A New Trading Insight?

Recently, three students, Joe, Jody, and Martin contributed to what may be an important insight into this vexing question:

Why do so many newbies fail to make the grade?

We know the stats, right? Over 90% of newbies are unsuccessful; also, it’s said, that over 60% lose all their money within 3 to 9 months. I have always wondered why the stats are so dismal. This new insight may well provide new grounds for research.

To understand  where I am going with this, you need to know that I believe this is the formula for trading success:
in the
Mind X Money X Method

Until recently, I believed that ‘Method’ had to suit the personality of the trader. Generally, you are either suited to mechanical systems or two discretionary rule-based ones. A few are suited to hybrid models.

With this view, a couple of problems arose for traders, especially newbies:

• The better discretionary rule-based systems are based on some theory of market structure, e. g., The Elliott Wave, Wyckoff, etc. The trading plan is meant to be all-encompassing. It covers accumulations, breakouts, retests, trends, distributions, breakouts, etc.

The problem the newbie faces is the complexity of choices. Think of a massive Rubik cube with myriad faces: the experienced trader intuitively knows what tools to apply while the inexperienced is left bewildered.

• All mechanical systems have this flaw: at some point, the assumptions on which they are based stop functioning. The experienced trader understands this fault and can tell when he has to stop trading the system. The inexperienced trader lacks this judgement.

  What Joe, Jody and Martin taught me was that a better method would be a hybrid where:

1. The discretionary section is used as a filter to weed out low probability trades. And,
2. It is also used to reduce the complexity.

In this Method, the newbie trader would have the benefits of both types of systems.

The drawback of the hybrid is the trader misses a number of large, profitable trades. Despite this negative, when comparing the hybrid with the older models, the former is to be preferred. It has a number of advantages; the most important of which is it gives the newbie time to learn his craft. Certainly, that has been the experience of the first two beta test groups.

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