The Relationship between Success and Credibility (Part 1)

Recently I have been trying to slim down my Drafts folder by completing some blog posts. The current topic is whether consistent profitability ought to be a sufficient or necessary condition for credibility when listening to others talk trading.

This post goes back to “Mr. Know It All” who I introduced here and proceeded to discuss here.

Actual success does not mean I know what I’m talking about. I could be far too aggressive with regard to risk management and lucky not to have gotten clobbered [yet]. In my experience, Mr. Market offers extended tastes of random success between the occasional, inevitable days of reckoning where most traders will be forced to pay the piper.

“Actual success” is a term that demands operational definition. Claims of profitability are more encouraging when backed by large sample size. Generally people claiming profitability are not forthcoming with enough details to assess validity of those claims (e.g. number of trades, time interval, and position size relative to whole portfolio). This is especially true for strangers or acquaintances.

Mr. Know It All offered unexpected transparency when he admitted a track record of losses. I wondered if he planned to continue [losing money]. Was trading futures his substitute for buying lottery tickets? He clearly enjoyed being listened to and viewed as some sort of authority but why would I follow anything he said?

If you believe the statistics then most traders lose, but should they all be ignored? My initial response was affirmative unless I just want to lose a little over a limited period of time. This is a gambler’s mentality, though, and I am here to trade as a business. Traders who lose because of excessive position sizing may have some useful knowledge to share provided I am less susceptible to greed and able to trade smaller.

I do not believe disciplined traders should lose on a regular basis—certainly not to the extent of being net negative over an extended period. These people should be trying to learn from others rather than looking to soak up spotlight for themselves.

I will continue next time.