10 Ways to Measure Trading Success; 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
Wyckoff, Jim, Modern Trader
At some point in nearly everyone's trading timeline, they wonder how their trading successes (or failures) compare with those of other traders. Wondering just how well you stack up to others in the industry is a natural curiosity and a human psychological tendency. However, actually knowing the winning and losing tendencies of others doesn't do a lot to move you further down the road to where you want to be regarding trading success. Most traders also wonder about the success rates of the "professional" traders, the ones who make their living solely by the profits they generate from trading. I will provide you with an answer to this question at the end of this feature.
There are 10 questions all traders must ask themselves, the answers of which can help measure trading progress and success (see "Measuring success," right).
These questions should help you determine where you stand in this challenging field, so lets take them one at a time.
* What is trading success? This is a basic, but difficult, question. Most would agree that ultimate trading success is defined as being profitable, making more money than you lose. There are other secondary factors that also define success in trading, such as finding a balance between trading and other life activities. But it's being profitable at trading that is the benchmark of defining success.
* What is trading progress? Beginning traders should not expect to have immediate and ultimate success trading futures, stocks or forex markets. What they can expect in the early going is to make steady progress through gaining knowledge and experience. Even veteran successful traders continue to make trading progress. Achieving and maintaining trading success requires continual advancement, namely, continuing to seek out trading and market knowledge. Traders who truly enjoy the "progress" and process of trading have a significant edge over those who do not enjoy learning and gaining experience.
* At what point in my trading timeline should I expect trading "success"? Trading success (winning trades) can come right away--even for the beginning traders. What is less likely for the inexperienced trader is sustained trading success. Beginners can even run into a "hot streak" that skews the overall reality of trading. Immediate, and likely fleeting, success for a beginning futures trader can do longer-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 been trading two years and I've only been able 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 some 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 trading and markets. Many new traders take up speculation in retirement. I 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 sustained 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 habits (kicking the dog, sleepless nights), then it's time to quit, or at least take an extended break. …