TECHNIQUES

Traders both green and experienced have numerous

questions about trading success: How is it defined? How
do you measure it? When can you expect it? Here are
some answers.

10 ways to measure
trading success
BY JIM WYCKOFF

• What is trading progress?

A
t some point in nearly every-
one's trading timeline, they
wonder how their trading suc-
cesses (or failures) compare
with those of other traders. Wondering
just how well you stack up to others in
the industry is a natural curiasity and a
human psychological tendency.
However, actually knowing rhe winning
and losing tendencies of others doesn't
do a lot to move you further down the
road to where you want to he regarding
trading success. Most traders also won-
der about the success rates of the "pro-
fessional" traders, the ones who make
their living solely hy the profits they
generate from trading. 1 will provide you
with an answer to this question at the
end of this feature.
There are 10 questions all traders musr
ask themselves, the answers t>f which can
help measure trading progress and success
(see "Measuring success," right).
These questions should help you deter-
mine where you stand in this challenging
field, st> lets take them one at a time.
• What is trading success? This is a
hasic, hut difficult, question. Most
would agree that ultimate trading suc-
cess is defined as being profitable, Beginning traders should not exjwct to
making more money than you lose. have immediate and ultimate success
There are other secondary factors that trading futures, SUKICS or forex markets.
also define success in trading, such as What they can expect in the early going
finding a balance between trading and i.s to make steady progress through gain-
other life activities. But it's being ing knowledge and experience. Even
profitable at trading that is the hench- veteran successful traders continue to
mark of defining success. make trading progress. Achieving and
IG SUCCES
10 hard questions to ask when evaluating your trading.
1. What is trading success?
2. What is trading progress?
3. At what point should I expect to make money?
4. How long will it take to go from neophyte to guru?
5. When (if at all) should i throw in the towel?
6. Am I still hungry for trading knowledge?
7. How many losing trades should 1 absorh before I change my
plan of action?
8. How can I keep myself motivated?
9. How much should i listen to other traders?
10. What is the average success rate of the professional trader?

40 FUTURES I June 2005

 TRADERS who TRULY enjoy the PROGRESS and process
of trading have a SIGNIFICANT edge
maintaining trading success requires
continual ;idvancement, namely, con-
tinuing to seek out trading and market
knowledge. Traders who truly enjoy the
"progress" and prtxiess of trading have a
signifiamt edge over those who do not
enjoy learning and gaining experience.
• At what point in my trading time-
line should I expect trading "success"?
Trading success (winning trades) can
come right away — even for the begin-
ning traders. What is less likely for the
inexperienced trader is sustained trading
success. Eieginners can even run into a
"hot streak" that skews the overall reali-
ty of trading. Immediate, and likely
fleeting, success for a heginning futures
trader can do lor^^er-term psychological
harm if he does not fully recognize and
understand the hard work, discipline
and perseverance required on the road
to long-term profits.
Many times I get questions from less-
experienced traders that go something
like this: "I've heen trading two years
and I've only heen ahle to about break
even." My reply to them is that you
should be perfectly satisfied with
breakeven if you still consider yourself a
beginning trader. Many beginners don't
break even for quite s<")mc time.
• How long will it take to go from
being a less-experienced trader to an
experienced and hopefully successful
trader? The precise point in time at
which trading success will arrive will
vary greatly among traders. Some
beginning traders will spend nearly all
their time coming up to speed. Others
may spend an hour or two a week on
the subject. There is no right answer on
how much time to spend studying trad-
ing and markets. Many new traders take
BEGINNING futures traders who "FLAME OUT" are usually the
ones WHO did not have the FINANCIAL resources to trade
up speculation in retirement. 1 have a
few students that have even taken up
trading past the age of 80. You can't be
too young or too old to learn about
trading. A general rule would be for a
beginning trader not to expect sus-
tained trading success within a few
months. More likely, expect to have a
profit time frame of a few years before
you achieve sustained trading success.
Now you see why money management
is so important in futures trading. You
have to survive before you can succeed!
• When should I throw in the towel
and admit that trading is not for me?
If trading is making you miserable and
creating other bad babits (kicking the
dog, sleepless nights), then it's time to
quit, or at least take an extended hreak.
If you don't have the financial
resources to trade futures, then you
shouldn't participate. Futures trading
should be conducted only witb money
you can stand to lose, without impact-
ing other more important obligations,
such as grocery and rent money. Note
that beginning futures traders who
"flame out" are usually the ones who
did not have the financial resources to
trade futures in the first place.
• Am I still hungry for trading and
market knowledge? You should never
stop trying to gain more knowledge
about markets and trading. Even suc-
cessful veterans who have heen in the
business for many years will say tbat
they are still leaming on a daily basis. If
you are still striving to leam more about
this business — and are enjoying doing
it — then that's a positive signal.
• How many losing trades should I
absorb before I change my trading
FUTURES in the first place.
plan of action? This is a really tough
one t{) answer. Again, there is no single
right answer. However, if you believe
you have a well-founded and thorough-
ly researched trading plan, don't aban-
don it just because you are on a losing
streak. All traders bave winning and
losing streaks. That's a part of trading.
Traders enjoy the winning streaks and
don't enjoy the losing streaks, but dur-
ing tbe losing streaks tbey forge ahead,
knowing that their plan of action is still
solid. Trading plans can certainly be
tweaked, such as trading fewer con-
tracts or trading less frequently during a
losing streak. For most traders, a com-
plete overhaul of their trading plan
is probably a last resort tbat demands
considerable consideration.
• How can I keep myself motivated
on the winding road to ultimate suc-
cess? Traders who enjoy the entire pro-
cess of trading don't really need a lot of
motivational help because tbey are
already fascinated by what they are read-
ing and learning. But during a losing
streak t)r some other "dry spell" in trad-
ing — wben morale can slip — it is pru-
dent to read some trading btxiks that are
based less on specific methodologies and
more on trading psychology. Attending
trading seminars is a great way for a trad-
er to become reinvigorated. And it's also
a great value to tht^e already invigorat-
ed. You not only will gain fresh trading
and market knowledge, but you also will
get to see and speak witb the seminar
lecturers as well as traders who are in the
same position as you.
• How much should I listen to
other traders when trying to evaluate
my own trading progress or my own
trading plan? It is good to have a trad-
www.fijturesmag.com | June 2005 41
 Trading Techniques

The LEARNING curve IMPROVES when a trader has CONTACTS

with OTHER traders with similar EXPERIENCES.
ing partner or buddy to share your
ideas and discuss markets and trading.
The learning curve improves when a
trader has contact with other traders
with similar experiences.
It also is beneficial to have an experi-
enced mentor guide you through the
rough waters all traders experience. But
at some ptiint most traders want to he
autonomous in their decision-making.
As many traders gain more experi-
ence, knowledge and confidence, they
will use outside influences as second
opinions to reinforce or provide another
angle to their own sound opinions.
Many traders also have full-time day
jobs and need outside sources to help
save time and to keep track of what's
going on in all the markets.
• What is the average success rate
of the professional trader? 1 have not
seen any exhaustive studies of the per-
centage of winning trades of tbe aver-
age professional trader. However, it is
generally agreed up>on by many in our
industry that the better professional
traders have a winning percentage of
around four out of every 10 trades or a
40% winning percentage.
Breaking this down even further, it is
estimated that half of the winning
trades are only small winners and not
much better than breakeven. Thus, it
can be extrapolated tbat most of tbe
professional futures traders make most of
their money on one or two trades out of
every 10.
This only underscores the importance
of sound money management in futures
trading. And that, if you break it down,
gives you the best answer to bow you
achieve success in trading: You cut loss-
es short, and you let winners run. I FM
Jim Wyckoff is the editor of the Trends in
Futures analytical, educational and trading
advisory service, whidi is published by Futures
Magazine Group. You can contact him at
jim@jimwyckoff.com.

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