Before getting into today’s letter, I want to share something with you.
As some of you already know (thank you all who have subscribed to paid already), I’ve recently introduced Flow Journal+, a paid version of this newsletter where I want to explore topics in considerably more depth. After publishing more than 67 weekly newsletters for free, I realized that producing longer, better-researched letters takes a significant amount of time, especially when I want to connect trading with ideas from psychology, science and other fields that might help us understand performance differently.
However, I also understand that paying for something you haven’t experienced can be difficult, which is why I’ve decided to make this entire Flow Journal+ edition available for free. I want everyone to see what the paid newsletters will look like, what kind of research and practical insights they can expect, and whether it’s something they would find valuable. The regular Sunday Flow Journal will continue as usual, while Flow Journal+ will focus on deeper topics that I believe deserve more than a few paragraphs.
With that being said, let’s get into today’s topic.
First of all - What does it mean to be exceptional?
I’ve been trading for more than five years, spending over four of those years doing it full-time, and one thing I’ve gradually realized is that becoming a good trader is already difficult enough, but becoming exceptional at it is an entirely different challenge.
When I first started, I naturally associated exceptional trading with exceptional results. Someone managing millions of dollars, generating impressive returns, or consistently withdrawing significant profits must have figured out something that the rest of us hadn’t. It seemed reasonable because trading is one of those professions where financial results are incredibly visible, and we’re constantly surrounded by people showing us how much money they’ve made.
However, the longer I’ve been involved in trading, the less interested I’ve become in judging someone’s ability from their recent results. I’ve managed hundreds of thousands in funded capital, and experienced periods where everything seemed to work, only to go through setbacks that forced me to reconsider things I thought I understood. Those experiences taught me that good decisions don’t always produce good outcomes, and good outcomes don’t necessarily mean someone made good decisions.
This distinction is particularly important in trading because randomness plays such an enormous role. A trader can follow a profitable strategy almost perfectly and lose money for weeks, while someone else can make terrible decisions and still experience an incredibly profitable month.
In a 2014 study published in the Journal of Financial Markets, researchers examined the performance of day traders in Taiwan over several years and found that while genuine trading skill appeared to exist, fewer than 1% of day traders reliably generated positive abnormal returns after fees.
I find this fascinating because it suggests that exceptional traders really do exist, but developing the abilities necessary to become one is considerably more difficult than most people imagine.
So what actually separates them from everyone else?
I - Exceptional Traders Practice Differently
One of the most interesting things I’ve learned about expertise is that spending thousands of hours doing something doesn’t automatically make you exceptional at it. We tend to associate experience with skill, but those two things aren’t necessarily as closely connected as we think.
Consider how many people have been driving cars for twenty or thirty years without becoming particularly skilled drivers. They’ve accumulated thousands of hours behind the wheel, yet very few would perform exceptionally well on a professional racing circuit. The difference is that ordinary experience and deliberate improvement are two completely different activities.
Psychologist K. Anders Ericsson explored this in his influential 1993 research on deliberate practice, arguing that exceptional performance is closely associated with activities specifically designed to improve particular aspects of a skill. The important part is that practice needs to expose weaknesses, provide meaningful feedback, and create opportunities for correction, rather than simply repeat something you’re already comfortable doing.
I think this applies extremely well to trading because it’s possible to spend years looking at charts without developing a much deeper understanding of what you’re doing. Two traders might spend three hours studying the market every day, but while one simply watches price movements and looks for opportunities, the other investigates specific weaknesses, reviews execution mistakes, and tests whether their assumptions are supported by data.
Both spend the same amount of time trading, but their opportunities for improvement are completely different.
I’ve gradually moved toward a much narrower approach myself, focusing on a specific strategy and a relatively small number of decisions. I don’t believe that watching more charts or collecting more strategies would necessarily make me better today. In fact, I suspect it would introduce unnecessary noise into something I’ve spent years trying to simplify.
The practical takeaway: I would highly recommend you to stop measuring your dedication by how much time you spend trading, and start measuring whether that time is actually improving something. If you cannot identify what you’re working on, what feedback you’re collecting and how you’ll recognize improvement, there’s a good chance you’re accumulating experience without developing much additional expertise.
II - Exceptional Traders Think Like Scientists
Trading naturally encourages us to develop opinions about how markets behave. We discover patterns, build strategies around them, and gradually become convinced that we’ve understood something important. The problem is that once we become emotionally attached to an idea, we often start searching for evidence that supports it while ignoring information that contradicts it.
Psychologist Peter Wason demonstrated this tendency in his 1960 research on hypothesis testing, showing how people often prefer evidence consistent with their existing beliefs rather than actively searching for ways to disprove them.
Imagine developing a strategy based on a particular price pattern. After reviewing several successful examples, you become convinced it provides a meaningful advantage, and from that point onward, every winning trade reinforces your belief while losing trades become easier to explain away. Perhaps the market was unusually volatile, the setup wasn’t perfect, or something unexpected happened.
Some of those explanations might be legitimate, but if you continuously introduce exceptions after observing the outcome, you’re no longer objectively evaluating your strategy. You’re protecting your original belief.
Also there is another important concept from statistics: overfitting. In the research from 2015 on the probability of backtest overfitting, Bailey and his colleagues examined how selecting strategies based on historical performance can produce impressive-looking results that fail to generalize to new data.
We keep adjusting strategies until the historical results look attractive, without realizing that we might simply be fitting our rules to randomness. I’ve become increasingly cautious about modifying my own approach after disappointing periods because I would rather understand the limitations of a relatively simple strategy than convince myself I’ve discovered something perfect through endless optimization.
I think that you know this feeling too - you just backtest and start going back after you take a loss and start adjusting your enter based on this data that “you would do it differently now”. That’s nonsense. You know it, I know it, but we still do it.
The practical takeaway: For every trading idea you believe in from now on, ask yourself what evidence would make you reconsider it. Test your assumptions against data you haven’t used to develop the strategy, and become comfortable discovering that something you believed might not actually be true.
III - Exceptional Traders Understand That Being Wrong Is Normal
One of the most difficult things about trading is that being wrong is unavoidable, regardless of how skilled you become. In fact, depending on the relationship between average winners and losers, a trader might have a win rate of 30% or 40% and still possess a profitable strategy.
Yet emotionally, we’re often poorly equipped to deal with this reality.
In their famous 1979 paper on Prospect Theory, Daniel Kahneman and Amos Tversky demonstrated that people tend to evaluate gains and losses asymmetrically, with losses often having a stronger psychological impact than equivalent gains.
This helps explain why losing trades can feel so disproportionately painful, even when they’re completely normal outcomes within a profitable strategy. A loss might represent nothing more than ordinary statistical variation, but emotionally it can feel like evidence that something is wrong, that we’re falling behind, or that we need to immediately recover.
I’ve experienced losing streaks that would probably make many traders question whether their strategy had stopped working. At one point, I went through 36 consecutive losing trades and even though I understood the statistical nature of my approach, experiencing that period was considerably more difficult than understanding the mathematics behind it.
What I’ve learned is that knowing losses are inevitable doesn’t automatically make them easy to accept. You still have to deal with frustration, uncertainty and the temptation to interfere with a process that might be functioning exactly as expected.
I think exceptional traders develop a different relationship with being wrong. They understand that individual outcomes provide limited information about the quality of their decisions, and they avoid treating every loss as something that needs to be corrected. Of course, that doesn’t mean blindly following a strategy forever, because market conditions change and strategies can lose their advantage. The difficult part is distinguishing ordinary statistical variation from meaningful evidence that something has deteriorated.
The practical takeaway: Understand what a normal losing period looks like for your strategy before you experience one. Study historical drawdowns, losing streaks and variability, while remembering that historical results don’t establish the worst possible future outcome.
IV - Exceptional Traders Design Their Environment
I’ve written quite a lot about discipline over the years, and my perspective on it has changed considerably. When I was less experienced, I thought disciplined traders were simply people with unusually strong self-control, capable of resisting every temptation and consistently making rational decisions regardless of what was happening around them.
However, the more I’ve learned about human behavior, the more I question whether relying on willpower is a particularly effective long-term strategy.
One area of psychology that I find especially relevant is the study of implementation intentions, which are essentially predefined plans specifying how someone will respond when a particular situation occurs.
In a 2006 meta-analysis involving 94 independent tests, psychologists Peter Gollwitzer and Paschal Sheeran found that implementation intentions had a meaningful positive effect on goal achievement.
Instead of simply deciding that you want to become more disciplined, you establish specific responses in advance. For example, if your daily loss limit is reached, you immediately close your trading platform. If a setup doesn’t meet your predefined conditions, you don’t enter. If you miss an opportunity, you wait for the next valid one rather than chasing the market.
These decisions are made when you’re relatively calm, rather than during moments when emotions might influence your judgment.
I think this is incredibly valuable because many trading mistakes happen when we already know what the correct decision should be, but temporarily convince ourselves to do something different. Perhaps you’ve experienced several losses and begin considering increasing your risk, or you’ve been sitting in front of the screen without finding a valid opportunity, and suddenly a mediocre setup starts looking unusually attractive.
I’ve gradually tried to remove as many of these decisions as possible from my own trading. My approach is built around very simple concepts now I understand clearly and there are very limited opportunities to participate. I also give myself some space to apply my intuition to my trading, but this is whole different story - there I play with intuition, but about that in some other newsletter. Do not change intuition for impulse.
The practical takeaway: Instead of trying to become someone with extraordinary self-control, build a trading process that requires less self-control in the first place. Identify situations where you frequently make mistakes and decide how you’ll respond before those situations occur.
V - Exceptional Traders Know When to Do Nothing
There’s an interesting contradiction in trading because we’re often rewarded for inactivity, even though inactivity can feel remarkably uncomfortable.
Most of us grow up believing that more effort and activity should produce better results. If you want to improve at something, you’re generally encouraged to work harder, practice more, and take advantage of every opportunity available.
Trading challenges that instinct because participating more frequently doesn’t automatically increase your expected returns. In fact, additional activity can introduce unnecessary risk, transaction costs and opportunities for behavioral mistakes.
In their 2000 paper, Trading Is Hazardous to Your Wealth, researchers Brad Barber and Terrance Odean examined the behavior of individual investors and found that the most active households experienced substantially worse investment performance than less active households.
Although the research focused on individual investors rather than specialized intraday strategies, I think the underlying principle is important: activity itself doesn’t create value.
This is particularly relevant today because we’re constantly surrounded by trading content, market commentary, and screenshots of people making money. It’s incredibly easy to feel like you’re missing opportunities simply because everyone else appears to be participating.
One of the biggest improvements I’ve made in my own trading has been becoming comfortable with having very little to do. Some days there isn’t a valid opportunity and while that might have frustrated me years ago, I increasingly see it as a normal part of following a selective strategy.
The difficult part is that doing nothing doesn’t produce immediate evidence that you’ve made a good decision. There’s no profit to celebrate, no trade to screenshot and sometimes no tangible result at all. Yet avoiding a trade that doesn’t meet your conditions can be just as important as executing one that does.
The practical takeaway: Start evaluating the opportunities you reject, not only the trades you execute. If your strategy requires specific conditions, respecting their absence is part of executing that strategy correctly.
Final Thoughts
When we’re beginners, we’re naturally attracted to the idea of discovering something extraordinary. We want to find a unique strategy, develop an almost supernatural ability to read the market, or reach a level where uncertainty no longer affects us. But the longer I’ve been involved in trading, the more I suspect that exceptional performance comes from becoming unusually good at a relatively small number of ordinary things.
Understanding your strategy deeply, questioning your assumptions, accepting uncertainty, managing risk, and executing consistently might not sound particularly impressive when written down. Yet doing those things for years, especially when the results aren’t rewarding you, is considerably more difficult than it appears.
I also think it’s important to acknowledge that becoming exceptional doesn’t necessarily mean becoming the most profitable trader in the room. There will always be people taking more risk, experiencing better periods, or generating returns that look extraordinary from the outside. Comparing yourself with those outcomes can become an endless distraction from the things you actually control.
What interests me much more today is whether I’m becoming a better decision-maker, whether I understand my own behavior more clearly, and whether the process I’m building is more robust than the one I relied on a year ago.
Perhaps becoming exceptional is less about discovering something nobody else knows and more about consistently doing what most people already know they should be doing, but struggle to execute.
Thank you for reading this special free edition of Flow Journal+. I hope it gives you a better idea of the direction I want to take with these longer newsletters. If you found the research, connections and practical ideas valuable, I’d genuinely appreciate your support through a paid subscription, which allows me to dedicate more time to exploring these topics while continuing to publish the regular Flow Journal for everyone.
See you in the next letter.
Luke
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Sources:
For anyone interested in exploring the research discussed throughout this letter, here are the original studies.
Barber et al. (2014) — The Cross-Section of Speculator Skill: Evidence from Day Trading. Journal of Financial Markets. Research on persistent differences in day-trading performance.
Ericsson et al. (1993) — The Role of Deliberate Practice in the Acquisition of Expert Performance. Psychological Review. Research on how expertise develops through deliberate practice.
Wason (1960) — On the Failure to Eliminate Hypotheses in a Conceptual Task. Quarterly Journal of Experimental Psychology. Research on confirmation bias and hypothesis testing.
Bailey et al. — The Probability of Backtest Overfitting. Research on how historical optimization can produce misleading trading results.
Kahneman & Tversky (1979) — Prospect Theory: An Analysis of Decision under Risk. Econometrica.Foundational research on decision-making under risk.
Gollwitzer & Sheeran (2006) — Implementation Intentions and Goal Achievement. Advances in Experimental Social Psychology. Meta-analysis examining how predefined behavioral plans improve goal achievement.
Barber & Odean (2000) — Trading Is Hazardous to Your Wealth. Journal of Finance. Research on trading frequency and investor performance.