Chasing Greatness In Trading

I haven't written a blog post for many months now, but recently something caught my attention that I felt I had to comment on. Dr. Brett Steenbarger of Traderfeed, whom I greatly respect and admire, wrote a post about being conservative and not having an "all-in" attitude so that you can weather the inevitable trading setbacks with ease and keep moving forward. While I generally agree with most of what Dr. Brett writes about, this time I have quite a different opinion. As such I wrote a comment to his post, and I'm reproducing it below as a post of its own as I believe it has something worthy to say. I hope someone out there can benefit from it.

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I think it really depends on who you are and what your objective is when it comes to the issue of your attitude towards loss in trading. If you're just trying to make a safe, smooth, decent return on your cash, then yes conservative is the way to think. However, if your goal is to be a world class trader- among the best- then such a conservative attitude won't cut it in my opinion.

I think where traders get it wrong is confusing account volatility with risk. This isn't "risk" in the truest sense of the word. Risk, to me, is risk of ruin. If you have a demonstrated positive edge to your trading across varying market conditions, and you have a risk of ruin that is virtually nil, is it truly "risky" if you have large account volatility? I would argue otherwise. The only risk here is emotional risk. That's what account volatility is to me when a trader has a persistent edge and no risk of ruin due to correct overall position sizing. It's only emotional risk because under such conditions the drawdowns will be recovered and new equity highs will be made. Just like you recovered 2.5% in no time, an aggressive trader can recover 15% or more in no time. Same thing, just amplified. The only issue is whether the trader can stomach the drawdowns.

And so if you think in this way, then you also realize that to be a true world-class trader, you must train yourself to stomach the drawdowns that come with pushing for the big returns. That's what it's all about. All the greats we hear about were aggressive. They didn't become great and make countless millions by being conservative and being happy with small rates of return to avoid account volatility. Later on when they created hedge funds they may have started really caring about minimizing drawdowns because you can't raise investor money with big drawdowns, but in general most of these guys weren't afraid to risk big when they had conviction, and that's what made them the huge money and that's how they became legends.

As for the skier mentioned in the NY article, I think the message from that article is distorted in this context. He had exactly the same attitude as all the greats have in all sports. Not afraid to put himself on the line and risk painful failure to achieve great things. However, he was also immature and had drinking problems, and those were his real vices- not his all-in mentality in his sport. If he had landed that jump, he would have been called a hero and been exalted for his great boldness and skill. And rightly so. It wasn't this that was his downfall, it was his lack of self-awareness and maturity.

As is with traders. The greats that make millions have an all-in mentality, but this is tempered with prudence and self-awareness and isn't the same as being careless and risking ruin. All-in in this case means being willing to bet big and stomach big hits in going for stellar returns, while at the same time keeping true risk- the risk of ruin- at an extreme minimum.

That, to me, is the essence of trading in the big leagues, or being in any kind of big leagues. You don't get there taking the cautious comfortable route. You get there by being willing to handle adversity that others can't, while doing it with an air of prudence. And THAT is what I'm aiming for, and what I think every trader chasing greatness has to aspire to.

Ziad