Friday, June 26, 2009

Learning to Become a Successful Trader

The following was posted as a comment by Ziad in reply to a post on Michael Brenke's Blog, but I'm posting it here (with Ziad's permission) because I believe it contains extremely valuable and genuine insights coming from a very disciplined and successful trader. I would also like to include the following quote by Dr.Brett Steenbarger

"Too many traders are looking for setups, when in fact they're the ones being set up."


Hi Michael,

I've been reading your blog for quite a while now but haven't commented yet. However, I feel I need to comment now.

If you don't mind I'm going to be very straight forward, and blunt even, but I hope you'll take it from a spirit of sincerity and genuine desire to help. It's going to be a long comment, so I'm going to break it up into 2 or 3 comments.

Here's the situation as I see it: For the last few months, and possibly much longer, you've just been spinning your wheels while thinking that you are getting somewhere. The reason for this is that you are going about learning how to trade in the wrong way, in my opinion. I say this because I've been trading much less than you, a little over 2 years now, and yet because of the way I went about learning and what I focused on, last year I netted $150k while nearly quintupling my account, without a single losing month, and while only risking a very small portion of my account on any single trade. Now there could be many reasons for the difference in performance, but I think one of the main reasons has to do with what you are focusing on and how you are going about the learning process.

To try to put it as succinctly as possible, in my view traders that are focusing all their attention on "set-ups" and finding out which combinations of indicators work are never going to become profitable. They are trying to follow the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that 'work', and that can take the guess work out of trading. They want to be "disciplined" and have simple rules that guide all their actions. But there's a few problems with this. Namely, while psychology is HUGE, it's not everything. And while trading is all about simple principles, actually having an edge is NOT simple. It's a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That's a load of crap. It keeps the dream alive for wannabe traders who never realize what it's truly about. Well let me tell you what it's truly about...

Trading is about being okay with ambiguity. It's about tolerating confusion. It's about sitting with discomfort and being at peace with it. It's about not having an exact script of when to trade or not to trade, or what's really a high odds trade, and being okay with that. It's about exceptions to the rules. It's about contradiction. It's about uncertainty.

And yet traders left and right want to make it simple. They want to reduce it to a few simple set-ups to trade with discipline. And yet the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.

So what's the solution? Is the problem in the simple set-ups themselves? No, it's in how they're being used. The bottom line is, every trader needs to learn to READ the markets. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT. Once you can read the markets, and don't fool yourself it is a very complex process, then you can choose to employ "simple" set-ups to enter and exit. But the real work will be in interpreting the market to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you've identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.

Now I know you, and most traders do this to a certain extent, but your main focus is on the set-ups. It's not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it's waiting for some simple set-up to pop up and then taking it.

Now is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said 'easy' would make you money. If I've learned anything, it's that the market rewards what is hard to do. It's hard to have ambiguity surrounding your market reads. It's hard being uncertain. It's hard dealing with competing and sometimes conflicting signs. And yet, this is what it's all about. You have to stop trying to avoid this by needing things to be clear cut. And is it hard to be disciplined when there's so much uncertainty about what is the right trade to make? Of course. But instead of trying to avoid the uncertainty by looking for simple set-ups, or some straight-forward method, train your mind to be able to deal with the uncertainty.

As for the learning process of how you go about doing this, it's all about being constantly engaged with the markets, trying to figure things out and learn from experience. For me, for instance, what I did was each and every day take notes in a journal all about market action and what I think it means, and how I should trade, and what is working and what's not. I didn't write a journal describing the trades I took, or what my emotions were during the day. It was all about market action. And it was all my perception and interpretation. Day after day, week after week, making mistakes, wrong calls, being clueless as to what was going on, not knowing how I should trade, not knowing if my views made sense or not, and yet I continued taking notes and learning. Then I would view charts and combinations of historical intraday charts, and I'd note certain behavior. For example, I'd study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I'd study range days. Then I'd study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I'd do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.

As for set-ups, I didn't use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, is quite complicated and not straight forward. I started realizing that in some environments it's best to wait for pullbacks, in others I need to get in at market or I'll be left in the dust. In some markets I can buy low and sell high, in other markets the opposite is in order. And so on.

I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had all the technical background. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was mostly in opposition to what the general wisdom says about simple set-ups and exact rules.

Now of course you might say that everyone has their own style, some discretionary and some not. Absolutely. But even the purely mechanical traders are very adept at reading markets, and are aware of all of the complexity and ambiguity inherent in it. Their system might end up being simple, but it will come about through a very deep and complex understanding of markets. And usually this system will take the market environment (i.e. context) into account. It wont just be simple mindless set-ups.

In the end, all of what I am saying is meaningless unless you come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you'll be a consistently profitable trader? Why would the world's top institutions spend millions and billions on R&D when a few simple set-ups could make them all of the money. This doesn't mean that to make money you need extremely complex mathematical models. Far from it. What it does mean is that you need extremely complex mental maps that take time and experience to develop, and that will never develop if you spend the whole trading day simply waiting for set-ups to materialize. That just won't cut it.

Right now your learning curve is stagnant because you're not truly studying the markets. Your day is wasted in waiting mode. It's not in observing and absorbing mode. Also, because you fear loss, you aren't willing to experiment. This means that you aren't making mistakes and failing regularly, which is what you need to do to learn quickly.

So to conclude, based on all of the above, my advice to you would be to stop trading and make a mental shift. Realize what you need to do to become successful, and it's definitely not staying on this endlessly unfruitful path being supported by the hope of future profits. You're just running in your place unless you change your focus and your learning method. And if you thought the journey was tough so far, you haven't seen anything yet. Get ready for uncertainty and ambiguity like you've never seen it before. But this shouldn't be scary. It should be exciting, because this is what trading is all about. This is why it's called an ART. And it truly becomes one when you change your focus and your learning process. Then everything, including success, becomes possible. And until then, it'll be a distant dream that keeps appearing to be so close and yet stays so far away.

So you need to re-align with a new thought system and then get on the simulator and trade. Take losses. Make mistakes. Be clueless. Don't be afraid of it. It's okay, that's the only way you'll progress. And trust me, progress you will.

Best of luck to you, and I wish you much success.



  1. hey,
    i think this is a great article. it is one of the better explanations of trading. sometimes i laugh when people ask me how to trade because its hard to explain what it takes.

  2. Thanks for borrowing and posting this Awais. It gets to the heart of the matter about long term trading success that you won't hear from the "educator/internet marketers" because their pitch has to be "see how simple this is?" or else they will lose a sale to the next guy who says "I've got an even easier plan. Buy mine instead".

  3. Exactly! I need to start posting more of Ziad's comments here :)

  4. I re-read Ziad's post again today (and no doubt will re-read it many more times) because it really makes me think about how I analyze the market each day and how I fit my own setups inside a discretionary plan that has to take into account all the "reads" the market is giving, or at least how I interpret those reads. Ziad must be a brainy guy. I have described the market as being like a maze whereas we show up at the same front entrance every day, and we navigate the maze in the same way (i.e. the same timeframes and indicators every day), and we exit at the same place each day, but every day the walls of the maze are switched around so that the paths are different each day. That's how I see Ziad's premise (a correct premise I believe). We enter the maze each day with the same ability to turn right or left, but unless we see the bigger picture and learn to understand and "get a grip on it" on the bigger view mentally,the turns will lead us to dead ends. Maybe that's confusing but executing our setups without being able to interpret the bigger picture "good enough" will lead to frustration and a lot of "what the hell is going wrong?" frustration.

  5. I'm glad you liked the post Chuck. I felt I had to write it because I know how bad I wanted to succeed at trading when I first started out and how I searched for every inkling of advice I could get. So when I have the chance to offer timely advice I always have to take that opportunity.

    And since we're on the subject, I'll share a couple more things with you. Every day I psych myself up before the trading day and during it so that I can have that killer mentality needed to have peak performance in trading. One thing I read every day is something that I wrote to remind myself what trading is all about and where my focus should be. I wrote it because whenever I faced adversity and had ups and downs it always demotivated me and knocked the wind out of my sails temporarily. But I realized that to perform at a world class level I couldn't let that happen. So I wrote the following, and I read it every day at least once or twice:

    "It’s not meant to be easy to do all of this; in fact it’s meant to be very hard. If it were easy anyone could do it. Almost everyone knows what it takes; few can actually do it consistently. That's the challenge. When adversity strikes even when you're doing the right things, it’s not unfortunate because greatness is not just about doing the right things, but about doing them even when they cause pain and discomfort- weathering the tough times is the inherent prerequisite for being great. Adversity is built into the game and therefore it’s not an unfortunate set-back that is keeping you from your potential; rather your potential is cut very short without being able to deal well with adversity. So expect great results long-term, but adversity and ups and downs short-term. It’s got to always be about doing the long-term beneficial, not the short-term pleasurable. And we don’t deviate from that, no matter the pressure. And we relish the opportunity to be mentally tough when adversity strikes when so many would wilt and when it feels so unnatural to be optimistic and confident. That is the real goal and priority. Now keep conditioning- constantly reprocess and replace any thoughts that aren’t in line with all of this. It will take a great commitment to unlearn old thinking patterns and instill a new way of thinking to the point of habit. And you can do it."

    Reading this reminds me that I'm not a victim of circumstances. That adversity isn't some external factor sabotaging my results. It's part of the game. In fact, it's what the game is all about! You have to learn to relish the opportunity to remain poised when losses hit or when you make mistakes. Take pride in it and make it your main focus. Love trading's inherent difficulties because the ability to handle them is what will truly set you apart. And always remember: this is a game of hits, losses, and misses. Those that can take them best ARE the best.

    I wish you all the best in your trading.


  6. Reading the markets requires remembering the game you are playing - are the other guys going to want to pay a different price when I want out? It is a social cognition question. If more people realized JUST this, more people would do much better.


  7. Absolutely Denise!

    I'm usually thinking of who's in a winning/losing position at the moment; bulls or bears. Who's gonna pay you? The losers of course, so knowing how they'll be acting/re-acting in response to price action can be insightful. As the losers get stopped out, you exit your trade for a profit by filling their stop-loss orders :)

  8. Ziad,
    I kept going back to read what you wrote on Michael's blog, and I read your follow-up comments. I owe you an apology (if EP hasn't told you about my rant yet). It is clear to me now that you truly care about Michael's progress, and I really respect you for that.
    The irony of it all (again, I'm referring to my rant) is that I actually agree wholeheartedly with you on what trading is really about. It isn't straightforward, and most of the time, it's what you don't expect to work out that works out.
    I have to say, you are the most intriguing character I've come across on cyberspace, not just because you are wise and extremely eloquent's your guilelessness - it's refreshing.
    So, my apologies for having criticized you.

    EP: thanks for helping me make a good call. I would have really regretted it had I kept the post.

  9. Thx ziad,

    just found this article, very very useful indeed especially the "psyche me up" part.

    just what i need


  10. what blog are the referring to?

  11. Are you the Ziad that shows up in the FX500 Club?

  12. Great Article, Market is alive,not just some robot. The market mover every day is different. Economic News different from Earning News. Currency,Future,Index,Bonds,Commodity,showed link to the mind of market. It's how you intepret it. So Complex, Dynamic. Even learning what's on the mind of market maker also important. How the retailer or amateur would react to price action, Fade or breakthrough linked with the market environment. Anticipating what news will move the market, how the market react before earning announcement major stocks. How VIX and TICK react, what sector move the market, Behaviour of Pre Market Opening, and still more.

  13. Great read and covers the question why more than 90% of traders lose money.
    But don't think that a little more education (blog like yours) and some discipline will improve success ration?

  14. Ziad

    Your message is inspirational and I only just discovered this after reading the posts you have been making on in the last couple of days.

    Have you any practical tips on how to start the process. There just seems to be such a mass of material to look at.


  15. Hi Ben,

    I've never written a post on T2W before. Apparently there has been someone by the name of GladiatorX pretending to be me and making a lot of false statements, not least of which is probably that of his trading prowess. I just posted a couple of comments on that thread to clear up the mess he's created with everybody wondering what's going on.

    Anyhow, for advice on how to start the process, I'd first say make sure that you want to trade for the right reason. You can't be getting into trading because you want to be your own boss, or because the money is great etc. You have to do it because it's something you truly love to do. And be honest with yourself because trust me you are going to need "the love of the game" to fall back on during the many many tough times you'll face. I know I did.

    After you've determined that, then I would suggest starting out by educating yourself in a quality way. Of all of the books I've read, these are the ones that I would recommend.

    1) Trade Your Way To Financial Freedom - by Van Tharp

    2) Technical Analysis of the Financial Markets - by John Murphy

    3) Enhancing Trader Performance - by Brett Steenbarger

    4) The Art of Learning - by Josh Waitzkin

    5) The Psychology of Trading - by Brett Steenbarger

    6) The Disciplined Trader- by Mark Douglas (or/and Trading in the Zone - by same author)

    7) Mind Over Markets - by James Dalton

    8) Mastering Futures Trading - by Bo Yoder

    9) Reminiscences of a Stock Operator - by Edwin Lefevre

    10) Golf is Not A Game of Perfect- by Bob Rotella

    Not all of these books are trading related, and you don't have to read them in that order. But I think these 10 books contain all of the foundations of trading, from technical to psychological. Read Tharp's book first, as it will give you a strong base on what trading is all about. Then after you read the others you can
    deduce where not to take that book too literally in its concepts.

    Of course this is just the educational foundation, the real work is described in the post I wrote. And when you start to gain the experience then you'll be able to judge what's truly good advice when you read blogs and such, and what to disregard.

    Anyhow, best of luck on your journey.


  16. Great post, I just found this blog. (i'm rfoust on twitter) I feel i've hit a roadblock and this might be the reason why.

  17. ziad,
    what you have written is truly enlightening and empowering. And so different from many authors.
    And to me it seems a life lesson,not only about trading!
    Do you write on markets and other subjects?
    And where?

  18. Ziad, very nice post!! You have tackled head on the myths in this business!

    Can you please tell us the execution platform and the brokerage firm you use. I know in trading it is the trader who is left, right and center, who solely determines the success, but I think we can all agree a good brokerage and a good platform helps the trader better execute his trading plan. Do you think it played any role in your success?


  19. Ziad is not only a good trader he is a good writer. This article communicates and does it with action - the way he trades no doubt.

    This is very insightful and personally I have done many of the learning phases he has but he is a much better trader than I.


  20. An excellent overview on what it takes to make it - and stay in it - as a dedicated trader. I smiled when I read the list of top 10 trading books, noting the ones I've read and the ones I have yet to read. If one has the type of personality that revels in a lifetime of learning... trading can be the 'best of all possible worlds' for meeting this challenge.
    Tom Wiggins
    Pasadena, CA

  21. Probably the most true thing I've ever read about trading.

    Thank you so much for the contribution.

  22. This comment has been removed by a blog administrator.

  23. Thanks for all the kind comments everyone. Sorry about the late response Sharma and Niraj but I don't go back and check the comments often on this older post.

    Niraj: I trade with Infinity Brokerage and use their Infinity At platform. It's not as fast as TT's Xtrader, but I'm not a scalper so that's not a major issue. What I like about it is that it's the most intuitive platform out there in my opinion that virtually eliminates potential order entry errors. I tried out NinjaTrader and a couple others before and found them to be too easy for one to make order entry mistakes on them. Also, Infinity itself as a broker is quite good.

    Sharma: Thanks for the kind words.... but no I don't write anywhere else. In fact I've only written two posts on this blog. I often have things that I'd like to talk about but my passion is trading and not writing (I find it too laborious and time consuming), and I can't seem to justify spending time on writing when I could be working on my trading! :)

    1. Ziad,
      Just a word of thanks.
      it has taken me about 5 years but i believe your writing was/is still the start of the journey to learning to study markets to becoming a consistent ,calm and profitable trader.
      I re-read this and your other articles at open trader many times over these years..
      Your reference to the poker mindset book also helped.


  24. Hi Ziad

    wow - nice piece of work here and a great way of explaining the learning process

    being uber sucessful in any field is not just about combining constant and continual learning with practice and experience...its about challengng every single thing youve ever learned everyday and being ready to throw things away to move forwards....and that hurts !

    humans are not programmed to do this easily (self help 101) and the trading marketing machines know we are fed learn simple formulas and indicators that are kinda right some of the time and thats the best it gets ....right ?

    trading behaviour is a mirror on life (except its on turbocharged steroids !) everything you experience and see in the market is happening in a watered down way across this planet as people go about their daily activities....and the ones that are smart and willing to learn and adapt and change will achieve a lot more of their dreams and ambitions than those that dont

    one more thing of course - the big difference between tradng and life is that in trading the goal is simple (make pots of money) .....whereas life .....hmmm thats another subject !


  25. kiddddaaaa

    Very Inspiring post Ziad...Thanks

  26. Hi Ziad

    I also want to thank you for your true comments and inspirational truth about the market, I so wish I can be successful on this game but since you gave out all the advices and tools to build up the better trading I will do that.

  27. I agree with the message but not necessarily the conclusion. I think that was the point of the post. At least what I took from it. There is needs to be a balance, that is why information appears contradictory at times.

  28. I also agree with the message but not the conclusion, never the less it is a great article.

  29. Thank you for this post. After 2 years of fighting the market I finally "got it" and am now trading successfully. I am now grateful to be in a positions to give something back. this is one of the best trading posts i have seen and I will put a link to this post on my blog in the next few days.

  30. There are much wisdom in Ziad posts, but it is also paradoxical bacause what he is telling is kind of mind set up. He said it is something one should awoid. But it is just pardoxical, and what I want to say it is all relative. Whatever makes you profitable is asceptable. It doesn`t has to be complicated it is all about how you look at it and believe. It is all in your mind, thats the fact.

  31. Great articles, Ziad... well done. I believe we must also to remember to view price action with respect to exactly "who" controls it... Institutional Market insiders, Syndicate Traders, basically... Professional Money. Many of you may not know this, but Professional Money can stop price in it's tracks at extremely accurate moments with special orders only available on their sophisticated platforms which are called "ice berg" orders. These types of orders are designed to fool the public since they remain invisible to the general public..while Pro Money scoops up all they can at a certain level. Have you ever witnessed price dropping like a rock and then all of the selling pressure seems to be absorbed all at one specific price?... This is a sign of Professional Money stepping in and acting to temporarily support price... Here is where "context", as Ziad mentioned, comes into play. Price strength will show it's first signs as this kind of "stopping volume", but this does not mean that you can safely jump on the backs of Professional Money just yet... There is a hidden language of how the markets prove to other Professional Money traders if price will temporarily hold at a given level... Ready for the kicker?... it's what we all learned in Econ 101 and probably didn't pay much mind to it... Simple SUPPLY and DEMAND. This game comes down to being sharp enough and quick enough to visually determine, along with Professional Money, where price will hold or be rejected by reading SUPPLY and DEMAND. As Ziad expressed, it's learning to READ the market action that is the real key to being successful.

    So to expand on my earlier example...Noticing step 1 is witnessing "stopping volume" which will hold price in it's place, or cause a long stretching DOWN candle on HIGH volume to finish in the middle or near the HIGH. Most traders witness a red candle on high volume and associate this with continued negativity...well not if the high volume was used to hold price above it's midline of that trading candle. You then must wait for step 2 which is known as "the test"... and this is where Professional Money FORCES the decision on SUPPLY and DEMAND. Pro Money will send price lower than their original large entry point, thus shaking out many traders and also allowing other Pro Money organizations to either Put Up or Shut Up... meaning if more SUPPLY comes in on the second sell off, then price will continue to fall until it can reach true support... if, on the other hand, volume is much lighter on the second sell, this tells Professional Money that they may trust the support they all witnessed in the first absorbtion candle, and they will together join in on the upside.


  32. So the true ART of trading becomes being able to recognize SUPPLY and DEMAND and have foresight that leads you to decipher the temporary intentions of Professional Money.... I say "temporary" because this process and language between Professional Money is CONTSTANTLY CHANGING. If you learn to properly READ price action along with volume and determine where Professional Money is stepping in with their own money to hold the market at a specific temporary boundary... then you will actually be buying at true "wholesale" levels and unloading them to the general public who is rushing to buy breakouts.

    Reverse these principles for a weakening upside rush on high volume finishing at the midline or lows of the candle... after a first normal profit taking pullback, if you witness that the second "test" attempt at higher highs is met with greatly reduced volume, or if price action exhibits another display of high volume "stop blowing" and hurried price rejection... this may be your sign to go short along with Pro Money.

    These principles are based on the mechanics of VSA (volume spread analysis) which you may freely research online.

    Remember... the market is called THE MARKET because it's a routine exhibition of SUPPLY and DEMAND in every time frame. Learning to READ what is truly unfolding in real time is the only key to steady success. Lagging indicators such as moving averages are only useful for you to notice at which points the Professional Money may step in to act out their showing of SUPPLY and DEMAND behavior.

    Best of luck to all in your trading endeavors!

  33. Good stuff blackerlacquer. Thanks for your insights.

  34. is there anyone who can point me in the right direction to become a successful trader in the stock market ?

  35. Showing vast improvement in my tilt, fear and stopping out! Thank You Ziad. Great post.

  36. Thanks Ziad. Your observation helped me to focusing no setups and just reading the market. I've been consistently profitable for weeks now. Thanks


  37. Anyone else still come back to this post every few months? (especially during drawdown!)

  38. Yes, I come back to it every few months. Extremely insightful. My friend called it the "Truth about trading" a long time ago. I am inclined to agree with him.

    He has since become a consistently profitable trader. I am looking forward to the day I become profitable too.

  39. Nice post thank you Josh


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