equity began to trend downwards.
The next several months turned into a battle of wits. I got to the office before the sun came up and left after it had gone down. I tried everything I could think of. I read every book and every article. I became totally obsessed with trading.
After many months of fighting, my account balance dropped to near zero. It was a death by a thousand cuts. I had given everything I could give but I was unable to make it work.
There are lots of things I would change if I could go back and have my time again. But there’s no use going over it now.
When I quit the firm I was broke. I had to cancel my phone and move in with a friend. I was mentally and physically drained and sunk into a kind of depression. I was also not looking after myself and would drink and eat too much.
One day during this period I felt a sharp pain. I ignored it at first but it got worse. I went to the doctor who said it was nothing to worry about.
The infection got worse. A few days later I had a severe fever and ended up in the emergency room. I had had so little sleep that I was suffering from hallucinations.
Getting Back On My Feet
The operation went smoothly and the hospital staff were excellent. They told me the infection was serious but I’m not sure how bad it got.
I spent the next couple of weeks recovering in hospital. That was another low point but I eventually made a full recovery and began to enjoy life again.
Technically, trading didn’t put me in the hospital. But it was a major contributor and it was a good few months before I looked at another chart.
Once I did start thinking about the markets again, it still took me a number of years before I found a trading method I was happy with.
Why I’m Writing All This
The reason I’m writing all this is because we don’t always hear the dark side of trading.
We hear stories of people making millions but we don’t often hear about the small guys who lost everything. The sad reality is that people have taken their own lives due to trading losses.
But it doesn’t need to be this way.
Trading is an intense job that causes many highs and lows. From my experience, traders are intense people. They are fiercely competitive, stubborn and don’t like to lose.
I’ve learned that these qualities are not always positive attributes in trading. It’s these attributes that caused me to close-up and internalise my losses.
A better approach is to embrace failure and openness. You should be willing to open up and seek support. You should embrace failure because that is the only way you’ll learn.
Trading is a journey of self-improvement and you have to work at it every day. Ray Dalio provides some good insights in his book Principles.
How I Trade Today
Today I take a much more disciplined approach to trading. I’ve learned to code and I’ve built two quantitative strategies that I’ve backtested extensively.
These strategies have been tested across thousands of trades and give me the confidence I need to carry on executing.
Systematic trading means I rarely make a mistake. Having two strategies also gives me a level of diversification that I wouldn’t get trading only one system.
I’d be foolish to publish the exact rules in public but I have published many similar strategies on Marwood Research.
When it comes to investing, I use a dollar cost averaging approach that I also explain here. Every month I put aside some cash and put it into one or two quality stocks. This approach provides two key benefits;
- You eliminate market timing risk. You simply keep investing regularly which leads to the long-term compounding of returns.
- You can pick individual stocks that you feel are more likely to outperform. You don’t just sink all your money into the S&P 500 index whatever the price. (As you can tell, I’m not a huge fan of index investing).
This approach may not be for everyone but it works well for me. I only wish I’d started sooner. If I had started investing earlier I’d be ten times wealthier than I am now.
Peter Titus & Matt Radtke
Two other instructors on our program are Peter Titus and Matt Radtke and they both have their own trading styles and stories.
Peter started out picking individual stocks but found that his best returns came from index options. He now uses a strategy designed to make 30% annual returns and has built his own market timing model,
Matt Radtke has vast experience in the markets and is one of the most skilled Amibroker programmers in the world. He trades individual stocks, ETFs and options across a combination of different systems.
Lessons I’ve Learned
Winding up in hospital and going through this journey has taught me some things about trading and life.
I tend to think that life is not so much about growth but about development. It’s about learning and improving yourself every day. Here are the key points I’d like to make:
- Always maintain a work/life balance. Focussing too much on work leads to unhealthy habits which can ultimately blow up in your face. Some people are not cut out for trading and that’s OK too.
- Always look after yourself first. Family and work will always be priorities. But you can’t take care of others if you don’t take care of yourself. Remember to eat well, exercise and get enough sleep.
- Never internalise failure. Failure should be seen as a positive thing because it proves you are trying. Competitive people beat themselves up when things go wrong but this makes matters worse. Go easy on yourself when things go wrong. The worst thing you can do is to not try.
- Seek out others. Trading can be an isolating endeavour but it doesn’t have to be. Don’t be scared to share your losses with others and to ask for help. Every trader has painful experiences of trading losses and keeping them inside does more harm than good. At the beginning, you should expect to lose and you should realise that confidence takes years to develop.
- Keep an open mind. As I’ve progressed I’ve realised that many things I held true in the past are simply not true. For example, I used to think trading systems didn’t work very well. But now I’ve learned they’re invaluable. So keep an open mind about the things you believe in. You may find that your abilities are suited to different things.
- Never trade with money you can’t afford to lose. Last year, an oil trader started the day with $77,000 and ended up $9 million in the hole. Always be very careful with margin trading and don’t bet more than you can afford to lose. People have done terrible things to themselves after losing a bunch of money and it’s not worth it.
- Don’t put extra pressure on yourself. When I started trading I had no savings and no other source of income. This was a massive burden that made trading ten times harder and I wish I had done it differently. Trading is so tough you need to make sure you don’t have any other external pressures on you.
- Learn about survivorship-bias. It may be 2021 but many people still don’t understand the concept of survivorship-bias. They see winning traders on social media and assume that they have a gift for investing. But they forget that for every successful trader online there are thousands of unsuccessful ones. You simply never hear of the losing traders. Once you understand this, you can stop comparing yourself to others and focus only on self-improvement.
Sometimes I think I’d like to go back to the trading floor. There’s something about being in a room with other traders. Everyone is in the same boat trying to outsmart the market. When money is being made the atmostphere is electric.
But markets are very different now. Algos have taken over to some extent and certain trading strategies are no longer profitable. Most of the old prop firms have shut down.
But don’t give up on your dreams. Some strategies have stopped working but new ones have taken their place. There will always be opportunities in the markets if you keep your eyes open. I’ve always liked a bet and I won’t be stopping any time soon.