10 Key Questions on Measuring Your Trading Progress and Success

At some point in nearly everyone's trading timelines, they wonder how their trading successes (or failures) compare with those of other traders. Wondering just how well you stack up to other traders in the industry is a natural curiosity and a human psychological tendency. However, actually knowing the success or failure rates of others doesn't do a lot to move you farther down the road of 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.

Below are 10 questions regarding measuring your own trading progress and success. These questions should help you determine where you stand in this challenging field of endeavor.

1. What is trading "success?" This is a most basic question. Most would agree that ultimate trading success is defined as being profitable at trading - 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.
2. 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 progress - namely continuing to seek out trading and market knowledge. Traders who truly enjoy the "progress" and process of trading do have a significant trading edge over those who do not enjoy learning and gaining experience.
3. 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 traders 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 or she does not fully recognize and understand the hard work and perseverance required on the road to trading success. 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, "Hey, you should not be too discouraged with those results. Many traders don't have that kind of success in the early going."
4. How long will it take to go from being a less-experienced trader to an experienced and hopefully successful trader? Determining a precise timeline at which trading success will arrive will vary greatly among traders. Some beginning traders will spend nearly full 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. I have many readers who are taking up trading in retirement. I have a few that have taken up trading over the age of 80 years. One is never too young or too old to learn about markets and trading. A general rule would be for a beginning trader not to expect sustained trading success within a few months. More likely is a timeframe of a few years to achieve sustained trading success. Now you see why money management is so important in futures trading. You have to survive before you can succeed!
5. When should I "throw in the towel" and admit that trading is not for me? There is no one right answer to this question. If trading is making you miserable and creating other bad habits (kicking the dog), then it's time to quit - or at least take an extended break. If you do not have the financial resources to trade futures, then you should not participate. Futures trading should be conducted only with money a trader can stand to lose, without impacting other more important obligations, such as grocery and rent money. It is important to point out that the beginning futures traders who "flame out" first are usually the ones who did not have the financial resources to trade futures in the first place.
6. How many trading losers should I absorb before I change my trading plan of action?

This is a real tough one to answer. Again, there is no single right answer. However, if you believe you have a well-founded and thoroughly researched trading plan of action, don't abandon it just because you are on a losing streak. All traders have winning and losing streaks. That's a part of trading. Traders enjoy the winning streaks and do not enjoy the losing streaks. But during the losing streaks they forge ahead, knowing that their plan of action is still solid. Trading plans can certainly be tweaked, such as trading fewer contracts or trading less frequently during a losing streak. For most traders, a complete overhaul of one's trading plan is probably a last resort that merits much consideration.

1. How can I keep myself motivated on the winding road to trading success? Traders who enjoy the entire process of trading don't really need a lot of motivational help because they are already fascinated by what they are reading and learning. But during a losing streak or some other "dry spell" in trading - when morale can slip - it is prudent to read some trading books that are based less on specific methodologies and more on trading psychology. Attending trading seminars is a great way for a trader to become reinvigorated. (And it's also a great value to those already invigorated!) You not only will gain fresh trading and market knowledge, but you also will get to see and speak with the seminar lecturers as well as traders who are in the same position as you.
2. 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 trading partner or "buddies" with whom to share your ideas and to discuss markets and trading. The learning curve improves when a trader has another trader or traders with similar experience with whom to share ideas. It is also beneficial to have an experienced mentor to help guide you through the "rough waters" that all traders experience at times. But at some point, most traders do want to be more or less autonomous in their decision-making. As many traders gain more experience, 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 them time and to keep track of what's going on in all the markets.
3. What is the average success rate of the "professional" trader? I have not seen any "official" studies of the percentage of winning trades of the average professional trader. However, it is generally agreed upon by many in our industry that the better professional traders have a winning percentage of around 4 out of every10 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 break-even. Thus, it can be loosely extrapolated that most of the 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 - namely cutting losses short and letting winners run.

Why Having a Mission Statement Behind Your Trading is so Critical to Your Success as a Trader II

As I mentioned last week, as a trader, you need a mission statement. Last week I suggested several mission statements. We also made the assumption that you had a mission to produce an infinite wealth stream for yourself within the next five years and then looked at how various projects fit into that mission. Some projects were critical to the mission, while others were simply a distraction.

If the project is mission critical, then you need to allocate human and capital resources to it. Let's make the assumption that your idea does seem to be mission critical. Let's say that your mission is to open a hedge fund with a target of at least $250 million under management and some friends are asking you to manage their money. In order to have large amounts of money under management, you need to produce above average returns with very little risk. For example, a system that would help you achieve this mission would be one that would earn 15-25% each year with no more than one or two losing months each year. If you have such a system in place, then accepting client money would probably be useful. If you don't have such a system in place, then client money would probably be a major distraction. Let's say you have the system in place, and you decide to accept money.

Your next step is to determine the human and capital resources that you need to allocate before you undertake the step of accepting client money. What else do you need to have in place before you accept client money? First, you need to have accounting systems in place. If you don't have them, then you need to find 1) someone to help you with your accounting and 2) put a system in place to report to clients. This amounts to allocating either human or capital resources to your objective.

Second, you also need to have systems in place for dealing with client inquiries (including new clients). How will you market to clients? How will you deal with clients who want information about their accounts or about your trading? Again, since you have decided that accepting client money is mission critical, you need to allocate human and capital resources to putting these systems in place.

Next you need a timeline for the project. If you decide that the project is mission critical and have allocated resources to it, you then need a timeline for the completion of the project. Without such a timeline, you could go on forever with the project.

Lastly, you need a feedback and monitoring process for the project. This process will keep you on track and prevent wasting resources. Thus, when you allocate resources to a project that is mission-critical for your trading business, have a way to monitor its progress. How will you know that resources are being properly spent? How will you know that progress is satisfactory? If someone else is involved, how will you know that they are doing a good job? These are key tasks to perform if your trading business is to accomplish its mission.

Fear Factor: The Impact of Trading With "Sacred Money"

I am not a big casino gambler, but I have been at the venues in Las Vegas and Atlantic City, as well as in other casinos worldwide. I have observed a myriad of gamblers at the poker, black jack, roulette and craps tables. An interesting characteristic among gamblers is exhibited to me time and time again. It is this: The gamblers who appear to have money they can afford to lose usually are the ones who can win. The gamblers who appear to be using their rent or grocery money (or what I call "scared money"), and really should not be gambling, are usually the ones who lose.

You may ask, "How can you tell who is gambling with scared money and who is not?" Facial expressions, reactions to losing bets and to winning bets, and other "body language" are dead giveaways to me.

The "scared-money" phenomenon I see in casino gambling can be applied to futures trading. Those traders who are using grocery and rent money in their brokerage account and "must win" on their next trade, or else they will be forced out, have a huge emotional burden to carry. That burden certainly affects their trading psychology and ultimately their trading success.

The most common reason for scared-money trading in the futures markets is undercapitalization or being over-leveraged. A person with a $20,000 trading account should not be trading full-size S&P 500 futures contracts. A couple of moderate daily price moves against an S&P trader with an account this size could find him getting a margin call from his broker.

So, what factors determine whether a trader is trading with "scared money?" Is there a certain income or savings level a person must attain to not trade with scared money? Does one have to be wealthy to trade futures successfully? The answer is: There is no single right answer. It depends on the individual trader.

I hearken back to the all-important "psychology of trading" with an example. A person with a modest income and a prudent money-management plan can trade futures and do so without using scared money. He or she can trade options (buying them, not selling them), or trade smaller-sized contracts offered at the Chicago Board of Trade, or even trade regular-size contracts such as soybean oil, where the "tick size" is relatively small in dollar amount. In fact, I submit that a good percentage of speculative futures traders worldwide fall into the above category.

Conversely, a so-called wealthy person with a higher income and/or savings can still trade scared money. If the better-capitalized trader holds his purse-strings too tight and cannot accept the fact that even the best professional futures traders in the world can and do have losing trades, then he, too, is trading "scared money." I think we all know of at least one wealthy Scrooge who totes his money sack on his back and doesn't even tip the waitresses or bartenders. Certainly, individuals like that are not good candidates for successful futures traders.

Fear Factor: The Impact of Trading With "Sacred Money"

I am not a big casino gambler, but I have been at the venues in Las Vegas and Atlantic City, as well as in other casinos worldwide. I have observed a myriad of gamblers at the poker, black jack, roulette and craps tables. An interesting characteristic among gamblers is exhibited to me time and time again. It is this: The gamblers who appear to have money they can afford to lose usually are the ones who can win. The gamblers who appear to be using their rent or grocery money (or what I call "scared money"), and really should not be gambling, are usually the ones who lose.

You may ask, "How can you tell who is gambling with scared money and who is not?" Facial expressions, reactions to losing bets and to winning bets, and other "body language" are dead giveaways to me.

The "scared-money" phenomenon I see in casino gambling can be applied to futures trading. Those traders who are using grocery and rent money in their brokerage account and "must win" on their next trade, or else they will be forced out, have a huge emotional burden to carry. That burden certainly affects their trading psychology and ultimately their trading success.

The most common reason for scared-money trading in the futures markets is undercapitalization or being over-leveraged. A person with a $20,000 trading account should not be trading full-size S&P 500 futures contracts. A couple of moderate daily price moves against an S&P trader with an account this size could find him getting a margin call from his broker.

So, what factors determine whether a trader is trading with "scared money?" Is there a certain income or savings level a person must attain to not trade with scared money? Does one have to be wealthy to trade futures successfully? The answer is: There is no single right answer. It depends on the individual trader.

I hearken back to the all-important "psychology of trading" with an example. A person with a modest income and a prudent money-management plan can trade futures and do so without using scared money. He or she can trade options (buying them, not selling them), or trade smaller-sized contracts offered at the Chicago Board of Trade, or even trade regular-size contracts such as soybean oil, where the "tick size" is relatively small in dollar amount. In fact, I submit that a good percentage of speculative futures traders worldwide fall into the above category.

Conversely, a so-called wealthy person with a higher income and/or savings can still trade scared money. If the better-capitalized trader holds his purse-strings too tight and cannot accept the fact that even the best professional futures traders in the world can and do have losing trades, then he, too, is trading "scared money." I think we all know of at least one wealthy Scrooge who totes his money sack on his back and doesn't even tip the waitresses or bartenders. Certainly, individuals like that are not good candidates for successful futures traders.

Why Having a Mission Statement Behind Your Trading is so Critical to Your Success as a Trader I

You probably have some specific goals in your trading. And if you don't, then I'd suggest that you develop some. But if you do, you might need some discipline to help you meet those goals. As a result, I thought I'd focus this week's psychology tip around helping you to better keep meet your goal. Here are several ideas that may help you to continue your meeting your goal throughout the entire year.

As a trader, you need a mission statement. I've recently spent several days doing creative brainstorming on how to take my company to the next level. Part of that process involved determining our mission statement. I've always known what its mission was, but I've never put it down on paper. Nor have I thought about our expansion with respect to that mission. It's a critical process and it's one you should do with your trading as well. It also fits with the overall idea that you must first understand who you are and who you want to be before you develop a business because your business will develop out of your statement about who you want to be.

In the brainstorming process, I learned a technique that works in running any successful businesses. And when I thought about it, it was obvious that it was a technique that it very applicable to trading success. However, the first part of it is to create a mission statement for your trading business. Here are a few examples of what that mission statement could be for you.

• Help others to prosperity by becoming a highly successful money management firm.
• Build a hedge fund with at least $250 million under management.
• Produce an infinite wealth stream for me within five years.
• Be a vehicle for me to grow money-wise and as a person.
• Fund a charitable foundation.

Second, you need to evaluate new projects with respect to the mission statement. When you have such a mission statement, you can constantly evaluate new projects with respect to that statement by asking: Is my objective in this project critical to the mission of the company? People are always asking me to do this project or that project. For example, one trader, who was a sound engineer by training, said that when he came into town, we could start working on developing specific meditations for traders. And while he idea is a great one, it is very low on my list of mission-critical tasks that need to be done in the near future. As a result, it probably won't happen. But without such a process in place, I'd probably spend most of my time doing such non-critical tasks and thus not be able to accomplish what is important for the company to meet its goals.

Most traders just treat their trading business like a hobby. They don't treat it seriously. For example, some are constantly looking for new or better systems. Some trade discretionarily. Still others will manage the money of a few friends or relatives without thinking of the consequences. These types of objectives need to be evaluated with respect to your trading mission statement to see how they fit.

Let's make the assumption that you have a mission statement for your trading business to produce an infinite wealth stream for yourself within five years. Infinite wealth basically means that if you stopped working, including working at your trading business, you would have enough passive income (i.e., your money working for you) to continue your current lifestyle. You could accomplish this two ways: First, you could accumulate enough money so that if you invested it in t-bills or some other form of passive investment (i.e., I'd recommend a good hedge fund over t-bills because you can get a much better rate of return), you'd be infinitely wealthy. Second, you could automate your systems for trading so much that you could hire someone else to execute the trades for you.

Now let's take a look at some of the objectives we introduced to see if they fit within this mission statement:

"Let's try this new system to see if it works better." If you have a system already that can help you achieve this goal, then you are probably just wasting time. For example, I've know people with systems that can easily net them 100% or more each year who constantly jump on the next new system that comes along. On the other hand, if you don't have a system that will meet your mission, then you need to evaluate both your current system and the new one in terms of R-multiples, expectancy, opportunity, and the concepts involved so see if you have something that logically makes sense. For example, if you assume that you will risk 1% per trade, then you only have to net about 8R per month to make 100% per year. Think about it. In most cases, someone else's new system will not help you because they have not evaluated it in these terms. It's usually just a slight change in your thinking that will net you great rates of returns. Thus, looking at a new system is probably a total waste of time, given this mission statement.

"I want to make discretionary trades because I think I can outperform a mechanical system." This objective might fit within the mission of infinite wealth if your plan is to accumulate a certain amount of money and then invest it into various forms of passive income to produce your infinite wealth. However, if you plan to produce infinite wealth through your own trading, then it does not fit within the objectives because you will always be tied to your trading—you will always have to work if you make discretionary trades. In the second case, you should abandon the idea of discretionary trading.

"I'll manage money for a few friends and relatives." This objective could be a total distraction for your mission or it could be a means to an end, depending upon how you treat the aspect of managing money. For example, are you going to do it for free or are you going to charge a fee. If you plan to charge a fee, then it could help you meet some monetary target. However, are you prepared to deal with the psychology of the people for whom you are managing money? Do you have back office accounting procedures in place? Is the effort to deal with accounting and your clients worth the distraction to your trading? If the answer to any of these questions is "no," then this is not a mission critical objective and should be abandoned on the spot.

Discipline in Meeting Your Goals

You probably have some specific goals in your trading. And if you don't, then I'd suggest that you develop some. But if you do, you might need some discipline to help you meet those goals. As a result, I thought I'd focus this week's psychology tip around helping you to better keep meet your goal. Here are several ideas that may help you to continue your meeting your goal throughout the entire year.

1. Divide a General Goal into Specific Steps.

Most trading goals are usually huge. As a result, I'd suggest that you divide that goal into specific steps. It's much easier to accomplish small steps that you can imagine doing for the rest of the year (or the rest of your life) than it is to fulfill a giant goal that would be huge. Start with something that is easy and make sure you can accomplish it.

Thus, a resolution to make 50% this year in your account could be broken into a number of steps such as (a) look at ideas that might help improve your trading; (b) test each idea and see how much improvement you will get from each one; (c) implement the best idea following the ten tasks of trading (which is part of the Peak Performance Course).. In fact, your resolution might simply be to follow the ten tasks of trading each day and notice what that means for you.

2. Make Promises to Yourself and Include the Reason for the Promise in the Resolution.

Suppose your promise to yourself is to do a daily mental rehearsal. The way you might phrase that is to promise yourself to do a daily mental rehearsal in order to plan ways to increase your discipline. The second statement is much easier for you to follow through with on a regular basis. Also make sure that the promise you set is something you want to do and not something someone else wants you to do. If I tell you that you must do a daily mental rehearsal, you are not likely to do it. On the other hand, if you decide how important this kind of rehearsal will be for your well being and for your trading, then you are much more likely to do it.

3. Determine Your Triggers.

If you are setting a resolution, it is probably because you want to do something that you have not been able to do. There is probably a reason for your inability to do it - certain triggers that set you off. What are those triggers? Are there environmental triggers, such as the presence of certain people or certain conditions? Are there certain internal feelings that set you off? What are those feelings and when do they occur?

Once you determine what your triggers are, you are much more prepared for them. I strongly recommend doing extensive mental rehearsal around the issue of dealing with those triggers. Use the mental state exercises in book four of the course and rehearse dealing with those triggers so that you have more discipline in situations in which you will need it. Awareness is a big part of keeping your resolutions.

4. Look at the Positive Side of Your New Goal.

When we get into the act of keeping our resolutions, we sometimes feel as if we are denying ourselves. Instead, look at the positive side of what we are accomplishing. Turn on something positive. For example, if you are trying to stop taking trades that have nothing to do with your system, then concentrate on the joy of following yours system and making money. Concentrate on the joy of the new behavior instead of the negative that you are trying to overcome. You'll find that moving forward is much easier.

5. Keep a Diary of Whatever It is You Are Working On.

A lot of what I've suggested for you involves mental awareness. Most people are unaware of the big picture that's involved in accomplishing some goal. However, when you keep a diary that lists your accomplishments and your thoughts, you'll find it much easier to understand what is going on inside of you.

Listing your accomplishments is also a form of reward. When you start focusing on your accomplishments - especially if you've followed step one and have set small steps toward your total goal - you'll feel great about what you achieved and where you are going.

6. Make It Okay to Give In Occasionally.

If you are attempting to make a major change, you may have occasional setbacks. If you view that setback as failure, then the resolution is over. You can give yourself a bad name. On the other hand, if you make it okay to have occasional setbacks, then you can keep going - it's just a setback.

Realize that your setback is an opportunity to learn something about yourself. What happened? What were your thoughts? Write down all of that information in your diary and determine what you can learn from that. You might discover a new trigger and then you can plan for how to get around those triggers. In any case, forgive yourself for the setback and then move on.

Quite often setbacks are due to inadequate preparation. Perhaps you didn't do enough research with respect to your trading. Perhaps more mental rehearsal was needed. Perhaps you discovered something about your thought process that you didn't expect, but can now use in your preparation. What additional preparation can you do to make sure that you move ahead toward generally keeping your resolution?

7. Reward Yourself Throughout the Process.

You need to acknowledge accomplishments early in the process. The first few days will probably be the hardest. Consequently, when you get through those days and accomplish your goals, find a reward. Make the process fun through a system of rewards.

Do A Thorough Self-Evaluation Before You Start Trading

I'd like to center this tip around some concepts that you must master as a trader. First, you need a strong initial evaluation of yourself and what you needed to do to improve your own performance. Let's look at it this way. Suppose you are in the middle of the desert. There are no roads, but you do have a map indicating where you are to go. However, what's missing is some indication of where you are now. And remember that you are in the middle of the desert. Bottom line is that how can you get where you want to go, when you don't know where you are. Similarly, how can you work on yourself as a trader, if you don't know much about yourself. And that's the situation most people face. They think they know themselves well, but they really don't know anything about themselves.

Secondly, if you want something, you must practice "being" it. Being, in other words, comes before doing or having. In my opinion, most people want to trade well, but their primary concern is in how to do it and in having the success. You must practice being a successful trader first. From that state you will get information about what to do and that will produce what you want to have. Many people also believe that they must struggle and work hard to get ahead. This again is the antithesis of the "being" successful statement. If you believe you must struggle to become successful, then you probably will struggle a lot.

Third, many traders have what I call the perfectionism-complexity complex. In other words, what you have is never quite good enough. It can always be improved in some way. There is always another exit or another entry that will make it better. What this means is that you will always be struggling with new ideas. There is always something more to test. Consequently, you never gets to the real issue of trading and just being a trader, doing trading. Instead, there is always one more thing to test - always one more thing to do, and never enough time to just relax to trade. Give up complexity and move toward simplicity.

The best traders are always those who practice simplicity. For example, at a recent seminar, one trader remarked, "I just buy what's going up. If it goes against me, I get out immediately. If I goes in my favor, I let it run. I've made a lot of money doing that." That really is simplicity, but you can only do that if your mind and spirit are pure and you are really paying attention to what the market is doing. It's the purity of spirit that makes a big difference. This particular trader always asks inside for guidance before beginning the trade day. I tend to believe that makes a big difference.

Fourth, many traders (and people in general) suffer from low self-esteem If you don't believe you are worthwhile, then that belief will tend to predominant everything else. You might have a belief that if I can just make money trading, then I'll feel better about myself. But that belief is really composed of two beliefs, low self-esteem and the belief that low-self esteem will be "fixed" by trading success. Unfortunately, that doesn't seem to be the case. The low-self-esteem always seem to predominant and produce behaviors to justify itself. Unless, of course, you are aware of it and do the kind of self-work that will improve your self-esteem. If you think that life is a struggle, it's probably due to your low self-esteem.

They key to all of these issues is to really understand yourself and realize that you are at the root cause of your results in trading. When you make that decision, then you have started on the route to success.