Tag Archives: following your instinct


Last week I sent an inquiry to readers of my New Trader FAQs book asking them for feedback and suggestions for additional questions that could be added to future editions of the text. One of the readers sent in a question I thought was a really good one. It was "What was it that turned you into a profitable trader?"

This, of course, is going to vary from trader to trader, so you're likely to get a different answer if you ask someone else, but let me share with you what I think was the real turning point in my trading. This wasn't some flip-the-switch sort of thing where I was always losing and then I was always winning, but it definitely laid the foundation for becoming a much better trader. It was doing my own analysis and not listening to others.

When I first got into the markets I was very often influenced by the opinions of others. For example, I got a few ideas from the stock broker who taught one of the courses I took in my early college years. Others came from things I read or heard from different sources. At this point, better than 20 years later, it's hard to recall the specifics but I know that while I was doing a lot of research on indicators and trading systems and whatnot, I wasn't producing much of my own individual analysis to come up with ideas.

That started to change with one specific trade. It was a position in NIKKEI put warrants. Think of it as something like being long on a short ETF for the NIKKEI (though technically it wasn't quite the same). This was 1990 when the index was trading up above 30,000. ETFs weren't anywhere close to being what they are today, and I wasn't in a position to trade the futures market, so these put warrants were the only real option for me at the time. I can't recall the specifics, but I know chart analysis was involved. I got long the put warrants at somewhere in the 5s.

Now, if you know your NIKKEI history you might be thinking, "You got short when it was above 30,000!? You must have made a fortune!" While it was definitely, by far, the best trade I'd ever made to that point in terms of return, it was a bit of a failure in terms of getting out. I bailed much too early, selling the put warrants somewhere in the 9s. They would eventually go above 25. I still cringe thinking about it. L

But the mistake of getting out too early is part of my point in how doing my own analysis and trading made a big difference. If you rely on someone else to tell you what to do you miss the opportunity to learn from both your successes and your failures. If that was a trade where I had just bought when someone told me to do so and exited when they said so, I would have lost the opportunity to get positive feedback on my initial analysis and negative feedback on my early exit.

Now, this is not me saying you shouldn't follow what other people do. Just do it the right way. If you want to develop as a trader (and not just let someone else effectively manage your money) then when you track another trader's actions you should work to understand their analysis and justifications for what they're doing. That way you can learn what works, what doesn't, and how a strategy works in varying market conditions.

What about you? What's been the turning point in your trading so far?


Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.