Managing your expectations under the pressure of peer performance
When traders browse trading forums they’ll notice that the forums are generally sub-dived into various sections. You’ll have: general trading discussion, broker discussions, trading journals, platform discussions and the “anything else” sections. But without a doubt the most eagerly viewed sections, generally by a factor of over 50% versus the other sections, tends to be the systems and interactive trading sections.
The reason for the popularity of these sections is obvious; new or inexperienced traders immediately gravitate to browsing there as they’re looking for what we’d term a “Holy Grail” system. They’re looking for a bullet proof 100% winners trading system. A method that another trader has supposedly invented, that the originator now wants to share with other forum users. That sharing can be genuine, the originator may recognise that there’s nothing new in trading, it’s all been done. They may want genuine comments regarding their system, wanting to see constructive, critical and robust dialogue generated by the various opinions to test their system and their claims.
Of course amongst the genuine originators will be the sophisticated marketeers trying to ensnare new traders by the use of ‘high language’ techniques designed to seduce the inexperienced…
In amongst the systems’ threads traders will often see claims made that are deliberately aimed to target and to appeal to new traders. For example, there may be wild claims of percentage returns, the originator of the thread may claim 2-10% returns per day and what’s remarkable is how few of these claims are ever challenged by other forum members. Small wonder that so many traders, from very early on in their trading careers, begin to accept these type of claims as the norm, when in reality they’re far from the normal performance most readers will recognise and experience as fact.
Many new traders feel an intense pressure to perform; they scope out opinions on forums and immediately compare what they’re being told with their own performance. For example, they may see claims of 10% account growth per day, compare it to their own returns and believe its possible if they follow a fairly simple to execute plan. So how do you separate the wild claims made on trading forums, from the more reasonable ones? And how do you rationalise the claims and reach a coherent evaluation of what you’re being told, or more likely ‘sold’?
Firstly it’s worth acknowledging that there are ‘genuine’ traders who will enjoy spectacular results for a period of time. Many of these traders operate on copy trading sites and have calculated that, over a given period, if they’re wildly successful, then they’ve a far better chance of ensnaring the gullible.
Therefore they’ll use incredible levels of risk in return for a good spot on the leader board. For example if they gamble 50% of their account, have three wins in series, with the R:R greater than 1:2 and compound the first two successful trades’ winnings, they can put forward an incredible performance figure that new traders’ would immediately be attracted to. However, the next trade if it’s a loss could wipe out all the profits. Another loss in series and the account is down 50%. So if you were looking to compare your results and you were perhaps looking for advice or to copy trade what kind of results should you be looking for?
Firstly if you’re looking to take advice from anyone on a trading forum look at their reputation. Most forums have methods by which other traders can recommend others. How long has the individual trader been on the forum? Six months, or six years? If it’s the former and they’re projecting an air of success, then it’s only be natural to question where they’ve been hiding since on line trading took hold from 2000 to the present day? What of our system seller or potential copy trading partner, how can we quickly evaluate their honesty, probity and performance?
The suggestion would be to look for a trader who can provide up to a two year track record without a name change, or system change. A trader who has demonstrated tight money management during a drawdown. A drawdown that hasn’t exceeded perhaps 15%. A trader who’s annual return is less than 200%, perhaps a steady 10% account growth per month. That’s the kind of performance return we can all relate to; its believable, it’s proven and it’s the kind of return that new traders can relate to as achievable in their own right.
As traders become more experienced they’ll develop a sixth sense where weeding out the dishonest and those with a tendency to exaggerate. Whilst building up that experience it’s important that the less experienced traders in our community use the type of metrics we’ve suggested in order to establish whose ‘real’ and who isn’t.
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