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This is from an article someone had sent me some time ago that I found useful and as I could not find it on here, I am throwing it out there. There are other articles on "traits of the successful trader" and IMHO, all I have read have worthwhile insights or reminders. Psycho-trading related, I am a fan of Van Tharp, Mark Douglas, and Brett Steenbarger and found this to be in the same vein. It seems as if some of the material could be derived from those and merely repackaged, though surely not as well written but hey, Brooks' book is rockin' good and would get a D- at best in an English comp. course(myself, not much better). I don't necessarily agree with everything he writes but it has some good points, which are, of course, open to debate. Before I devolve into a rant, gnaw on habit #1...
1) Take Complete Responsibility:
For the successful trader knows every action he
takes, every decision he makes he,and only he, is responsible for that
action.
You will never meet a successful trader who is looking to blame someone
else, or something else for the consequences of his results.It just will not
happen.
You see, when you accept 100%, no questions asked responsibility for all
your actions you close the door to "excuses" behind you. When something goes
wrong instead of looking for someone else to shoulder the blame, you will accept
responsibility, note it down and vow never to repeat it again. Simply, you are
willing to accept you are going to make mistakes, but more importantly, you are
going to learn and never repeat those mistakes. A vital component of any winning
trader.
Could you imagine Warren Buffet losing a few million $$$'s on a share
trade and then blaming the general conditions of the market or blaming his
broker for giving him dud advice? No way! Just not going to happen. I will
guarantee when top traders take a loss the first thing they will ask them-selves
is "Did I follow my rules?"If the answer is yes, then they will look at their
rules. Is there something that could be changed in their rules to avoid this loss
again? Many times the answer will be a re-sounding no.
On the other hand, if after asking the question "did I follow
my rules?", If the answer is NO, then some deep
self explanation will be called for. Why did I fail to follow my rules? How can I
stop my-self from doing that again? Am I likely to do that gain, etc..
But do you notice the wording of the questions? How can I, Will I, Why did I. I Here
the trader knows he takes total responsibility for every trade and is seeking
re-assurance that he will not break the rules again.
There's an old saying in trading: "If you have to ask you shouldn't be trading."
Think about it. If you have a system that you have tested and proven over the
long run that it does outperform the market and it is a system that fits you,
why will you EVER have to ask for an opinion? What extra will a third party
opinion provide? Apart from confusing you and clouding your opinion?
If you are a long term trend follower then why ask a day trader?
If you are a value investor then asking a momentum trader will be a
total waste of time. What I am saying is, no two people have the same
opinion. Why would you believe some-one else over your trading rules?
It's a fact of life, and even more so in trading, most people want
to be told what to do rather than acting on their own. Yet this is a
major reason most people fail in the markets. Either accept total
responsibility for your trading action or do not trade at all.
If your number one rule is
"to follow your rules" why will you need to ask a guru what
they think of your position? If you EVER find your-self wanting to ask a
third party about your position do this:
* Close the position out.
* Review your plan and rules.
*Work out why you lack the responsibility to follow that plan
*When you are convinced you don't need a third party opinion
start trading again.
How can a trader learn to accept total responsibility?
Have a set of rules and realize THE most important point in
trading is following those rules. Once you have a set of
firmly established rules you will find your-self not having to
follow outside opinion. In fact I go to great lengths
not to listen to outside opinion. Simply because, I know
by following my rules I will be on the right side
of the market 95% of the time and I will never miss a big move.
Those kind of figures are much better than any out-side source can give you.
So from today, learn to take total responsibility
for all your trading decisions. Strive to develop and
then religiously follow a set of trading rules, knowing
it is the importance of following those rules that
ultimately determines whether you will win or lose in
the long run.
If you ever find yourself thinking, "they did this"or, "the market caused
that loss." Change it to: "Did I follow my rules?" If the answer is yes pat
your-self on the back as you are on your way to becoming a market
winner (one of the minority). If the answer is NO find out why and
strive never to repeat this error again.
Accept total and utter responsibility for every
trade you take from today and you'll be amazed at
how easy trading really is.
Every successful trader, investor,money
manager,etc.. has a system that fits them. Some are long term, some mechanical,
some intuitive,day traders, scalpers, arbitrage, value, momentum.The system its
self is not the important factor. What is is that the system fits their unique
personality.
The system does not matter. I've heard of value investors (Warren
Buffet) who make untold millions from the stock market. I've heard of day
traders taking home over $2 million per annum in profits.I've heard of a dancer
making $2,5 million from Momentum trading. What do they have in common? As you
can see it's not the system but they operate a style of trading that they are
both happy with and excel at. They wouldn't dream of trading any other way.
No-one told them to trade this way it just happened this way.
Too many traders try to copy the latest hot fad in trading. Right
now, that would be day trading. But that style of trading will not suite
everyone. To be a successful day trader you have to love the short term
up and downs of the market during the day. Being in contact with quotes
for hours at a time. Yes, there are a number of traders making very good
incomes from day trading, but there’s many more who lose their shirts
within a couple of months and don't even find out whether day trading
is suited to their temperament.
For some traders buying a stock and holding on to it for a year as
it doubles in price would be torture. Although long term investing can
offer fantastic rewards with very little work, unless you have the
patience and discipline to ride your profits all the way to the top
then you'll never succeed with this method.
It's a little like choosing a career. I remember reading a book some
time ago about the world's best managers. And one characteristic the author
emphasized with all these top achievers was their LOVE for their chosen
careers. Most of them said they couldn't believe they were getting paid to
do something they loved so much. It's no different in trading.
You will only be a top trader if you trade a system which you simply
love to trade. You wouldn't swap that way of trading for anything. And
the profits you make, well that's just icing on the cake.
How do you find a system you are happy with? You have to work
backwards.First work out your objectives!
Ask these questions:
* What annual rate of return do I want?
* Do I want to trade full time, part time, hardly any time?
* Can I handle the stress of day trading and short term trading?
* Do I have the patience for long term trading?*
What kind of personality am I? Do I need lots of action, Do I need
to make decisions all the time?
* What trading books have i read and which top traders do I most
admire and why? Could you easily copy their style of trading?
What-ever you do don't read about a hot shot day trader and then try to emulate
him if day trading is not for you. Strive to find a way of trading you will
be comfortable with and aim to become the world's best at this style of trading.
For me I like the thought of buying a share at $30 and selling it
9 months later for $130. Sure it doesn't happen all the time. But it
only takes one or two of these moves per year to make it a fantastic return.
I am very patient. Not only whilst in a trade but I see absolutely
nothing wrong with sitting on the side-lines for months. If
theconditions aren't right for me than I will not trade. I love the idea
of spending just a few minutes per day checking the charts and the rest
of the time is mine to study and write, etc.. For me the big money is
in the big moves, not the individual fluctuations.
This style of trading will not suite every-one, but the point is
after many years of trial and error I have found a system that fits
me and I aim to become THE world's best trader with this system.
You must do the same. If you are trading a system that does not fit
your personality you can never gain the confidence nor the results to
truly make the big profits. If you are a new trader or an unsuccessful
one then I suggest you start by asking your-self
"What kind of trading suites my personality?" Spend lots of time
getting this correct as this is you foundation. Build a strong foundation and
your trading system will be strong and stand the test of time.
Build a weak foundation and your trading system will crumble along
with your money.
This is where the majority of traders go wrong. They have no idea which
style of trading suites them. They keep buying into the latest software,
or listening to the new guru, hoping this will change their trading results.
Most never get to know what successful trading is all about as the average
trader lasts SIX months. I believe any trader who can last over TWO years in the
market will probably go on to become one of those rare breeds:
A Stock Market Winner. Why? Because after two years they start to develop
a set of rules that fits them. They start trading a way they are comfortable
with. Unfortunately, in their haste to make a ton of money, most traders
will never get two years experience before they lose their money and/or
their interest.
Say it today.
" I will find a system that fits me and I will become THE world's besttrader at this
ONE style of trading"
Go and get to work. There's a lot of soul searching to be done.
Number 3...I will post the rest tomorrow, they take a bit of editing and I am going to sleep. Any opinions on any of these "habits" appreciated
3) Plan a Trade and Trade a Plan:
Without doubt, no trader will last long if he doesn't plan every trade.
But there is absolutely no point in making a plan for a trade if you are not
disciplined enough to follow it.
A plan should cater for every eventuality. As Richard Dennis (Turtles fame)
said,"Don't worry about where the prices are going. Worry about what
you are going to do when they get there.
"Think about what is being said here. Once you put your money down on
atrade you can not control the prices. So stop worrying about what could happen
and concentrate on you trigger points and what you will do when
these points are violated. By doing this your trading stops being emotional
and now becomes very systematic and stress free.
Look at this example:
1) you like the look of stock XYZ Corp. currently trading at $40 and you
place a buy 100, stop in at $42. This is just the beginning. You must then
ask and answer the following questions:
* IF filled on this trade where will where will I place my initial stoploss. i.e "How
much of my capital am I willing to lose?"
* IF filled on this trade how will I take profits? By how much will Itrail my stop? What exit strategies will I use?
* IF filled, will i add more shares as the trade goes my way?
* If filled and the share does not show a profit after X weeks, willI get out, or will I let my
trailing stop exit me from the trade.
* IF stopped out of this trade will i be willing to try and get back in,
or completely scratch the trade and look else-where?
2) So having made a complete plan, prior to entering the trade you
placethe order to buy 100 XYZ corp at: $42.
3) You are filled at $42 1/4, automatically you place a stop order in at
$39. No guessing it's done automatically.
4) The trade goes your way and a second buy order is placed in at $50.
5) You buy 100 more at $50 and the stop is now moved up to $45.
6) The trade goes your way and you keep raising your stop at a safe
distance behind.
7) Your sell stop is hit at $130 and you exit the trade with a massive
profit.
Do you see now that by having a plan everything becomes automatic.
You know where to get in, place stops, add and exit. In short you are
now trading professionally and not from emotion.
Not once did you have to ask for opinion. Not once were you afraid
of letting a profit get away, or of a loss becoming too big.
Simply put, if you make a plan and have the discipline to follow it
trading becomes very simple and stress free.
In my many years of trading one point I try to get across to other
would be traders is the market will always do its utmost to throw
you off track. Once in a share it's a little like riding a wild horse.
The prices will thrash around violently shaking off all scared and
emotional traders. It will only be the ones who have the discipline
to follow a set plan that will benefit from the full move.
If you ever find your-self having to ask some-one for an opinion
on a stock you hold then it can only be because you either have not
made a plan, or you are second guessing the plan, in which case you may
as well not bother making one in the first place.
Planning a trade should be no different from planning a journey.
You must plan for all kinds of events. Especially the unforeseen ones.
Most of the time a trade will go your way and the plan will barely
have to be looked at but what if the share gaps down? flys up? goes
sideways for six weeks, the market crashes, the company announces
a complete surprise announcement which makes the share gain $30 in
one day? If you aren't prepared for these surprises then when
one does happen you are going to find yourself wandering what to do.
And once your are trading from the "hip" and not from a plan then
expect your results to worsen.
Having a plan totally removes all opinion and emotion from a
trade and anything which does this can only be good news.
Time and time again at seminars and meetings I hear the same
questions:
" I bought ABC stock at $25 a few months ago, do you think Ishould
still keep it?"
When I hear such questions I (discreetly) shake my head. How
can any-one trade such a way? Where is his plan? When he got into
the trade where was he get out point? Basically what the hell is
this guy doing trading? Does he really expect to out-perform the
market when he has to ask a third party about his stock holdings?
If this guy had a plan and more importantly the discipline
tofollow he would never ask such a question.
This is probably the single biggest reason people love to
follow opinion. People just love to be told to do something
rather than thinking of it for them-selves. Reading a recent Internet
magazine I was astounded by the number of followers
some of the tip sheets have. The top ones have from 15,000
to 80,000. Are any of these followers really making them-selves
better traders? I have no doubt a small percentage are but
the majority aren't. Why? Because by following some-one else they
abandon the principles laid down in this book. There is no system.
Responsibility has no been shifted to the guru (so there's
the excuse for the losses in place) Worse of all they do not
have a solid plan.
When you start following your own plans you will find
your-self not wanting to listen to out-side opinion. If you hold ADF
stock and bought at $60 and your initial stop loss is at $56 then
why would you care if the local guru is saying, "Sell ADF it's
over-valued and will fall to $20." For one, he is just as likely
to be wrong as right and secondly if your stop is at $56 then let
this kick you out of the trade. At least that way when you
ask your-self "did I follow my rules today?" the answer will be YES.
I can guarantee before Warren Buffet, or George Soros buys
$50,000,000 worth of stocks they know exactly what they will do
if prices swing one way or another. Could you imagine Warren Buffet
thinking, " gee, I bought $20,000,000 worth of DFG stock and it's
down by 15%. what shall I do?" No way! And why should it be any
different for your trading? The point is it doesn't matter whether
you are trading with a $5,000 account or a $50,000,000 the
principles are the same. You must eliminate all emotion and follow
YOUR plan.
To be a winner in the markets you can never trade from emotion
and the only way to eliminate emotion is to have the iron
discipline to follow your own plan. It's said most traders never
plan a trade never mind have the discipline to follow one.
If you want to become one of the few market winners you must
"Plan every trade and trade every plan."
To be honest, I didn't read all of them. It's extremely hard to read one long paragraph or sentence with such bad formatting. You should spend a few more minutes after you sleep and add some better formatting, as from what little I did read it sounds like good advice.
Yeah, that is why I thought they needed to be "edited." Anyway, I managed to find it in a .pdf file online and imagine that, but it is in a nicely formatted and far more reader friendly form. It can not be copied directly but at least I know exactly where he intended to break the would-be chunks up. Will get to the other 4 later in the day. Good luck to all!!
4. Work Hard at Learning How to Trade Properly and Keep Working:
This is no different from any other trade. Would you expect to
become a brain surgeon after attending a weekend seminar and reading
a few books? Yet, why do so many people expect to become a Market
Wizard within such a short period of time?
If you ever have the privilege to ask questions to a successful
trader you'll realize just how much effort, time, determination and
lost money it took until they arrived at where they are. Being a
consistent stock market winner is no different from being a top lawyer,
doctor or businessman.
First you must decide that you really do want to trade. Ask your-self
is trading the stock market something I am genuinely interested in or
are you lured by the potential money it has to offer you? I always
remember reading a book called " Grow Rich With Peace of Mind"
Napolean Hill. Whilst interviewing the top people in a number of
professions he came to the conclusion that these people loved their
chosen fields. They would have done it for no money. Trading is the
same. If your number one goal in trading the markets is simply to make
as much money as possible then I doubt you'll make it into the super
trader status. If you are simply chasing the money it can be a
motivation as long as you are motivated to learn and work at what
really works in the market and NOT keep chasing the latest hot new
trading idea that exploits peoples love of money to make them act.
I am amazed at the number of traders who have not even read a
number of very basic stock market books. It seems it is too much
effort for them to read a book and learn some basic principles.
Yet, these people will blow a $10,000 account in less than 6
months chasing the pipe dream. Get real! Successful trading requires
not only a lot of ground work but on-going effort in order to keep
at the very top of your game.
In market wizards' I and II you will find that ,all but one trader,
went through years of trial and error, not to mention huge amounts
of effort until they became consistent, successful traders. Why
should it be any different for us? Are we saying we are better than
they are? Make no mistake, just like it takes many years of intense
studying to become a top lawyer, to become a top trader is no different.
If you are new then don't expect to strike out and make 80%+ returns
from the day you start. If you do then give me a call and I'll see
what you have that no-one else has. Consider the first three years
of your trading as going to University. The stock market is the
teacher and your initial account are your fees ( so keep it small)
So, what does it mean to work hard at your trading? I have broken
it down into two sections:
Firstly you will have to spend much time on analyzing your-self,
your personality, find a trading style you are most comfortable
with, learn how to trade properly, read, study, ask questions.
Basically, you are going to have to start from scratch and build a
system that fits you. It will take a couple of years at a minimum.
If this sounds like too much effort GOOD. You have just saved
your-self a lot of lost money. Forget trading and move on to
something which genuinely interests you.
If doing the above ground works sounds good, and you
can't wait to get started then may-be there is hope.
Once you have developed a trading system that fits you and you
have the iron clad discipline to follow your plan then it is a
constant battle to stay on top of your trading. As a trader you will
never get there, you are always getting there. You must strive to keep
improving. Never be satisfied with your trading system. Whilst I
don't say "keep looking for fault," I do say every system and trader can
be improved. The markets change their character over time, so keep
working on what impacts new developments have on them. Strive to
become even more disciplined and keep working on your mistakes.
Yes, even veteran traders still make silly mistakes. Look at
Jesse Livermore ( and I suggest you not only read this book, but
study and fear the way this guy operated). Livermore was a stock and
commodity trader way back in the early 1900's. He ran a small shoe-
string account into several millions but kept losing it. On the one
hand he was one of the greatest traders to have ever lived, yet on
the hand he was dangerous in that he could not control his emotions.
Having run an account up to millions and then losing it, one would
think this experience was painful enough so as not to be repeated?
Yet when he painfully started from scratch, built his account into
several million again, only to lose it in one bad trade, then the
alarm bells should have been ringing. Any-one can make a mistake
but to not learn from it is fatal. Sadly, after repeating this event
one more time he could not face the thought of making a come-back
again and took his own life.
So whilst Livermore was a top, top trader he never worked enough
on his own psychology. Had he worked on a sound money management
plan and strictly followed a plan for every trade he would not have
created this situation.
The lesson? Even when you have made it to become a successful trader
that one fatal mistake is lurking in the dark waiting to hit you.
Only by keeping on top of your emotions and working on your trading will
you avoid running into a catastrophe.
How long does it take to become a competent trader? There is no set
time but i would say as a general rule here are some guide-lines:
(0-1 yrs)* Work on finding out whether you are willing to put the
timeand effort into finding a system that not only works but fits
your personality.
* Read some basic books on the stock market. Don't just read them
and think "hmm that’s interesting, nest one.." Really try to get
inside the traders mind. Get a feel for how much time and effort
was put in before they became successful, how many times did they
go down closed avenues? What characteristic made them such a good trader?
* Attend a couple of seminars. But not -ones where the "Secrets of
the Stock Market are Revealed" The secret is there are no secrets.
Give them a wide berth. Go to seminars about basic chart reading skills,
psychology of trading, money management, etc.. and if the lecturer knows
his stuff then get his contact information and keep asking as much
information as possible.
* Using a very simple charting package, start looking at some bar charts
of shares and the markets. Do nothing but observe
* Buy a self help book. Could be a motivational book or similar work
and work through it. My trading and life has become so much better since
I started working on my-self. It will definitely help in finding a system
that fits you.
At the end of year 1 you should know whether trading is for you. And a
certain kind of trading technique should appeal to you more than others.
Go with this natural feel, it is the one that fits your personality.
If you find trading is not for you? Great! You have saved a lot of
time and money. Move on. It's not for every-one. I personally know of
some traders who will have to go back to the start if they wish to
succeed. In the meantime they keep handing money to the market.
It's sad because they've been trading for years. When will the penny
drop?
YEAR 2:
* Open an account with a small amount of cash. This is your learning
fees. Expect to lose it all as part of your fees.
* Keep reading, studying, attending seminars and asking successful
traders.
* Develop a style of trading you are comfortable with. Back test it
by hand and get a feel for the size, regularity and number of trades
your system gives out. Try to determine how many streaks it comes out
worth. ie did it have 5 successive losing trades? Did it have 7
successive winning trades? That way in the heat of battle and your system
has just given you 5 successive losers you know there is nothing wrong.
Get a feel for how it reacts in certain market cycles. Every system acts
better in certain market conditions than in others.
* Develop a plan. (re-read section 2) Try to accommodate for everypossibility.
* Keep observing the charts. I am not a great believer in paper trading
in order to find how much progress you have made in trading. Simply
because you have no emotions whilst playing games and it is controlling
emotions that separates the winners from the losers.
But what I am a great believer in is playing simulation games so as
to get a feel for how money management plays such an important role and
for you to get a feel for how any game of chance can and will have streaks.
This is what i do from time to time.
Get a hat or jar and place 100 marbles inside. I paint the winners blue
and the losers red. I paint a HR (home run >10 * Risk gain) on just four
of those marbles and I paint a BL ( big loss >4 * risk) on four of them.
All the rest are either 4 * Risk gains or 1 * risk losses. Here's the
interesting part. Start risking different dollar amounts on each trade
and see the difference in your results after 100 trades. This should
really hammer home the importance of money management.
Firstly, say you start with a $10,000 account risk just 2,5% on each
trade. Therefore, risk per one trade is $250 or R = $250. If you draw a
losing marble your account is debited $250. If you draw a winning marble
your account is credited by 4 * $250 = $1,000. If you hit a "Home Run"
then your account is credited by 10 * R = $2,500. On the other hand if
you hit a "big loss" trade then you are debited by $1,000.
Put the effort in and give this a try. You'll be amazed at the difference
position sizing can have on your account after 100 trades. You'll see even
in a 50/50 you run into streaks of winners and losers. Having 5 successive
winners and losers is quite common. Not only that try to imagine your-self
trading this system. How are you going to be feeling after taking 5
successive losses? Will you be feeling something is wrong. What happens if you
risk $500 per trade and you start off with a "big loser"? That's a $2,000
loss. Can you come back from this? Be pro-active and play around with the
figures it's a great simulation.
* If you feel comfortable trading make a trade.
The whole point of trading is to follow your rules. Making or losing
money is not the important point. Trade with such a small amount it
hardly seems worthwhile. What you want to know here is:
How do I react when my money is down?
Can I follow my rules?
Is my system working in the long run?
Year 3
You should have your own system that fits you and starting to take
small gains out of the market. If you still find your-self lacking the
discipline to follow the signals ask why? Keep playing the simulation
game as though it was your system and see why taking four or five
successive losing trades is acceptable as long as you can manage the risk.
Year 4
By now, if you are still trading, you should be pulling consistent profits
from the market and know your-self well enough to continue learning.
Consider learning to trade like taking a degree in the stock market.
Are you willing to sacrifice 4 years in order to learn the trade? If not, then
walk away now. If you are then get to it.
If you want to be a top trader there's a lot of work involved.
Don't be fooled by all the trade magazines saying you can pull 100%
out of the markets year in and year out with no effort. It isn't going
to happen. But if you really do keep working at it the rewards can be
amazing.
" All truly wise thoughts have been thought already thousands of times;
but ro truly make them ours we must think them over again honestly,
till they take root in our personal experience."- Goethe
Iron clad belief not only in the system you are trading but also in
your discipline to execute both entry and exits flawlessly are essential
to your success in trading.
The top traders know it is the discipline displayed in following their
rules that is the important thing in trading and the money rewards are
secondary. For if you can not execute your signals, on both entry and exit,
without question it takes just one mistake to give all those hard earned
profits back to the market.
Positive self-belief is built from repetition after repetition of
following your rules. Extensive back-testing of your system and
constant self analysis.
You'll never be able to follow a system if you have a doubt in your
mind. That's why so many people who buy other peoples systems fail.
When that system goes through a losing period the person who purchased it
will throw it away and search for the next system. Yet the trader who
has rock solid belief will be aware that the system does display periods of
losses. He's seen it all before and sits it out waiting for the conditions
to become more favourable. When they do he gets back in and makes a ton
more cash. The person who purchased the system in the meanwhile is now
losing more money with the new system because that too has just come into
a losing streak.
Only by doing the groundwork in section four will a trader have confidence
in a system. You must strive to work through as much market data as is
possible with any system so as to know what is normal and what isn't.
This is why even the top famous traders have losing streaks and they never
batter an eyelid. Every-one seems to be aware that George soros is the
greatest trader alive. The guy made billions in the 1980's and 1990's,
yet he as also had some amazing losing periods. His fund has also lost
billions and posted big negative returns. Did it bother him? He knew
that his style of trading will go through losing periods. Just as dawn
follows dusk, a losing period is usually followed by a winning period
and vise -versa. Yet too many traders throw in the towel after taking a
couple of successive losers. They are never around when the system kicks
into a big winning period.
What you believe is what you get. If you look at your problem areas you'll
find they are rooted in faulty and limited beliefs. So if you are having
problems with your trading results examine your beliefs about trading. If
deep down you have negative feelings about trading, or making money or you
lack complete confidence in either the system you are following or your-self
then you have to stop trading and go back and find out why.
A person who is a compulsive gambler will never make it trading the markets.
I'm sure when they lose a substantial amount of their capital then every-one
else will be to blame, but deep down if they analyzed their beliefs about trading
they would probably admit they see it as a big casino. If your beliefs about
making money are negative then how can you expect to make money in stocks?
I have heard of traders running accounts up to a ceiling figure, say $1 million
and then losing it all. They have repeated this several times before seeking help.
Usually, it is found that some deep seated, negative belief about making a lot
of money has caused them to push the self-destruct button. As Ed Seykota ( very
successful professional trader) says, every-one gets what they want from life.
You'll find in trading you'll get what you want.
You have to ask your-self what are your beliefs about trading? Are you told
continuously that trading is a no win game? It's a gamble? You can't win?
Trend following doesn't work? etc... Do you believe any of it? Write down
what you believe about trading. What kind of returns do you think are possible?
How much time and effort do you believe you must put into a day's work to obtain
a day's pay? When I first started trading I felt I needed to work hour after hour
every day. I checked on the quotes continuously, phoned my broker, read reports,
listened to the news, etc.. Why? Because I believed I had to put in hard work to
receive pay. It took a long time to shake that belief out.
If you believe it's relatively simple to make 50% p.a from the stock market
year in and year out, with very low risk and with just ten minutes work per
day then good, because it's possible. Then this is what you'll work towards
( I know many people will disagree but first ask whether these people are in a
position to pass comment).
On the other hand, if you believe just working ten minutes per day for a wage
is a lazy way to success and you feel uncomfortable with this then you will
have to resolve this conflict before you can obtain these results.
Choose your beliefs wisely. In all problems with your trading you are both
the problem and solution. The top traders know this. If they go through an
extensive period of losers they'll start analyzing their beliefs. Looking
inside and not out-side for the answers.
How do you develop positive self-belief?
Foremost, it has to be said it takes a lot of work (refer to the previous chapter.)
You will have to start with accepting total responsibility for your trading ,be
willing to put a lot of work into finding and testing a trading system.
The rest is built from experience. It takes years of experience for you to
develop the belief. A bit of a catch 22 but how do you gain experience in
trading? By staying in the game. Trade with such a small risk in the early
years that it hardly seems worth your while. View trading as a 20 year venture
and not a "get rich quick scheme."
It is only when you have total confidence will you be able to view your trading in
terms of points rather than money. Once you are on this level the rewards can be
staggering. Which brings me on to the next chapter.
6) View Trading as a Score in Points and Not In Money:
Really what I am saying is "follow your time tested rules which you
have complete belief in and forget about everything else"
How can you do that when it's money we are trading with? Use
someimagination. Pretend it's not money but simply a game your playing
and your account represents points scored. Stop counting dollars every
time the market moves and start concentrating on following your rules
flawlessly. When you can operate on this level not only do your profits
soar over the long run but it takes away all the stress of trading.
Think about it. No more are you watching the quotes intra-day thinking
"wow! I have just made enough to buy a new car," or
"uhhh.. I've just lost my holiday money" This kind of trading is emotionally
draining. No-one can succeed like this. This was me in my early days. I would
be so down when I checked my quotes during the day only to find I had lost
$500. And the next day when I found I was up by $500 I was the life and
soul of the party. Even if I could have made a success by trading this way
I wouldn't have enjoyed it and I would have given up.
Nowadays with my low risk/ high reward trading system I check the charts
at the end of day in 5 minutes and that's it. I simply ask my-self:
" Should I buy, sell or hold according to my rules?" I give my-self ten
seconds to answer and do what has to be done. I am not a trader any more
but a rule follower. That's how I feel. ( why do you think I have so much
time to write?)
Reading Market Wizards I and II it was a prominent feature I noticed
with all top traders. They never saw the markets as a cash box but simply
as a way of operating a business. The name of the business was to
follow their rules and score the points. It's not possible to become a top
trader if you view every tick in the market as money lost and gained.
If making and losing money leads to emotional distress and joy and
emotions are one of the most potent destroyers of successful trading then
common sense dictates that in order to be a Highly Successful Trader you
must eliminate all emotion from trading. How is this done? Easy, follow
the rules. How do you follow your rules? Make it THE most important
element in your trading. Forget about the money that will take careof it-self it's all about
those rules and how well you can follow them.
If you ever just read one book on the stock market then please let it be:
" How I Made $2 million" by Nicolas Darvas
I love this book so much because when you have read it as many times as
I have (50+) you begin to realize how well this guy turned his trading around
from an emotional losing trader into a robotic, disciplined, money generating
machine. What made his success possible? Apart from the usual accepting
complete responsibility, developing a system that fitted him, planning his
trades and lots of initial groundwork. The real reason he made so much money
was because he never counted the money in the general sense. He had a set of
rules and when it flashed a buy he placed on a percentage of his capital.
It made no difference whether it was $5,000 or $500,000, it was all the same
to him. He stopped counting money and flawlessly followed his rules.
If I could just describe a section that had profound effect on my trading.
In one trade Darvas bought $350,000 of a share at $53 1/2. The share then
climbed to over $100 and his broker telegrammed him with the message:
"profits now $250,000" Darvas now realized that whilst he had been so busy
concentrating on following his rules he had forgotten all about the paper
profits building up. When he received the telegramme he now knew if he sold
out he would be rich for life ( this was the 1950's) Every fiber in his body
was saying "sell. abandon your rules and take the profit."
So he walked around Paris trying to work out what to do. Questions and
thoughts such as will the share fall back? Should I sell and take the sure
profit? Shall I just break my rules this one time kept repeating them-selves
time and time again.
Finally he decided not to sell and to stick with his rules. It was
anything but easy to do. But he was proved right. In the weeks
aheadthe share continued to rise and making that decision to stick to his
rules he was able to hold on and make much more profit.
Had he have constantly been calculating his trades on a day to day basis
in money terms I doubt he would have had the nerve to stay in so long.
Amazing story and one definitely worth reading.
You see how theory is all very well. Every trader worth his salt knows
the Wall Street sayings :
"cut your losses"
"let your profits run"
"trade with the trend" blah,blah,blah
But it is another ball game to do this in the heat of battle.
Time and time again when I enter a trade I want to bend the rules,
"just this one time." But I have gathered enough experience to realize
I can NEVER break my rules. Not one trade can be the exception. I
have learned to do this by counting in terms of points scored and not
money.
What separates the winners from the losers? It's certainly not
knowledge? I believe what really separates winners from losers is
the ability to follow your rules without exception, regardless of the
circumstances. Very few traders have the discipline to do this.
Trading be it successfully or not, is a very stressful career. When
one is dealing with making and losing money based on your perceptions
the stresses can be enormous. You must do everything in your power to
eliminate the stresses.
I have never met or heard of a successful, highly stressed trader.
In fact it's quite the opposite. Most of the successful traders I have talked
to seem very relaxed and confident. I suppose this is what has made them
such success in the first place.
Reading Market Wizards' (Jack Swager) one common factor picked up on
all the best traders was their ability to disassociate them-selves with
the market action. It was almost as if they were unconcerned with their
positions. Considering some of these guys (and girls) traded with
hundreds of millions of dollars at a time this is a remarkable feat.
Most of the traders I know get excited when they have a couple of
hundred dollars at stake.
I know my own trading results went through the roof when I actually
spent less time "trying to control the market." By this I mean staring
at the quote machine and end of day graphs all the time. I took up tennis
lessons, jogging, reading, writing, even other business ventures just so I
could take my total focus away from the markets. Not only did my results
improve dramatically but so did my quality of life.
How can the top traders keep it so cool when the risks are so high?
Go through this book again:
1) They decided a long time ago to take responsibility and find outwhat works
2) They have a system that fits them.
3) They plan every trade down to the finest detail ( wouldn't you if
you had $50 million at stake? more importantly they know when push
comes to shove they will follow the rules.
4) They have put the ground work into this system and continue
to do so.
5) They have complete confidence in both the system they follow and intheir own
skill to flawlessly execute it.
6) They definitely view trading as a game in points and stopped
counting the money a long time ago. Most of the top traders are
very wealthy so if they aren't trading for enjoyment ( and winning)they'd
simply retire.
7) Finally they learned a long time ago that they alone can not control
the markets. Watching a quote machine and hanging on to "guru" advice
all day is a losing system. Most of the top traders have a life
out-side of trading. Realizing the importance of keeping it all in
balance.
Trading is no different from any other aspect of life. If your total
focus is on one point then every little dip and peak becomes exaggerated.
This kind of peak and valley emotional trading will not only ruin your
trading results but it could destroy you as a person as well.
Even if you was to make millions from the markets is it worth it at all
costs? Surely it's the journey that is important and not the arriving
at the destination.
In order to trade successfully you need to take time off. Re-charge the
batteries and gain some perspective. I remember my first few years as a
stock market player. I would spend all day, night, weekends reading,
studying, staring at the charts, trying different systems, etc....
Frankly I wouldn't wish it on any-one. Yes, I learned so much, without
the intensity of study I wouldn't have become so successful, so quickly
( 5 years) but if I had to do it again, or if I was giving advice to a new
trader, I would have kept my life much more balanced. "Work hard, play hard."
"Not work and work some more."
The stresses are big enough without making it the only focus in your life.
Take a ten year view on your performance. Realize that if you can gain just
a 30% return in the stock market year after year you are doing better than most.
Treat trading like any other business. Work hard from 9-5 and then be disciplined
to switch off and live your life.
Some of my very best trades have come from placing a buy order in the market
and setting a stop loss order with my broker. Going away for a months vacation
without looking at a share price. Coming back home and finding my share has jumped
by 40%. It never stops to amaze me how simple successful trading is.
Trading can be frustrating if you feel you can control the markets. There's this
feeling that by checking on the prices four times a day you will perform better. But
this is a complete waste of time and it leads you in to doing something stupid.
as long as you plan your system and follow those rules why would you ever need to
check on the prices during the day. Use the time intelligently and in so doing
it will give you more free time. Wasn't that the whole attraction of getting into
the stock originally?
Stock trading is a weird way to make a lot of money. We are brought up to
believe that to earn a honest days pay you must do an honest days work. But
if you buy $50,000 worth of stock at $50 and sell 1 year later at $200,
you have made $150,000 profit. Amazingly it only took 30 minutes to do this
as long as you checked the prices for 1 minute daily and followed your rules.
What elses is there to do? Yet, most people will have a problem making this
kind of money from the work put in. I am sure when the share hits $70 most
traders will snatch at the profits in order to take the sure profit and then
lose those profits chasing other trades. Yet it will be the balanced trader
who spends his time wisely and follows his rules who will always make the
big money.
So keep it in perspective. Realize you have no way of controlling the prices.
If you find your-self "itching" for more action then take up some interest AWAY
from the markets. NEVER try to make your trading more interesting or exciting.
If you do this you are forcing the markets into something that simply does not
exist.
If you spend more than 15 minutes per day managing your trades it's too long.
ask our-self whether you are trying to see something that doesn't exist.
Successful, profitable trading is:
* Boring
* Effortless
* Easy
* Stress free
AFTER you have MASTERED the "7 Habits of a Highly
Successful Trader"
Are you going to spend the necessary time mastering these principles until
they become habits? A habit is something you do without thought.
It takes a lot of time and effort but the end results are worth it.
