Successful traders are successful because they have mastered a wide range of skills. They aren’t just good at entering positions or at executing trades but have mastered the discipline of trading, the psychological and emotional control required as well as the mechanical techniques required. The following keys to success are an amalgam of some of the best advice provided by those successful traders.
About the Mechanics of Trading:
1. Be consistent. Don’t enter a trade as a short-term trader and then change your exit strategy to a longer-term trend following approach. Be consistent – that is the only way to improve your trading. Before making any trades, get a feel for what type of strategy is going to best suit your personality, your emotional temperament and your amount of available time. Once that strategy has been identified, implement it every time and do not deviate. Chasing after the next ‘hot’ strategy after several trades is a sure road to losing all your money.
2. Think minimum risk. Cut losses and let gains run. New traders may well hold onto a losing trade for too long thinking the market will turn round. Many traders take profits too early (the old adage ‘you never go bust by taking a profit’ is nonsense. If you take 9 winning trades in a row of $200 each then take 1 losing trade of $2000, have you made a profit?).
3. Have an exit strategy: a consistently successful exit strategy is more difficult to implement than an entry strategy.
4. Think low returns and have minimal expectations then you might be delighted. If you expect to lose then you win you will be delighted. Many people who are new to trading expect great profits and have very high expectations. The best goals to have are that you will learn everything you can about the business and continually educate yourself about the markets. Then you might minimise failures and maximise the gains.
5. Don’t hesitate but when in doubt, stay out. If the chart is not speaking to you, if the chart has no obvious patterns, stay out.
6. Think both sides of the trade all the time. Do not look for confirmation of your views i.e. I’m long and the market looks like it’s staying long; look for reasons why it could fall. If you are long and there are higher highs and lower lows it is suggesting a rising trend but at what level is the next higher high? Has it just failed one?
7. Keep it simple at the end because a decision, if rehearsed and practiced, is the sum total of all the analysis and learning you have done. Don’t fall into the trap of using every technical indicator there is available - this will only lead to Analysis by paralysis.
8. It’s ok to be wrong. It’s not ok to stay wrong. Know your exit before entering any trade and always have a stop loss in place. But remember that tight stops could force a trader out of a position early which then turns into a winner. The market is no respecter of stops – it will go where it goes.
9. Maintain liquidity. One of the primary requirements for successful technical trading is adequate liquidity. As much as possible trade in markets where the price action is orderly and the flow of orders is substantial. Confine trading to active markets where large transactions by other traders do not distort prices. (Most traders assume that if they are trading small positions then market liquidity doesn't matter. They fail to understand that they need to be concerned about the orders of the large traders who may make decisions based on a variety of factors that may have nothing to do with the current price action. If trading a small position we don't want our stops to be triggered by a large trader who suddenly decides to enter a market order or has a large stop order triggered).
10. Keep a diary and record of trades. What went well, what went badly? How could the trade have improved? Did you enter late and leave early. Monitor your performance.
11. Don’t add to losing positions. If a trade is losing money, never, ever add to it and average the cost. If it’s a loser, let it stay a loser.
12. Only trade active markets with plenty of volume.
About the discipline and psychology of trading:
13. Have patience in everything: in learning and education and understanding, in developing a method, system or approach.
14. Practice and practice. Paper trade and practice again.
15. Be mentally, emotionally and physically fit. Trading is like being a schizophrenic – one week can be full of highs with win after win, the next week is all losses, gloom and despondency.
16. Play your own game – don’t be influenced by others.
17. Don’t panic. Be disciplined. Trade consistently with your proven method and never, ever enter a trade for emotional reasons. Never buy a market after a tip. Never buy a market when all the punters are telling you to do so nor sell it when it is crashing because you have to be short. Don’t second-guess the market.
18. Set goals. Have a plan. Trading is a business: have a Business Plan; have a Trading Plan. Execute that plan flawlessly. Focus on the process of trading instead of making profits. Those who focus only on making money are likely to lose because they can’t cope with losing trades or drawdown.
19. Remain humble. A winning streak is great for confidence but don’t go bragging about it; it might have been luck. The markets will quickly humble you if you get cocky.
20. Learn before you leap. Take time to observe the markets and know how they operate before trading them. Remember: there is no rush or concern over missing opportunities because, once the learning is complete, you will be able to take as much money from the markets as you want.
21. And finally learn from possibly the most successful trader of all time, W D Gann, who said this in 1909:
"For the past ten years I have devoted my entire time and attention to the speculative markets. Like many others, I lost thousands of dollars and experienced the usual ups and downs incidental to the novice who enters the market without preparatory knowledge of the subject."
"I soon began to realize that all successful men, whether Lawyers, Doctors or Scientists, devoted years of time to the study and investigation of their particular pursuit or profession before attempting to make any money out of it."
"I found that over ninety percent of the traders who go into the market without knowledge or study usually lose in the end."
