5 Ways I Can Smell You Will Be A Failed Trader A Mile Away

In honor of my 45th birthday I went out to my favorite cigar bar this weekend, The Buena Vista Cigar Club owned by Rigo Hernandez.

The “club” is really just a hole in the wall, but it is a great little bar and one of the few places left in Southern California where you can actually enjoy a cigar, inside, with a cocktail.  Rigo has been in the business for over 40 years and he knows everything there is about cigars and the cigar business.

As he and I were chatting, a couple of heavy-set, very well dress ladies came into the bar.

“They are not cigar smokers,” Rigo immediately said to me.

I assumed he was taking a cue from the way they were dressed or the fact that they were women, which seemed like a bit of a superficial judgement, and very out of character for Rigo.

“Why, because they are women?” I replied.

“No certainly not,” he answered.  “I have plenty of women come in here who love cigars.  In fact my Abuelita in Cuba used to smoke three or four cigars a day.”

“Then why do you say that,” I continued.

“When you have been doing this as long as I have, you just develop a sixth sense for these things.”

Now being the gentleman that he is, Rigo wasn’t going to treat these ladies different than any other customer, no matter what he thought their proclivities were, and he went on over to greet them and take their order.  The conversation went like this….

“Welcome ladies, what can I get for you tonight?”

“Can we see a food menu?”

“Well, we don’t serve food here, however we have a menu from the Italian restaurant next door.  You can call them to order and they will deliver it here for you to eat.”

“Hmmm, okay…well then could we see a champagne list?”

“I only carry two types of champagne as we don’t get much call for that.  However, I have a very extensive selection of fine rums, scotches, cognacs, ports, and tequillas. Of course we also have a great wine list and a number of domestic and imported beers.”

“No champagne list, huh?  Do you have any Groupon deals?”

“No, I am sorry madame, we don’t.”

I was mesmerized by this conversation. Everything these two said or did screamed that they did not belong in a cigar bar, the final evidence coming when they asked Rigo if he had any “cherry flavored cigars.”

They eventually did order pizza from next door, had white wine spritzers, and a couple cigars….both of which they let burn out only three-quarters of the way smoked, and then asked for plastic bags for them so they could “take them to go.”

As the night went on and I thought more about this incident, I realized that it really wasn’t all that amazing.  Rigo was right, when you do something day in and day out for years on end you will often be able to pick up on cues and characteristics that can quickly let you “clock” somebody.

In fact, it is something I do all the time when I speak to people about trading.

Now first let me say that I think EVERYBODY should try to learn to trade.  I also believe that learning to trade takes a lot of work, and it is not always evident right away whether or not someone will ultimately end up as a successful trader.

But there are some characteristics that I see in people from time to time that are almost always “deal breakers” in terms of their ability to become successful traders.  As long as they posses these traits, in my opinion they will never be successful at trading no matter how long they try.

Assuming Expertise In Some Field Will Translate To Trading

This is the classic “doctor at the poker table” scenario.  Poker pros love it when a doctor sits down with them at the table, because doctors as a percentage are notoriously bad poker players.

Despite being able to complete tremendous amounts of study, survive intense on the job training, and at times having the power to snatch life back from the brink of death, none of those skills transfer to the poker table.

I don’t care how great you are in sales, chess, astrophysics, yoga, firefighting, electronics, engineering, bull riding, construction, or cinematography, none of those things will help you when you decide to learn to trade.

Those that come in wearing their extraneous successes as a badge of honor, sure it will give then a leg up in the markets, will almost always end up like the poker playing doctor….busted, broke, and bitter.

Having A ‘Know It All” Attitude.

We all know this person.  They know everything.  I mean EVERYTHING.

Who played keyboards on The White Album. The mean temperature on Pluto during winter. How the President can fix the economy.  Who built Stonehenge.

These types will find out how much they don’t know, and quickly, once they get in the markets. For them trading will be their worst nightmare, one they probably won’t survive.

It will be like they are in a street fight and the market is their opponent, hell-bent on teaching then a lesson they won’t soon forget.  Only it won’t be the type of fight where a few punches are thrown until somebody gets knocked down, and then the victor helps the defeated up, they shake hands and have a drink together at the local watering hole.

No, it will be the type of fight where when they get knocked down the market will start kicking them on the ground, in the head, with steel toed boots.  Then the market will go look for a pipe from a nearby construction site to start beating them with.  And if they haven’t crawled away in a bloody mess by then, the market will take a friggin’ cinder block and use it to try and crush their skull.

Not Knowing When You’ve Have Had Enough

In middle school I watched a guy taunt a bully all day long, and then run away when the bully came after him.  He kept doing this until the bully finally caught him, and I thought the guy would get what was coming to him.  But surprisingly, the guy begged and begged the bully for clemency, and perhaps feeling a momentary flash of compassion, the bully let him go.

And as soon as he did, they guy started taunting the bully again. Suffice to say, when the bully caught him the next time, he kicked his ass.

The guy didn’t know when to stop.  When he had pushed it enough.  He’s the same type that takes one to many drinks and crashes his car.  Throws one to many rolls and craps out. Lips off to the policeman one to many times and ends up in jail.

This type will always keep taking trades NOT because the setups are valid and warrant it, but because they never know when to say “that’s enough.”

He will be the guy that gets up for the day, but has to take “one more trade,” and gives it all back.  Being up 50K won’t be enough, because he could be up 100K, so he will push his positions and lose it all.

Not Understanding The Concept Of Risk/Reward

I knew a guy in college.  His standard move was, when drunk, he would climb to the top of the apartment complex he lived in off campus, and jump down into the pool in the center courtyard.  Everyone that was partying in the complex would be cheering as he stood atop the roof, egging him on for the big feat.  He loved this, as it gave him the distinction of being labeled a “party animal,” which was his “reward.”

Then one night he missed.  Came up a wee bit short. Smashed his foot into the edge of the pool as he came down.  Broke his foot and shattered his tibia and fibula.  That was his risk.

He still walks with a limp to this day.  He didn’t really understand the concept of risk/reward, but hey, all his drunk college buddies did think he was cool.

Those with this character flaw are made mince meat of in the markets.  They will take on three, four, five units of risk for one of reward.  When you practice this inverse risk/reward relationship you can be right on 80% of your trades and still blow your account out.

Being Afflicted With The “Babe Ruth” Syndrome

Everyone knows The Bambino was a home run king.  The mythical figure who pointed his bat skyward, picking the exact spot where he would crush a dinger for little orphan Timmy before he succumbed to rubella.

But “The Babe” was also the strikeout king.  Of his at bat outs, 24% of them were strikeouts. The average batter of his time only struck out 12% of the time, meaning Ruth struck out twice as much as his contemporaries.  It was all or nothing.  Home run or strike out.  Sydney or the bush.

In baseball you can get away with that, but in the markets you can’t.  You build your success with singles and doubles and if you are lucky, the occasional home run will pop up, but if that is all you are shooting for, you will in all likelihood have too many strikeouts.

Those strikeouts will deplete your capital until you will get to the point where you can no longer play in the game.

In Conclusion

Like Rigo I try to be a gentleman whenever I talk to people about trading, making sure to treat everybody with the same respect, and never disparaging them, even if my gut tells me that they possess one of  the previous traits.

If you possess one of these traits and are thinking of learning to trade, it’s best to seriously consider if this is something you are willing and able to change about yourself, or you risk having a very rough time in the markets.

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35 Responses

  1. Pingback: Enhancing Trader Performance by Learning from the Lessons of Failure | SMB Capital - Day Trading Blog

  2. Thinking you’ve got it all down is quite simply the worst mindset anyone can take to anything. One of my friends doesn’t know what a P/E is, much less anything remotely more complicated, yet he’s saying he’s thinking of binary options. No matter what I said to him I couldn’t shake the concept, I implored him “learn the basics first because options are much more complicated”. He seemingly was unmoved.

    It’s the gambler’s mindset. They don’t necessarily understand it’s actually a rational system.

  3. I’m a pro trader and have been guilty of every one of these traits at one time or another. I also know many traders similar to me that have been unable to step back; those guys are now out of the game. I think BCL doesn’t actually mean one with these faults can’t be a successful trader. Rather, one who lacks the ability to, at some point, take a step away; those folks will often fail (at least on the first few blown-out accounts). If the markets call you, heed the call. If you fail, try again. The market never stops teaching lessons to traders. Stick with it, find great mentors, take your blows, and one day you’ll make it. However, it isn’t easy no matter how perfectly disposed one may be. In all honesty, those destined to be traders are entreprenurial types with bottomless self-efficacy. So, no matter what BCL or any other veteran says; if you don’t believe you in yourself, you’re not ready for this challenge. I can’t begin to count how many “idols” I’ve had in my life that have ended up being bullies with their own issues and jealous tendancies. Only you know if you have what it takes. All this said, I still identify with where BCL is coming from. Ultimately, those most likely to succeed in trading have similar character traits; they’re grounded in reality, honest, and have a sense of their place in the world. Don’t overthink it. Buy the ticket, take the ride…
    Cheers and thanks BCL,
    DP

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  7. none of that anectdotal shit has anything to do with whether anyone can trade or not…what makes you think you have the skills to be a successful trader or to judge or qualify others? seems you self- anointed yourself.

  8. “In baseball you can get away with that, but in the markets you can’t.
    You build your success with singles and doubles and if you are lucky,
    the occasional home run will pop up, but if that is all you are shooting
    for, you will in all likelihood have too many strikeouts.”

    Hello. If this isn’t a good strategy, then please explain what strategy one should follow for consistent gains over the long run.

    Is it something like “cut your losses quickly” and ” a 1:3 risk:reward ratio”?

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  11. awesome, some others

    - lack of independent thinking and always looking for experts to tell them what to think and or acolytes to impress

    - lack of focus and discipline to define a strategy and stick to it

    - no ability to constantly self-improve and be self-aware

    - unrealistic expectations of returns, %winners – expecting to be George Soros overnight and not understanding power of compound interest

    - taking every twitch in the markets personally and not viewing it as an odds game

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