Figuring out this trading game


I have been involved in markets for actually rather a lot longer than what I realise. In some way or another, I have been trading for something like 10 years now. It’s almost scary to think how fast the time has gone. Nonetheless, 10 years down the line, I think I am finally starting to develop a real understanding of what speculative trading is all about, and most importantly, what makes some people seemingly effortlessly successful at it, while so many others struggle.

I have spoken about preparation and rules and patience and discipline in the past (while this blog was still on Just One Lap); and all of them are absolutely required as ingredients for the stew… but there is one more trait, or discipline of action, that separates those that win consistently from everyone else. Traders who consistently make money have found a way in which they can produce regular cash flows from the market in a relatively easy way. In other words, there is a setup that they know works, or a sequence of events that they have seen a thousand times before that they know will very likely work out in a certain way. These, let’s call them ‘safe plays’, are ways in which traders can make money without really having to take much risk. It sounds crazy, but think about it. If you know that when you see a certain pattern emerge that there is a 70% chance that it will work out in your favour with a 1:3 risk:reward (edge), then trading the setup is not really all that risky. Especially if you take every setup that comes your way. So this becomes your bread and butter. The ‘safe plays’ pays your bills. Of course, in order to take every ‘safe play’ that comes around, you need to be at your screen to take every setup. Which means that you you have a lot of waiting around time on your hands.

So while you wait for these setups to come around, you have a lot of time on your hands which you need to spend wisely. The traders that really make money, proper money, spend this time by reading and doing research. You need to inform yourself of, and prepare for things that the rest of the market is yet to even find out about or consider as a possibility. That way, when a catalyst comes that catches the majority of the market off guard, you are prepared with a game plan and an expectation of the potential outcome. This is when these few successful traders really make their money. When there are exceptional circumstances that nobody saw coming expect those that were dedicated enough to spend the time and effort looking for it before it was visible on the horizon. Eventually, and in reality this is at least once of twice a month, something extraordinary happens and those who are prepared for it and are at their screens waiting for it, are able to respond and take a trade that literally makes their entire month. The ‘safe plays’ pays your bills. The hours and hours and hours of research prepares you for the ‘monster trades’… and the monster trades make you rich.

So the goal is to spend the time taking the ‘safe trades’ so that you can pay yourself enough to justify your time spent at your screens doing research. Eventually, all that research will culminate in you recognising an opportunity that most others might be missing. Which of course means that every so often, you make a lot of money very quickly and everyone else thinks that you are some kind of magician, when in truth you’d spent months of reading and research to make a fortune in 5 minutes.

Worth noting though is that as time goes by, I will likely keep finding things that I think are the ‘one more’ thing that is needed to do be good at this trading game thing that we play. That I suppose is the nature of learning and growing.

Happy trading!

Petri Redelinghuys