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What are the mental traits a successful trader must posses?
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What are the mental traits a successful trader must posses?

  #21 (permalink)
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Donald View Post
I've been debating about a week to ask this question in the forum, hesitating because i wasn't sure how to ask, or explain the question. So here goes:


About three weeks ago i got my first live demo account. The experience was totally absorbing for me. I did nothing else except eat-breathe-live paper trading for 8 days straight. Every day was an intense learning curve, my interest intensifying with each session. I went through a whole range of emotions, i can't even name them, but it was a full spectrum. By Friday of the first full week, I completely fell apart. I was ten times worse at trading, than the first and second day. Over that weekend i came to the painful conclusion that i was not cut out to be a trader; that i could never master the art of trading, and i was just going to lose a bundle of money trying. I was mentally crashing. I felt like a loser and felt really bad about it, because i enjoyed trading so much. Then the following Monday came along and something different happened. If you traded that day you will remember it well, the Market crashed, DOW giving up 200. I was paper trading NQ. That day I entirely threw out the window any system, and rules i had been using and just shot from the hip. No rules. If it felt good, i did it. The market that day was volatile, fast and furious. I ripped through about 8 trades in the first hour and hit every one, and for good points too. The rest of the day went about the same. Toward the end of the trading day it was like shooting ducks in a barrel. I had the zen of what i was doing, i saw and felt the big picture intuitively, as though i knew exactly what the herd was going to do, before they did it and i acted each time, pulling the trigger with confidence.
At the end of the day i tallied the score, i was up over $12,000 in paper value, of the 88 trades i did 79 trades were positive, averaging over 5 points per trade. After 6 previous days of losing paper money to the point where i turned into a basket case over my failure an inability to win, this one single day of complete turn-around success belonged in a different universe, like maybe the trading-twilight zone.
After that day, which was over week ago, i completely sat out. I had to think this over, and see what conclusions i could draw if any. I have no idea what happened that day, or how to get back there.
Thanks for reading this. My question is, has anyone else ever experienced something like this? or, does everyone? I'm kind of lost at what to think. I'm going back at it tomorrow.

Cheers!
Don


Not trying to be a dick, so I hope my post doesn't come off that way.

I think you got very lucky due to a combination of factors. Your luck (or chance or whatever someone wants to call it) produced success and you developed a positive mental outlook. This probably helped a little in producing more success that day but I think 95% of it was luck. If you keep trading I'm sure you will soon experience that down feeling again and you'll start thinking that the huge winning day was a fluke, which I'm sure it was. If you continue to trade, you'll again have a nice winning day and the cycle will continue to repeat itself.

However, don't get discouraged too badly. Because you need to push through it. Keep trying to improve yourself and your trading. However, stick to one method. Don't jump around otherwise the cycle of up/down emotions will continue. Just stick to your method and refine it as best you can and also refine your own mental and emotional abilities. Stick to it stick to it stick to it stick to it and keep moving forward. Slowly, those huge up and down emotional swings will get less and less intense eventually coming together to a point of near balance.

So realize you're not out of the woods yet but keep going and eventually you will be.

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  #22 (permalink)
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Trankuility View Post
Not trying to be a dick, so I hope my post doesn't come off that way.

I think you got very lucky due to a combination of factors. Your luck (or chance or whatever someone wants to call it) produced success and you developed a positive mental outlook. This probably helped a little in producing more success that day but I think 95% of it was luck. If you keep trading I'm sure you will soon experience that down feeling again and you'll start thinking that the huge winning day was a fluke, which I'm sure it was. If you continue to trade, you'll again have a nice winning day and the cycle will continue to repeat itself.

However, don't get discouraged too badly. Because you need to push through it. Keep trying to improve yourself and your trading. However, stick to one method. Don't jump around otherwise the cycle of up/down emotions will continue. Just stick to your method and refine it as best you can and also refine your own mental and emotional abilities. Stick to it stick to it stick to it stick to it and keep moving forward. Slowly, those huge up and down emotional swings will get less and less intense eventually coming together to a point of near balance.

So realize you're not out of the woods yet but keep going and eventually you will be.

I used to get discouraged to see the market have such drastic changes in volatility until I realized that I could develop the ability to identify these markets as they were happening (and alternatively identify when they weren't happening). Once I was able to identify the market environment I wanted to trade, I would turn my "setups" on and all of a sudden I was making money consistently. I realized that just because I wanted to trade say pullbacks I didn't have to trade like a robot. If the market is clearly not trending and not volatile then trading pullbacks isn't going to be profitable. No matter how amazing the "setup" is.

The market can only do three things: Consolidate, Breakout, Cycle.
The pace is can only be three things: Dead/Closed, Moderate, Fast.

If you make the identification of certain types of trading days into part of your system, then luck just becomes one of your skills

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  #23 (permalink)
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I like the OP's question and observations - I also like Jettrader's answer.

I've seen posts like this before, some crude (like "stupid people shouldn't trade") and some useful (such as the observation that the ability to "delay gratification" can correlate with trading success). I think if you asked 100 different successful traders this question, there would certainly be some overlap but the interesting thing to me would be the differences - not just what those differences were but the fact that there ARE differences.

You need to look no further than this community to see the diversity in approaches to trading - there is no "one" approach. Many have said "you must adapt your approach to your personality" - but what does this mean on a practical level? I think it means that we all have strengths and weaknesses and we have to adapt our approach so that we limit the impact of the weaknesses and increase the impact of the strengths. If you find it difficult to keep from overtrading, you need to place some severe filters on when you trade - if you don't have this problem, filters are likely not as important in your trading system.

The reason I like Jettrader's answer is that it addresses one's ability to develop and stick with a process, rather than just the end result. Trading is as much an art as a science and to the degree it is an art, experience and training count for a lot and these "traits" have less to do with your hard-wired abilities in terms of the end result (OP's remarks) than with your hard-wired abilities in terms of the process (some of Jettrader's remarks).

One trait I feel is extremely important is the willingness to tolerate or LIVE with uncertainty. This is maybe the same as decision-making that other posters have talked about (I think that's by definition, if there is no uncertainty, there is no decision). If you make ANY decision with respect to trading, that decision will be in the context of uncertainty. If you're not OK with that or, more dangerous, if you think you can reason, test/backtest, program, intuit, or gain any amount of experience that will REMOVE the uncertainty (i.e., remove the RISK), you will experience difficulties.

I wanted to reply to Donald's comment - Donald: man I have one piece of advice: stay in the simulator. If you go into the live market with the experiences you've had you will literally get eaten alive. That said, don't be too quick to try to adapt a consistent approach - use the time you have now in the simulator at the beginning of your trading to just trade anyway you'd like. Try out different approaches, and just "play". Realize though that you will eventually need to develop a consistent way of approaching trading decisions - if you do not, you will not become consistently profitable - you will just win and lose, win and lose and importantly, you will never know why you win or why you lose. To address your specific question, yes, this is a common occurrence for new traders - what I believe you should take away from it is basically what someone else said - there are times in the market (boy do I wish they were more frequent) when all you need to do is reverse every time the market reverses and you'll do great - essentially just trade a bunch, chase every move, and stop yourself out when the market stops moving in your favor. Good luck on your journey, its a long one.

Surly

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  #24 (permalink)
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Here's something that I came across the other day. It's one of the best things I've read on what you must do to become a successful trader. Some of you may have already seen it since it's a few years old. It was a post made by a guy named Ziad. He was responding to a blog post from another trader on this site: Learning to Become a Successful Trader | E-Mini Player

For easy access (I love easy access), here's the post:

"Hi Michael,

I've been reading your blog for quite a while now but haven't commented yet. However, I feel I need to comment now.


If you don't mind I'm going to be very straight forward, and blunt even, but I hope you'll take it from a spirit of sincerity and genuine desire to help. It's going to be a long comment, so I'm going to break it up into 2 or 3 comments.

Here's the situation as I see it: For the last few months, and possibly much longer, you've just been spinning your wheels while thinking that you are getting somewhere. The reason for this is that you are going about learning how to trade in the wrong way, in my opinion. I say this because I've been trading much less than you, a little over 2 years now, and yet because of the way I went about learning and what I focused on, last year I netted $150k while nearly quintupling my account, without a single losing month, and while only risking a very small portion of my account on any single trade. Now there could be many reasons for the difference in performance, but I think one of the main reasons has to do with what you are focusing on and how you are going about the learning process.

To try to put it as succinctly as possible, in my view traders that are focusing all their attention on "set-ups" and finding out which combinations of indicators work are never going to become profitable. They are trying to follow the advice of trading books that say trading is simple and psychology is everything. So they search for set-ups that 'work', and that can take the guess work out of trading. They want to be "disciplined" and have simple rules that guide all their actions. But there's a few problems with this. Namely, while psychology is HUGE, it's not everything. And while trading is all about simple principles, actually having an edge is NOT simple. It's a myth that you can have a couple simple price or indicator set-ups and make money consistently if only you are disciplined. That's a load of crap. It keeps the dream alive for wannabe traders who never realize what it's truly about. Well let me tell you what it's truly about...

Trading is about being okay with ambiguity. It's about tolerating confusion. It's about sitting with discomfort and being at peace with it. It's about not having an exact script of when to trade or not to trade, or what's really a high odds trade, and being okay with that. It's about exceptions to the rules. It's about contradiction. It's about uncertainty.

And yet traders left and right want to make it simple. They want to reduce it to a few simple set-ups to trade with discipline. And yet the market is not simple. The market is all about uncertainty, and complexity, and ambiguity. Simple set-ups could never capture that, and they can never give you a true lasting edge.

So what's the solution? Is the problem in the simple set-ups themselves? No, it's in how they're being used. The bottom line is, every trader needs to learn to READ the markets. This means that simple rules will not do. There has to be a synthesis of different elements (whether they be price action, indicators, inter-market themes or whatever), and real-time interpretation must take place. It has to be all about CONTEXT. Once you can read the markets, and don't fool yourself it is a very complex process, then you can choose to employ "simple" set-ups to enter and exit. But the real work will be in interpreting the market to see when you should use which kind of set-up. Seeing a hammer or whatever near a support means nothing unless you've identified the broader picture and gotten a sense of the kind of tactics you should be using, and what the odds are for different scenarios unfolding.

Now I know you, and most traders do this to a certain extent, but your main focus is on the set-ups. It's not on reading the market from minute to minute, hour to hour, figuring out the odds of it doing this or doing that, adapting dynamically, and thinking of trade ideas from all your observation as the day unfolds. Rather, it's waiting for some simple set-up to pop up and then taking it.

Now is it easier emotionally to have clear set-ups to wait for and trade in this simple manner? Absolutely. But who said 'easy' would make you money. If I've learned anything, it's that the market rewards what is hard to do. It's hard to have ambiguity surrounding your market reads. It's hard being uncertain. It's hard dealing with competing and sometimes conflicting signs. And yet, this is what it's all about. You have to stop trying to avoid this by needing things to be clear cut. And is it hard to be disciplined when there's so much uncertainty about what is the right trade to make? Of course. But instead of trying to avoid the uncertainty by looking for simple set-ups, or some straight-forward method, train your mind to be able to deal with the uncertainty.

As for the learning process of how you go about doing this, it's all about being constantly engaged with the markets, trying to figure things out and learn from experience. For me, for instance, what I did was each and every day take notes in a journal all about market action and what I think it means, and how I should trade, and what is working and what's not. I didn't write a journal describing the trades I took, or what my emotions were during the day. It was all about market action. And it was all my perception and interpretation. Day after day, week after week, making mistakes, wrong calls, being clueless as to what was going on, not knowing how I should trade, not knowing if my views made sense or not, and yet I continued taking notes and learning. Then I would view charts and combinations of historical intraday charts, and I'd note certain behavior. For example, I'd study trend day after trend day and try to notice what they had in common and how I could have picked up on it in real time. Then I'd study range days. Then I'd study a price chart of the ES versus the Advance decline line and see what the relationship was across many different days. Then I'd do the same with the ES and TICK chart. And on and on. Over time, this gave me a feel for the markets, and a certain understanding of how certain days differ and many subtle signs and tells for each type of environment and context.

As for set-ups, I didn't use any predefined ones. I just formed trading ideas and then tried to get in at good trade locations. Even this, which is the art of execution, is quite complicated and not straight forward. I started realizing that in some environments it's best to wait for pullbacks, in others I need to get in at market or I'll be left in the dust. In some markets I can buy low and sell high, in other markets the opposite is in order. And so on.

I became consistently profitable in a timeframe of a few months by doing this. But of course before that I had read 30 or 40 books and so I had all the technical background. I had also worked a lot on my psychology and personal issues. But all of this was in conjunction with a method of learning and trading the markets that was mostly in opposition to what the general wisdom says about simple set-ups and exact rules.

Now of course you might say that everyone has their own style, some discretionary and some not. Absolutely. But even the purely mechanical traders are very adept at reading markets, and are aware of all of the complexity and ambiguity inherent in it. Their system might end up being simple, but it will come about through a very deep and complex understanding of markets. And usually this system will take the market environment (i.e. context) into account. It wont just be simple mindless set-ups.

In the end, all of what I am saying is meaningless unless you come to a personal realization. Take a look at your trading career thus far. Do you truly believe that if you just learn to focus and take all of your set-ups then your equity curve will reverse and you'll be a consistently profitable trader? Why would the world's top institutions spend millions and billions on R&D when a few simple set-ups could make them all of the money. This doesn't mean that to make money you need extremely complex mathematical models. Far from it. What it does mean is that you need extremely complex mental maps that take time and experience to develop, and that will never develop if you spend the whole trading day simply waiting for set-ups to materialize. That just won't cut it.

Right now your learning curve is stagnant because you're not truly studying the markets. Your day is wasted in waiting mode. It's not in observing and absorbing mode. Also, because you fear loss, you aren't willing to experiment. This means that you aren't making mistakes and failing regularly, which is what you need to do to learn quickly.

So to conclude, based on all of the above, my advice to you would be to stop trading and make a mental shift. Realize what you need to do to become successful, and it's definitely not staying on this endlessly unfruitful path being supported by the hope of future profits. You're just running in your place unless you change your focus and your learning method. And if you thought the journey was tough so far, you haven't seen anything yet. Get ready for uncertainty and ambiguity like you've never seen it before. But this shouldn't be scary. It should be exciting, because this is what trading is all about. This is why it's called an ART. And it truly becomes one when you change your focus and your learning process. Then everything, including success, becomes possible. And until then, it'll be a distant dream that keeps appearing to be so close and yet stays so far away.

So you need to re-align with a new thought system and then get on the simulator and trade. Take losses. Make mistakes. Be clueless. Don't be afraid of it. It's okay, that's the only way you'll progress. And trust me, progress you will.

Best of luck to you, and I wish you much success.

Ziad"

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  #25 (permalink)
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Surly View Post

I wanted to reply to Donald's comment - Donald: man I have one piece of advice: stay in the simulator. If you go into the live market with the experiences you've had you will literally get eaten alive. That said, don't be too quick to try to adapt a consistent approach - use the time you have now in the simulator at the beginning of your trading to just trade anyway you'd like. Try out different approaches, and just "play". Realize though that you will eventually need to develop a consistent way of approaching trading decisions - if you do not, you will not become consistently profitable - you will just win and lose, win and lose and importantly, you will never know why you win or why you lose. To address your specific question, yes, this is a common occurrence for new traders - what I believe you should take away from it is basically what someone else said - there are times in the market (boy do I wish they were more frequent) when all you need to do is reverse every time the market reverses and you'll do great - essentially just trade a bunch, chase every move, and stop yourself out when the market stops moving in your favor. Good luck on your journey, its a long one.

Surly

Hey, Surly, thanks. All the comments above have something good to offer, responding yours because it struck me as especially on the money for my personality. Especially this part => "you will just win and lose, win and lose and importantly, you will never know why you win or why you lose." Yes, i got that message now. I also can tell this is a long journey. I definitely am going to stay in a demo account until i can skate with the ice.

I made two trades today over 4 hrs. Both were profitable. Choppy weather.

Thanks again for the response.

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  #26 (permalink)
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Trankuility View Post
Not trying to be a dick, so I hope my post doesn't come off that way.

I think you got very lucky due to a combination of factors. Your luck (or chance or whatever someone wants to call it) produced success and you developed a positive mental outlook. This probably helped a little in producing more success that day but I think 95% of it was luck. If you keep trading I'm sure you will soon experience that down feeling again and you'll start thinking that the huge winning day was a fluke, which I'm sure it was. If you continue to trade, you'll again have a nice winning day and the cycle will continue to repeat itself.

However, don't get discouraged too badly. Because you need to push through it. Keep trying to improve yourself and your trading. However, stick to one method. Don't jump around otherwise the cycle of up/down emotions will continue. Just stick to your method and refine it as best you can and also refine your own mental and emotional abilities. Stick to it stick to it stick to it stick to it and keep moving forward. Slowly, those huge up and down emotional swings will get less and less intense eventually coming together to a point of near balance.

So realize you're not out of the woods yet but keep going and eventually you will be.

Also good advice, thanks. Before i can stick to a method, i must develop one, and that is going take perseverance. Learning tennis comes to mind. When you first find the sweet spot, you know you have arrived at square one.
I understand now what i first expected to be true about trading, namely that its a complete lesson in self discovery. You can't cheat, you can't lie to yourself. You are standing naked in front of a very all-seeing mirror. Time will tell if i have what it takes.
Thanks for your thoughts.

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  #27 (permalink)
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Trankuility View Post
..you'll start thinking that the huge winning day was a fluke, which I'm sure it was...

Just imagine if you were Tiger Wood's dad and you took you son golfing every day and at the end of the first week he mad a perfect 40 foot putt and then a hole in one. He is beaming with joy and and pride and turns to his you, his dad:

"Listen son I don't mean to be a dick but you were just lucky. Don't worry you'll lose a lot of games. Just remember ...blah, blah blah.'
and he is crushed. The joy of the victory is gone. When his friends congratulate him he says starts apologizing for his success and downgrading it. Oh my Dad says it was just a fluke.....never happen again, blah, blah blah.."

or you say:
"I am so proud of you!!! That was fantastic!!. I've been golfing for 40 years I've never hit a hole-in-one or sank a 40 ft putt like that! And boy on the same day! Wow! You're going to be the best! The greatest! That was a one-in-a-million day and its only your first week!!"
Then no matter what happened after that Tiger would keep trying and trying and when he hit a good shot he would say to himself "That's more like me - the real me." and when he hit a bad shot he would say, "Never mind that wasn't me. I have the potential in me to be great!"

The purpose of the board is help and encourage each other.
Is my post positive and supportive?
Do I need to make this post?

You could argue to yourself - well I'm just warning him he might fall and skin his knees. He knows that - He had an entire week of discouragement.

There are 11,000 plus members on this board.
Just imagine if every one of them posted.
Imagine 11,000 posts!

"Congratulations!"
"Great job!"
"Fantastic, keep up the good work!!"
"I've traded for 40 years and I've never had a day like that ! Sim or no! Wow!!

Page,
after page,
after page,
of well wishes and good supportive encouragement.

Now I ask you - and everyone else - have you ever made $12,000 in one day on the sim single contract trades?
I know I haven't Add good energy in and go off a say to yourself - darn if he can do a $12,000 on the sim - I'm going to try to do that too.

Don't downplay and belittle anyone's success (including your own) by calling it a fluke. It does absolutely no good at all.

Grind in the picture of success - not of failure.

Mental trait of a successful golfers: -being able to visualize a perfect shot.
Mental trait of a successful traders: -being able to visualize a perfect day.

Keep your mind in the future, in the now.

Last edited by aquarian1; April 30th, 2011 at 06:55 PM.
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  #28 (permalink)
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Ok.

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  #29 (permalink)
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aquarian1 View Post
Grind in the picture of success - not of failure.

Mental trait of a successful golfers: -being able to visualize a perfect shot.
Mental trait of a successful traders: -being able to visualize a perfect day.

I am darn sure positive mental attitude is 51% of the battle. We all read the the little engine story as kids. The little engine who thought he could. I guess everyone who is a beginner will have their own version of my experience. But then some may not too. I was about to give up. It was by accident that i learned what it felt like to trade and win in a string, ride the market surf. The take-away, was the feeling. That experience cannot be measured. Now that i know what it feels like, i have not only the confidence that it can be done but the experience of feeling it. Its a sensory thing. All your senses are working and so is the sixth sense. i.e. you can't explain to someone what its like to ride a bike. Once you have ridden the bike, you understand.

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  #30 (permalink)
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Addendum


At the risk of staying too long on this elementary topic, i just wanted to mention there was a technical, strategy side to that experience, but i didn't think it was worth mentioning, especially because i am a beginner, but any other beginners might relate.
- I dropped the use of stops, almost completely, and ran with the trade.
- I started to enter off a 300 tick chart for the first time. Somehow this seemed to solve a problem i was having. I used 4 charts, but made entries based on the 300 tick. It worked like a charm (all of a sudden)
-when feeling the direction was reversing, i killed the trade without hesitation, relying on instinct. (no stop to consider or worry over). Because only a few trades were going in the wrong direction, i only did this a few times, and jumped on the reverse trade usually with success.
- the day was trading fast, I started each trade with 2 contracts, and if i felt it take off, i piled on 2 or 3 more. Never more than 5 contracts. I only added contracts with the trend. Mostly i avoided pull backs. I seem to know when the pull-back had ended. It got easier.
- I stayed with the trend in the morning, shorting, and figured out that there was a trend reversal coming, i watched for it. When i finally got the trend reversal, i went long with the trend. It was too easy by this time.
- i only got into serious trouble, badly on the wrong side of a trade a few times (twice). That was the best part, avoiding that worry fatigue.
-Confidence became my greatest asset. It allowed me to relax and play my game (whatever that was)
Sorry if this is story is short on value, but tells the less abstract side.

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