When one has been working in his or her craft for decades, it is without a doubt that the person would have an abundance of wisdom on how to achieve mastery in his/her field.
The late Dr. David Paul who passed away recently is such a figure in the world of trading. As someone who has traded the market since 1982, Dr. David Paul has left us aspiring traders with much trading wisdom, especially on trading success and psychology.
I got to learn about the late Dr. David Paul from another trading legend that I admire, Tom Hougaard (author of ‘Best Losers Win’).
This post is a summary of nuggets I picked up from Dr. David Paul’s lecture in 2022, which massively helped me become a better trader. You can check out this hour-long lecture which I’ll embed at the end of this post.
#1 On price & volume:
“Looking at price and volume together is an edge in my humble opinion. The big players can easily manipulate price, but they can’t manipulate volume that easily.”
My takeaway: An advantage that smaller traders like ourselves have over big players, is we can enter and exit as we please thanks to our relatively small volume that wouldn’t impact the market.
Big players, on the other hand, are not able to accumulate and let go of their positions as freely as smaller traders do due to liquidity restrains. As such, a large order from big players has to be organized into multiple executions.
Knowing this, and combining price action and volume, would help in improving a trader’s overall execution.
#2 On curve-fitting a trading strategy:
“The one thing you know about curve-fitting, folks, is the better the fit to the past, is gonna produce a bloody awful fit to the future, that’s for sure.”
My takeaway: I can relate to this as a trader who tried to make my backtesting results look like a beautiful (or perfect) upward curve in the past, just to find that it doesn’t work as well in live trading.
In other words, having a beautiful upward slope in your backtesting is NOT going to guarantee equally impressive results in the future.
Instead, embrace drawdown for a single strategy, and focus on developing multiple strategies with different correlations. Having a diversified portfolio of strategies is the most realistic way to smoothen an equity curve, instead of forcefully curvefitting a single strategy.
#3 On trading process & edge:
“As I said, you need some form of process. And the discipline to follow the process through thick and thin.”
“Unfortunately, after 1 or 2 bad trades, everybody changes. Recency bias caused us to curvefit to what worked well yesterday.”
“It takes a great deal of effort to follow a simple set of rules through thick and thin.”
“It’s not the clusters of bad luck that get you. It’s the clusters of good luck that really get you.”
(On letting ego and overconfidence take over and not sticking to our position sizing plan)
Of all, I love this one the most:
“Traders need 2 levels of belief. On the level of one trade, you have to firmly believe that anything could happen. On the level of 30 trades, you have to believe with every core of your being, that your edge will work out. And that’s difficult. All of us understand probability at an intellectual level, but understanding probability at a stomach level is quite something.”
#4 On emotions, fear of being wrong and losing money:
“What’s your true motivation for being in the market? Are you in the market to make money or are you in the market to solve the puzzle? I gonna leave that with you, think about it. Most people are in the market to solve the puzzle. They think they are in the market to make money, but they are not.”
“If I win 80% of the time and lose 20% of the time, I wouldn’t know if the next trade is one of the 80 or one of the 20.”
My takeaway: Having an idea of how many losing streaks a trader can expect in your trading strategy can help him/her look at losing streaks as part of trading, instead of an outlier.
“You can always cope with the present but it is very difficult to cope with the future. It is in my humble opinion that it is impossible to feel fear in the present moment. Realize that the present moment is all you have. All winning traders live in the present moment.”
“Cultivating the discipline of a silent watcher. To become a silent watcher of your thoughts. Don’t judge your thoughts, and you will notice that trading-related thoughts will come over and over and over again. Don’t judge them, but do your best to laugh at them and dismiss them.”
#5 On trading styles:
“It’s my conclusion, after 40 years, that we don’t really trade any market at all, we trade our beliefs about the market. Your job as a trader is to find a process that suits your belief system about the market, and do your best to refine your process and to scale that.”
My takeaway: No point arguing with the other traders about different trading styles. You do what works best for you.
“The objective, is to learn how to play the game, to have the resilience to go through the inevitable drawdown, and to have the fortitude to go through that – clearly a little bit of position sizing will help.”
#6 Major beliefs that a successful trader has to have:
“Money can be made in the markets.”
“I can make money in the markets.”
And that’s going to take a bit of work, because the market is going to do its damnest every other day to prove to you that you can’t.
“I deserve to make money in the markets.”
Thanks, Dr. David Paul for all the wisdom that you leave for the trader community!
If you'd like to watch the full lecture from Dr. David Paul (highly recommended!), click on the photo below:
Dr. David Paul Full Lecture: https://www.youtube.com/watch?v=gAYLXYmUUCg&t=2112s
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
