If you have been wandering in trading for many years without results
I sincerely suggest you find a quiet place and patiently read this article.
Most people are eliminated by the market not because they suffered huge losses, but rather because they fail to perform consistently over the years and are thus eliminated by time. This may be even more brutal than being eliminated due to immediate losses; after all, youth is fleeting, and wasting too much time in trading can stifle countless life possibilities. Many enter with great enthusiasm, but exit nearly at the end of their rope. These harsh truths have always prompted me to reflect on one question: how can I grow more efficiently in trading to avoid the dull knife of time cutting into my flesh?
In our team, a tacit minimum standard for judging whether a trader can make a living from trading is whether they can afford to buy a house in Shanghai through trading. Several members of the team have met this standard, and some have far exceeded it, leading to higher aspirations. By comparing these relatively successful traders with those eliminated by the team or the market, and reflecting on myself, I have identified three elements that explain how to grow more efficiently in trading.
1. Preconditions for successful traders
2. What must be achieved subjectively
3. The external conditions to strive for
First, let's talk about the prerequisites: two simple yet not easy conditions to meet:
First, reserve sufficient time and funds that do not affect normal life. Trading is not achieved overnight; it will definitely go through repetitions, influenced by both personal and market factors. A short-term trader, with exceptional talent and market alignment, takes at least half a year to a year to grow, while a swing trader requires one to two years to accumulate experience and hone their temperament. If one is not sufficiently prepared in terms of time and mindset, rushing for success will only yield the opposite results. In trading, fast can mean slow, and slow can mean fast. Not rushing to make money, but focusing on understanding market patterns, building systems, and improving weaknesses can yield faster results. Many people believe that placing themselves in a desperate situation will lead to rebirth; this may work in other industries, but in trading, such desperation likely leads to a grave without a burial.
A calm mindset often arises from not being financially constrained. Money gives people courage; with financial support, one can act much more calmly. Trading requires a more composed and peaceful mindset. Conversely, if one is in a precarious situation and eager to turn things around, the results in trading will only worsen.
In this regard, either sufficient funds have been reserved for regular expenses, or there is a stable cash flow. I now consider myself an experienced trader, but I still have income outside of trading, which allows me not to rush to make money from trading, but rather to view the market more objectively and patiently wait for opportunities.
Secondly, a complete, well-defined, and advantageous trading system suitable for oneself must be established. The numerous qualifiers I added indicate that this is not a low threshold. A trading system is like an operation manual for a complex machine, guiding every step based on reason rather than whim. A well-developed trading system must at least include five aspects: directional judgment, entry techniques, profit and loss management, capital management, and emotional management.
Once the system framework is established, it must be solidified and not change frequently, especially the underlying logic; otherwise, it will become something unidentifiable and be devoured by the market piece by piece.
Every step in trading must be clearly defined; ambiguous elements will greatly reduce execution quality.
The system must also suit the trader themselves. Each person is a unique lock that requires a unique key to match. Since everyone's personality and risk preferences are different, even if the underlying logic of trading is similar, the levels of adaptation and methods of realization will vary. There is no absolute best, only better matches.
Lastly, the system must have a certain overall advantage in win rates and odds against the market, which requires the system to be built on some solid underlying logic—this, in turn, requires an improvement in cognitive levels.
What does the trader need to achieve subjectively to improve the efficiency of success?
Discipline and risk control are paramount. Discipline, in other words, means being able to strictly execute the trading plan and system; this is essential for improvement and evolution.
The premise of trading. Imagine doing things as you please, without consistency.
With so few samples, how can the advantages or vulnerabilities of the system be verified, and how can a belief in the system be established? Even if it is a wrong path, disciplined execution can help traders understand things more quickly. The most feared scenario is being undisciplined and randomly acting, being right some times and wrong others, living in a delusion, and ultimately ending up with nothing.
Risk control goes without saying; surviving is the prerequisite for becoming stronger. Another subjective measure to improve trading learning efficiency is to think more, ask more, speak more, and practice more. Just like in sports, the real skills are developed off the field.
Trading has a process that goes from not understanding anything, to being able to understand part of it afterward, then being able to see and grasp it during the process, and finally, being able to understand and execute it. The difference lies in the varying levels of proficiency after clarifying the market context. So how can proficiency be improved? There is no other path; practice more, review more, think more, and seek advice from more capable people. The most effort should be put into reviewing, especially reviewing both the best and worst market conditions, looking for underlying patterns and responses. Once familiarity reaches a certain level, everything will fall into place. A friend of mine who does macro analysis spent five to six years before becoming successful, repeatedly reviewing each crisis moment's performance and context of major assets. He could almost do it effortlessly and finally, in March 2020, when the global pandemic struck, he accurately captured the rotation of major assets, multiplying his assets by more than ten times within a year. This is a testament to the benefits of becoming adept through review.
To fundamentally improve execution, the most critical thing to enhance is cognitive ability. There are two basic methods for viewing things: one is inductive summarization, and the other is logical deduction. Inductive summarization is very common; simply using some structural patterns to determine opportunities is also a form of inductive summarization. However, this approach is difficult to achieve super strong execution. You will find some simple graphical patterns that may be continuously correct, but when the time and space change, they may be continuously incorrect. It is hard to trust it, and therefore hard to execute it.
The logical deduction method can better identify the underlying driving forces. In summary, it's from C to D, but logical deduction goes from A to B to C to D. When the logical driving chain from A to C is intact, there is a high probability that going from C to D will also be fine. However, if the transmission process from A to C is disrupted or even reversed, there is a high probability that C will not lead to D. Therefore, using a deeper cognitive logical deduction method to deeply explore the logical transmission chain and the mutual influence between different chains is essential.
You will understand when to capture D when C is present, and when to see it.
Reaching C can actually be a trap that needs to be avoided. Once recognized, it becomes difficult to waver in behavior.
Deep understanding can change behavior, while thinking more, asking more, speaking more, and practicing more can change cognitive levels.
The final point that one must achieve is: be daring to succeed and skilled at failing. This can be said to be a trait of successful traders. Being skilled at failure requires no explanation; it means effectively controlling risks when things go wrong. Being daring to succeed means maximizing profits when the market aligns, rather than settling for small gains. Good and bad markets are cyclical, with the bad often outweighing the good. If one earns little in a bountiful year, it becomes difficult to endure in a lean year. This is the threshold difference between ordinary traders and excellent ones.
The year of 2015, marked by the enormous volatility of stock index futures, was when our team took off. Many traders underwent transformation that year, one key reason being that a trader with a smaller capital grew their funds from 300,000 to nearly 900,000 in a single day. Other traders with larger capital realized that in a big market, funds could multiply several times in a day. Subsequently, they seized such opportunities. Even though our gains in commodities were minimal in 2016-2017, the large profits from 2015 allowed everyone to maintain a calm mindset, which directly contributed to our successful transition to swing trading later on.
Let's talk about the external conditions that need to be strived for, which consist of three aspects:
1. Matching risk control
2. An atmosphere of discussion and output
3. Profit benchmarks
I have never believed that one can completely overcome human weaknesses. Even an old hand like me can encounter risk events after a few months of complacency. Along the way, I've seen many cases where individuals were defeated by one or two risk events. More commonly, people work hard to accumulate some profits, only to lose everything in a moment of recklessness, then they regroup and repeat the cycle, retreating down the steps.
How to solve this problem? It requires matching risk control. This matching has two layers: first, understanding the strengths and weaknesses of the trader's system and knowing when to tighten and when to loosen; second, being able to manage the trader, especially those who have already achieved results. Filtering through these two conditions highlights the difficulty of finding matching risk control, akin to finding a suitable partner. Some have found appropriate risk control; I know of a small trading group of three, where one analyzes, one trades, and one controls risk, with clear division of labor and mutual checks, and they have developed quite well. Some find their own partners for risk control, and the results are also decent. The risk control within the team is naturally the most effective, as they understand trading and execute well, providing excellent support for traders. Some traders lose stability in their performance after leaving the team, which is somewhat related to risk control.
