The following is an interview with Lachlan Elsworth, conducted for Your Trading Edge magazine.
Lachlan Elsworth (“Lachy”) is the Founder and Trading System Architect at the International Day Trading Academy, based on the Gold Coast of Australia. Lachlan is a global advocate for honesty and transparency in trading and is globally recognised as the emerging force in Futures Trading and coaching globally. In this interview, Part One of a Two-Part Series, Lachlan discusses how to avoid Self Sabotage in trading and the tactics he uses every day to stay on top of his trading psychology.
YTE: Ok Lachy, let’s get into it – what is the key to success in trading?
Lachy: Hi there, what a great question, and a question that will take some significant work to answer.
The key to success in trading is understanding that your psychology around money, and your psychology around Trading, needs to equally match the power of your trading strategy. If either of these psychologies are not 100% up to speed, it doesn’t matter how good your strategy is, you are unlikely to be successful as a trader.
The key to your success in Trading is therefore to find an intricate balance between psychology and strategy. To create this balance, traders must be able to trust the market they are trading and trust themselves while they are trading it! If you trust what you are doing intimately, there is little if any emotional impulse to misbehave while you are trading. Having coached over 1300 traders in 21 countries, may I suggest that this is the ‘secret sauce’ to great trading. Even in my own trading, I use my statistics to defend against the emotional impulses to break my trading rules while I am trading.
YTE: Lachy you mention trust a number of times here. What are the keys to developing trust in trading and trust in ourselves while trading?
Lachy: That is a stunning question so let’s break it down.
Your first step to developing trust in Trading is to keep statistics. The statistics have got to show you how effective your strategy is in hunting winning trades versus losing trades. These stats must also highlight that your strategy is ultimately profitable. Your stats need to prove that your strategy runs at a +80% success rate, using a certain target and a certain stop, and that ultimately the strategy makes money.
Some YTE readers may question a +80% success rate, sure, however such a success rate is very common in Futures trading and brings up a great education point. Futures traders do not trade through conventional OTC Brokers, like FOREX Brokers or CFD Brokers for example. Futures traders, instead, trade straight to and from a Regulated Stock Exchange, like the Chicago Mercantile Exchange, and we do this without the use of an OTC Broker. This means that there is no one ‘in the Futures trading game’ that can manipulate the price of the markets against us while we are trading these markets. This also means that we can get on with the task of being great traders with the understanding that our market is 100% protected against all forms of OTC Broker initiated market manipulation. I wish I could say the same for FOREX or CFD trading for example, but alas I cannot.
Your second step to developing trust in trading is to build a positive trading psychology around these statistics. Many traders experience emotions while they are trading and the fastest way to combat these emotions is to fall back on your stats. There is no such thing as FOMO (fear of missing out), or Over Trading (taking too many trades), if you know your strategy works and you trust your stats as if they are second nature.
Having coached over 1300 traders in 21 countries, may I suggest that this is the ‘secret sauce’ to great trading. Even in my own trading, I use my statistics to defend against the emotional impulses to break my trading rules while I am trading. If you trust your strategy, you trust your statistics and you trust your plan, there is no need or requirement to take trades that don’t meet any of these, it is that simple.
YTE: Lachy, you raise a great series of points here! What is the next step for Traders who want to build on this positive trading psychology?
Lachy: Once you know your strategy works, and you have the statistics to prove it, your next step toward trading success is to understand and then take advantage of the power of compounding.
Many traders I have observed, globally, are in a rush to make money out of trading. These same traders do not realize that it is this ‘rush to make money’ that could undermine their potential success in trading. Understanding compounding is the key defence against this rush so let me explain this through an example.
Let’s say I start a NASDAQ trading account with a $3000.00 AUD balance and my goal is to earn $100.00 AUD per day on that account. Let’s also say that I am starting as a ‘one contract Futures trader’, meaning that I am trading the smallest Futures position I am allowed to trade in the market.
My intent is to initially double the value of my trading account. Once I have doubled my account, I have earned the right to double the number of contracts I am trading. My intent is to then triple my trading account. Once I have tripled my trading account, I have then earned the right to triple the contracts I am trading. I intend to follow this process all the way up to 10 contracts. Let’s also say that I am trading at an 80% success rate, meaning my trading is only effective four days per week out of five.
If I manage to achieve my $100.00 per day per contract goal, four days per week, for 12 months, and step up to 10 contacts as I have suggested, I will earn over $100,000.00 AUD in my first year of trading. That is a very serious return from a $3000.00 AUD start and highlights to me the significant potential benefits of understanding and then taking advantage of compounding. I am well known for saying: “Please go slow to go fast!” when I am coaching professional traders and this math is the very reason why I say it.
YTE: Wow Lachy, for Part One of this interview, we have covered a lot. Any gems to end the interview with?
Lachy: Absolutely. The key to your success in trading is to know your statistics and the compounding effect that can result from a great strategy used correctly. There is no rush to make money if you want to be a professional trader. The keys to your success in trading are your statistics, your trust, the power of compounding and your ability to take advantage of all three.
YTE: Lachy this has been brilliant, thank you!
Lachy: Once again, thank you for having me and it is always a pleasure to work with YTE!
Lachlan Elsworth, Founder and Trading System Architect | The International Day Trading Academy.