The neuro-behavioral science trading edge
 Why is trading for a living so difficult?
- Vijay L Bhambwani Dec 11, 2014


The path to financial markets "Glory Avenue" is paved with the corpses of failed traders. Yet, the lure of mastery over the markets sucks in millions of wannabe traders into the market ring, to "try their luck." With failure rates being as high as 95% on a conservative basis, the temptation to even give it a shot should be astounding to a non market participant. Yet, newbies come to the market to get a shot at fame and fortune in the dog-eat-dog world of financial futures. They admit that it's not for everyone, that the dice is loaded against the average trader due to the sheer non-material (mental / emotional / intellectual) resources alone required by traders. Then there are minor things about trading capital and a well funded "float" to even justify entering the market. The hurdles to trading success are many and I pen down my two bits below later, but first - why is trading (for a living) success so elusive? Why are failure rates so high? What can you do to improve your trading performance?

Time element
If you consult a sports coach of some repute and standing, he will tell you a budding athlete takes years to "peak out." The advantage of starting early cannot be emphasised enough, but reaching a peak takes time. For a trader, peaking would mean your subconscious mind takes over part of the decision making process once your terminal screen comes alive at market open. You instinctively "know" what to do. That level of finesse obviously takes time. How much time - most performance consultants will tell you it takes approx 10,000 hours or 10 years before anyone hits his peak. In his performance enhancing classic tome The Road to Excellence, K Anders Ericsson writes - It takes 10 years of preparation to become an overnight success. Can you give it that much time?
Skill sets
Trading for a living is a game of extreme skills. Dr Alexander Elder in his book Trading for a Living says - Gladiators lived and died in the arena. The winner gored the loser to death and kept the losers family and material possessions as prize money. Traders use keyboards and mice but survive and thrive in the financial futures markets. The loser is allowed to live with his family, but they must all suffer the pangs of defeat and humiliation that financial deprivation brings along.

Skill sets are divided into 4 broad categories and often overlap each other. I present a quadrant depicting external, internal, narrow and broad skill sets. Which skills does a really successful trader ideally possess? Answer - all. Yes, the job is that demanding. Think lightly of it at your own peril, its one of the most demanding jobs in the universe. Anything that requires you to curb your fear and face the markets day in and day out cannot be easy. A non trader will never have the privilege to do battle with himself and the markets and experience the ecstasy that victory brings with itself.
Mind set
Many have tried convincing me over the years that trading success depends on internet baud rates, computer hardware clock speed, software, algos, charting skills, trading terminal refresh rates etc. etc. While I will concede that the above do have a hand in determining the success of a trader, they are a small part even collectively. The traders mind set is supreme - it makes or breaks the trader. The ability to think further, deeper, faster and bigger makes the trader a sharp hunting weapon that he is supposed to be. Heuristics, biases, conditional reflexive thinking,  linear extrapolation and template method of one-size-fits-all strategising has killed more traders than they would like to admit. It takes statesmanship in the thought process to make a really successful trader.

Remember the old saying - Life is 10% what you make it, 90% how you take it. Trading is somewhat like that. How you act under duress of a crippling loss determines whether you are fit for this game. Generally speaking, how we are in personal life determines how we will be as traders. If you are timid, dominated, nervous, indisciplined and lazy in personal life, your trades will reflect your personality traits as well. It WILL show in your profit & loss account. No hiding from this whatsoever. You see two sets of people in a diner on a hypothetical working day, during lunch hour - one guy is punching the keys of his laptop frantically, biting his lips, sipping water frequently / nervously, while the other guy is straight faced, punches his laptops keyboard in a measured, deliberate manner, appears to relax with a cold beer with his lunch. Which one is a successful trader? The body language of a successful trader differs from a wannabe trader like chalk differs from cheese. The successful trader is calm composed, well fed, content cat who doesnt need to get ruffled over trifles.
You will run up losses, some big, some small. Your margin account will deplete by varying degrees over time. However, your living expenses will inch higher over time, inflation will guarantee that. Can you live in deprivation of many comforts that most people take for granted? If yes, how long before your "nerve breaks" and you dash for the exit door? It takes courage to stay put in any field and trading is no cakewalk - you have no guaranteed monthly income, you are a hunter-gatherer and get to eat only as much as you can hunt - if at all. Sidney Poiter had this to say about Bruce Willis in the superhit film The Jackal - "In a business that is unforgiving, he has prevailed for 23 years and that commands respect."
Unless you have a decent "float" dont even think about trading for a living. You also have to have a contingency float - what if you fall sick and cant trade? Do you have spare cash that will feed, medicate you while trading income is nil? The single largest reason (after lack of skill) for traders failure is running out of cash because the float was abysmally small. The ability of life to throw unforeseen adversities at you should never be taken lightly. If you have to square up trades to meet financial emergencies, your finances are wanting. Running up trading losses (which is inevitable throughout your trading life, but more frequent in the early phase of your trading evolution), will mean that your propensity to trade will go down with every loss. Apart from morale, your broker will also curtail your exposure limits. Keep your powder dry and cash spare in your bank account. I will admit that a whole lot of my trading sustainability has been made possible by my family patiently funding my mistakes and standing with me during downturns.
Arnold Schwarzenegger attributes a lot of his success to his training partners in the gym. He says a right partner motivates you on a lazy day, spots you while you do heavy lifts and talks you out of a "down" groove. He says good training partners feed off each others positive energy. Fraternising with successful full time traders has a similar rub off. You talk each other into building better trading systems, trader bigger & sharper and raise your rate of return by a few basis points every quarter. Try hanging out with losing traders for a few quarters and share melancholic and depressive thoughts, your trading account will deplete almost certainly. Success is contagious, just as failure is - choose who you hang out with, carefully.

All the best for achieving trading glory !

Vijay L Bhambwani
This piece is dedicated to all my cherished fellow full time trader friends whose positive energies upon which I have enriched & feasted my mind. You have been the wind beneath my wings in my ongoing trading journey. Deep gratitude.

Vijay L Bhambwani