Trading Truths #7: Practice Makes Probable. Photo: Andrik Langfield (Unsplash)

Trading Truths #7: Practice Makes Probable

In this series titled Trading Truths To Learn Or Liquidate By, we hear from Patrick Munnelly, head of Prop Trading at Littlefishfx.com.


#7: Practice Makes Probable

Trading is no different to any other cognitively-demanding pursuit, the problem in this business is that the uninitiated are bombarded by the false promises of get rich quick schemes, which fail to advertise the realities of the business.Patrick Munnelly

Macolm Gladwell, the famous investigative journalist, is the most prominent proponent of the principle of the necessity of 10,000hrs of practice to achieve excellence in any field, a rule he made famous in his fantastic 2008 book ‘Outliers’.

In the book he outlines various stories that highlight the notion that, to achieve a level of professionalism in any endeavour, based on a time commitment of four hours a day the average person would need to commit ten years of their lives in a journey to attaining excellence in any field.

One of the examples he gives is asking a record manager at Warner music to state which album he thought was the best in Fleetwood Mac's catalogue. As anticipated, the music man immediately suggested that ‘Rumours’ was the pinnacle of Fleetwood Mac's work.

This album is widely accepted as their premier production, and when Gladwell then asked which number in their catalogue of work the album came, the music man posited three - their third album. It was in fact their sixteenth album and the band, in various forms, had been together for ten yen years by the time they released it.

This story is offered as an illustration of the common misperception that when we see excellence we believe it to be a natural gift that is derived by chance. What we fail to perceive is the inevitable blood sweat and tears behind success in any field that leads to the point of perfection.

Trading is no different to any other cognitively-demanding pursuit, the problem in this business is that the uninitiated are bombarded by the false promises of get rich quick schemes, which fail to advertise the realities of the business.

Furthermore, these charlatans fail to suggest actually committing yourself to the business and learning it inside out. Think about it, would you watch a two-minute video on dentistry or take a five-day course in neurosurgery and step into an operating theatre to open up a member of your family? So why should trading be any different.

This participle is equally applicable to your financial well-being. It is ludicrous for someone to believe that they can watch a 45-minute trading education video and then take their retirement capital and move it straight into a live account, leverage up and multiply ten-fold by year-end. That is simply never going to happen.

So if we take the conscious decision that we want to self-manage our money in the markets, then we must also take the self-conscious decision that we are going to have to seriously apply ourselves to learning about the markets and then we must further commit to developing a successful and profitable trading strategy. We then have to rigorously test that strategy, refine it, develop an appropriate risk management strategy and so on.

Now this wont necessarily take 10,000 hours, but it sure as hell will take longer than 10,000 minutes.

Even once you have developed and refined your strategy you will then need to practice deploying that strategy testing in a demo account, deploying real capital and scaling up your capital exposure as you become more skilled in trading your chosen strategy. This again will take significantly more that 10,000 minutes.

Then even once you have become skilled in deploying your strategy and become comfortable with the psychological challenges of managing risk, experiencing drawdowns, adverse and favourable markets conditions - even then you will never really perfect the skill of trading. At best you will prefect the skill of operating skilfully in an environment whereby your best and practised efforts can only deliver probable outcomes under ambiguous conditions. Once again this is a commitment in excess of 10,000 minutes.

Now please note, I am not trying to frighten or warn anyone off from undertaking this endeavour, but what I am trying to give you is a genuine sense of the scale of the undertaking you are embarking upon. There are no short cuts in life or in trading.

Friends and family alike often remark to me that my life must be great, I spend a few hours in a comfortable chair in my well-appointed home office trading, from which I reap a handsome living. But what they fail to see is my personal journey of blood sweat and tears, the liquidated accounts, the self-doubt and the hours, days week and months, and the three years in total (not 10,000 hours but not far from it) that I had to commit to learning to become a consistent and profitable trader. A high probability, but not perfect, trader.