Same Trader, Same System, Different Results: An Investigation into Why

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Over the years I’ve had the privilege to meet and help some very talented traders. One of these traders recently came back to me for help after facing a season of poor performance. I was quite surprized to say the least: this was the same trader that had obtained a very handsome performance last time we had spoken, and now he was showing a mix of bad habits that are typical for a newcomer, not an experienced and profitable trader like himself.

In this blog post I will explain my investigation into this trader’s issues, so that you may learn to avoid and overcome them if and when you find yourself in a similar place.

One System, Three Different Traders

Just to put things into perspective, here are the account statistics of this trader during three periods of his trading career:

  • his trading performance up until his coaching sessions with me;
  • his performance during and after coaching (about 4 months of trading);
  • his performance since the start of 2019.

Further to this, also know that this trader has a very good handle on his trading model. He knows what he is doing and he has traded very well in the past. We are not dealing with a typical retail trader – we are dealing with a seasoned trader that is going through a rough patch.

Source: author’s own calculations based on actual account statements drawn from MT4.

Why He Sought Coaching Initially

When this trader came to me, I was quite eager to work with him because he had passed the breakeven point and had been consistently profitable for a length of time. When he came to me for help, the reason was simple:

“I want to know this performance is not a statistical fluke, and that I have a consistent trading system”.

This showed me that the trader was not overconfident, despite his results, and for good reason: the sheer volatility of his performance was such that he was at risk of blowing up his entire account sooner or later. He had a volatility of around 121% annualized!  This is why outsized gains can only be measured against the kind of risk that was taken to obtain them.

To make a long story short, I worked with the trader to help him better understand his model, and do 3 things:

  • filter quality trades (so he only takes the best trades for his model);
  • employ strict risk limits per week (which translates into a Maximum Drawdown of 3% per month ca., curtailing the amount of trades he could take);
  • have a decent grasp on market sentiment and market moving events (so he knows what is driving the markets, he avoids jumping into the market ahead of news, and he avoids indecisive markets).

It took some time, but these guidelines made a positive impact on his trading statistics. His volatility returned to normal parameters; his performance remained stellar; he never once risked losing all his chips.

But there were other side-benefits:

  • he was forced to become a more patient trader;
  • this helped him avoid revenge trading and unncessarily risking his hard-earned cash;
  • he created a more relaxed lifestyle within which to fit his calmer and more consistent trading habits.

Market Mind Games

When the trader game back to see me and showed me his trading records, it seemed I was dealing with a totally different person!

  • Risk limits were nowhere to be found: he was throwing money at the market whether the trade was going in his favour or not;
  • Patience was nowhere to be found: his trading had become aggressive – too aggressive, and within a market that had very low volatility to begin with.
  • He threw good money after bad: after bad performance in 2019 initially, he threw more money into his account instead of patiently working his way out of the drawdown;
  • He was no longer filtering quality or following sentiment.

Basically, everything we had worked so hard on had been thrown to the wind. It was clear to me that something had happened in his personal life, because in 2 out of 3 occasions he had been a profitable trader. This sudden and violent shift had to stem from outside of his trading.

In conversation I started asking about his personal life and if there had been any setbacks or changes that might have impacted his mindset, concentration and patience. We immediately found the source of his issues:

he had lost his day job at a certain point, and despite the fact that he found a new and more rewarding job in just over one month, his mindet change had persisted and he had not been able to shake it.

This is yet again a confirmation of just how important our mindset is when we approach the markets. A good trader with a good system can fail to produce good results if his mind is polluted with:

  • worry: a tension produced by imagining future potential outcomes, which takes the focus away from the present.
  • ambition: a dissatisfaction with yourself and your activities, which can distort reality since the focus is always on the next objective and never on the process.
  • anger: a destructive emotion that can destroy any initiative.
  • avarice: believing that you need certain things when you probably don’t; the feeling that what you depend on will be taken from you.
  • envy: an irrational comparison between what you have and what others have achieved.
  • pride: a need to impress or demonstrate something.

The Bible says that the battleground between good and evil is in our minds for it is written:

Be sober-minded; be watchful. Your adversary the devil prowls around like a roaring lion, seeking someone to devour. – 1 Peter 5:8 

and also

For the mind that is set on the flesh is hostile to God, for it does not submit to God’s law; indeed, it cannot. – Romans 8:7

I’m not here to discuss your personal beliefs but if you scan your conscience, I believe you will recognize this inescapable truth: our minds are capable of great inventiveness, creativity and clarity which enable us to overcome obstacles and make headway in our trading; but without having a disciplined mind, we can warp and deform our reality, bringing fourth fears and frustrations that remove clarity and impair good trading decisions.

Perhaps it’s a dumb example, but I’m going to tell you anyhow: I dislike most TV series and soap operas because more often than not they are entirely based on an improper way of using the mind. Here’s the dynamic that usually goes on:

Basically role models in these tv shows rarely face reality objectively. If one person says “A” they are always looking for a what is not being said. “He said A but did he mean ABC? After all, he was over in that part of the city with QQQ yesterday and may be actually changing his idea about XYZ…”.

To make matters worse, the role models will then act upon their own projection of reality (what they think was said) instead of actual reality (he said “A”).  So it is uneducational to say the least, and outright annoying to people that respect honesty and truth above all else.

Bottom line: if you want to be a good trader, remain anchored to reality and be very disciplined with your mind.

Variations on a Theme

What threw this trader off balance was a variation on the classic theme of having to trade for a living. Whenever money becomes the goal of your trading, you will be unable to properly confront the market.

It doesn’t matter how experienced you are: the pressure to make money from the markets will take it’s toll on you personally and financially. That’s why I suggest a better way to go about your trading.

Over to You

The “cure” for this trader was to recognize the origin of this negative spiral, and to put into perspective the negative effects that his unemployment had on his mindset. We removed pressure to perform, we removed expectation, we sought peace of mind and focused on ways to find peace before confronting the markets after work.

So my question to you is this: are you also putting unncessary pressure on yourself? What could you do to release that pressure and focus on the process and not worry about the money you will make or lose in the markets?

About the Author

Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.

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