Have you ever wondered what separates professional traders from those who give up after their first few months of trading? In this series, we'll be interviewing three expert traders to learn about their trading journey, the top lessons they've learnt while trading the markets, and their tips for new traders.
And we're excited to kick things off with Jens Klatt!
Jens Klatt is a professional analyst and trader. He has been trading the global markets for over 10 years now, is the author of two bestselling books in Germany and is regularly featured on television and in the German media for his outlooks on the market.
He has also partnered with Admiral Markets to provide financial markets commentary, including technical analysis and market outlooks and strategies in the Trader's Blog, and he is one of the hosts of our brand new webinar series, Trading Spotlight.
In this interview, we discuss Jens's early failures as a trader, his insights into why most traders lost money, and his top three insights for new traders.
What did you do before you became a trader?
Before I went into trading, I was still at school! I remember the conversation with my parents shortly before I was about to finish school: They asked, "Do you really want to go straight to university without having a traineeship or getting in touch with real work?"
At the time, several banks were looking for trainees, and when I applied I was invited on the spot!
This left me with two months between school finishing and the start of the traineeship.
To prepare for my new adventure, I asked my dad: "Do you have any books on banking or finance or whatever?" and he handed me a book from the great speculator Andre Kostolany.
That is where my fascination for investing and trading started. Once I started the traineeship, I went through nearly every division of the bank, and when I went into the Wealth Management Division I knew: that was where my future was!
However, to make a career in investment banking and wealth management I had to go to university, so I decided to quit the bank after my traineeship and go to university to study mathematics and economics.
How did you first get into trading?
At university I knew that I needed to find a job, and a former girlfriend's father knew a guy who worked for a big stockbroker and organised an interview for me. It was the second job interview of my life and I got hired right on the spot, this time as a trading assistant on their trading desk.
Here, my job was to make markets on US Equities like Google and Microsoft e.g. and those were the stockbroker was a designated sponsor. This meant that, when a company wanted to go public, it would work with a stockbroker to price the share based on the demand of buyers and sellers in the market, deliver liquidity and make an ongoing market for traders.
I learnt a lot about professional trading here, even though the traders were 'execution only', meaning I carried out trades at the request of clients rather than speculating on the market. Sure, from time to time you were allowed to take some risk, but this was just in small positions - our bread-and-butter business was on earning the spread.
When did you start to trade using your own money?
It was at the same time - I opened my first CFD account and tried to trade using my freshly earned trading knowledge as a professional trader.
I chose to trade CFDs because of the opportunity to open an account with a small amount of money. It was also the most transparent way to trade, when compared to my experience in penny stocks and warrants (options).
To make a long story short: I failed miserably!
I remember one day when I had a good day for my employer, and several guys (including my senior trader) were patting me on the back, and I was still just a student. I thought: "You're the man!"
It was a Wednesday and Crude Oil Inventories were about to be published. I had never traded Crude Oil in my personal account before - I only knew about the sometimes brutal moves Crude Oil can make intraday. I thought, "You've had a great day, and you're about to enter trader's heaven," and I took a far too big long position in expectation of a rising oil price – and got caught on the wrong foot.
I lost nearly 20% of my account within seconds (about €2,000 of €10,000), which was months in rent for me back then. I was completely paralysed and sick to my stomach, thinking: "My career as a trader is over." (Which is funny since no one except me saw what I just went through, it was my personal account…)
At the time I thought that, as a 'professional trader' I had special knowledge that would give me an edge on the market (today I'd just call it arrogance). What I ignored was that making markets, and just earning the spread, is completely different on trading yourself and taking risks on your hard-earned money, especially without any informational advantage.
How do you cope with good investment turns bad?
It's very simple: before any trade or investment, I define a personal losing point, a point where I know that my idea is not valid anymore. And once this point is reached, I'm out, no matter what.
To dig a little deeper here: since I know about the positive expectancy of my traded strategy in my trading, cutting losers is very easy for me since I know that, even if I might lose on this specific trade, I'll come out ahead over time.
This is not given, if I do not cut the loser short. Trading on this mantra gives me the chance to not think about the money made or lost in my trading, but focus on the process itself which is an intellectual challenge most of the time.
What are the biggest lessons you've learnt?
That risk management is crucial for long-term success in trading. While trading at the stockbroker, a risk manager or my senior trader took usually care of the risks I had on my book and reminded me to scale my position down if I got too big.
Most new traders think they need to trade really large amounts to make it in trading, and there's often an attitude of "You're not a real man if you trade small."
I think this is a really bad mistake - you need to overcome this, especially if the money starts to affect you from a mental perspective. If you do not feel comfortable in a trade and are more focused on the money you are going to make or the money you are going to lose, you are obviously trading too big and need to get smaller.
The statistics show that 84% of CFD traders lose money - do you have any thoughts on why this might be?
Well, once these statistics were published, I have to admit that I wasn't surprised at all. In fact, I usually tell my students that retail trading is 90-90-90: 90% of the people lose 90% of their money in 90 days.
After being in this industry now for over a decade and gaining lots of experience, it seems as if the main reason is that many retail traders just do not know what they are doing once they decide to trade the financial markets.
They are very naive, thinking: "It can't be so difficult to buy low and sell high, right?"
This naivety, sometimes arrogance, that it is possible to make money trading without having a clear and proven profitable plan/strategy, respectively a plan in general, is a direct way into disaster and means for most of the people losing money.
To overcome this obstacle of losing money trading is to realise that profitability in trading is built on three columns:
- Risk/money management
- Trading psychology
- Trading a profitable trading strategy
You have to master all three columns and the interaction of them if you want to make it in the long run.
Do you think manual or automated trading is better?
My trading is mainly semi-automated and follows clearly pre-defined rules to enter the market. That means, I have an Expert Advisor (EA) running which generates my trading signals based on my +EV-rules-based trading system.
This means that I only intervene in my trading from time to time, with the target to optimise the already positive expected value of my strategy to smoothen the equity curve, especially from a drawdown perspective.
When it comes to choosing between trading manually and using EAs, I think the reason some traders prefer manual trading to maintain control. For me, though, I found that when I was trading manually, for any signal that was generated, I would find five reasons minimum why the market would not go in that direction. That became so tiresome that I decided I just wanted the system to generate the signal, and then I could focus on the exit of the trade.
What advice do you have for new traders?
1. Ask whether you really want to be a trader
You have to be really honest with yourself and ask yourself: "Do I really want to be a trader?" If your only motivation is to make money, it is nearly impossible to be successful in trading in the long run. Based on my personal experience, I can say that no money in the world will overcome the pain of losing money in a trade or the loneliness you will naturally face by sitting in front of your screen day in, day out.
Instead, you should love the challenge of trading. I really love the intellectual aspect and the knowledge that I compete with others. Knowing that 90% and more of retail traders fail and the knowledge that, if I make it, leaves me being better than more than 90% of the people is really motivating for me.
At the end of the day, I think it's not about the money.
2. You should be ready for hard, sometimes mentally inhuman workWhen trading, you are competing with some of the smartest, fastest, best-informed, sometimes most unethical minds in the world. And all of them only want the best of you: your money. And your competitors will do everything to get your money. That means: be well-prepared and aware that you have to push the envelope, sometimes even a little farther than you think it is possible.
3. Follow a proven, profitable strategy
With knowing that you are trading a proven, profitable trading strategy and knowing crucial aspects of your trading like your expected value, knowing how to interpret such components, many problems, especially mental ones, are already solved to some extent.
What sorts of things will people learn from your webinars?
In the Trading Spotlight webinar series, I will focus on the three pillars of profitable trading: risk/money management, trading psychology and trading a proven, profitable trading strategy.
My goal is to show how these columns interact with each other and give in-depth insights into each column, trying to help making you better, probably profitable in your trading.
Disclaimer: The opinions expressed herein are those of the interviewee and do not necessarily reflect the views of Admiral Markets investment firms.
Trading with financial instruments (CFDs, Stocks, ETFs) offered by Admiral Markets carries a high level of risk which is not suitable for all investors due to their complex nature. Before entering into client agreement or making a transaction, please make sure to read the terms and conditions of our service. Consult a specialist if necessary to ensure you understand the risks involved in trading.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84% of retail investor accounts lose money when trading CFDs with this provider.You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.