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The Greatest Traders

  
  Education
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What separates the 10% that make money from the 90% that don’t?

10,000 hours.

In his recent book ‘Outliers’ Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that ‘try their hand’ at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn’t see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in!

Education, education, education.

The old cliché touted by politicians when they can’t think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.

Think for yourself.

“NO! NO! NO!”… “Bear Stearns is not in trouble”…”Don’t move your money from Bear! That’s just silly! Don’t be silly!”

A quote from well known stock guru Jim Cramer aired on CNBC days before Bear Stearns lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, “too many cooks spoil the broth” it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.

Adapt or Die.

Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.

Fail to plan, you plan to fail.

The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.

“Be like Machine”

As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.

Know your tools

Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a traders bread and butter; they are the most vital part of a traders arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.

Know Thyself

Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self improvement.

Profit & Loss

The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms of the grocery payment, the electric bill and the desire to make X amount to cover a mortgage payment. Focusing on the money behind a trade can cloud technical objectivity.

In Conclusion

The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.

Trading To Win

  
  Education
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One of the easiest mistakes any trader can make is not a ‘trading’ mistake at all. Rather, the mistake is complacency with his or her trading skills and knowledge. Unfortunately, trading is not like riding a bike – you can (and will) forget how. Obviously you’ll always know how to enter orders, but the efficiency and accuracy of your trading will diminish without constant renewal of your trading mindset.

The reason that most traders don’t undergo psychological self-development is a lack of time, and that’s understandable. However, a good book, DVD or Coaching Class is actually an investment in yourself, and ultimately an investment in your bottom line. Today as a primer, and a challenge, I’d like to review some self-development concepts that Ari Kiev explores in his book ‘Trading To Win, The Psychology Of Managing The Markets‘. This in no way is a substitute for his excellent book, but they are still useful ideas even in this abbreviated form. None of them are going to be new to you, but all of them will be valuable to you.

1. Plan the entire trade before you enter the trade. Have an entry strategy, and an exit point (both a winning exit point and a non-winning exit point). This will inherently force you to look at your risk/reward ratio. Write these entries and exits down in a journal.

2. Eliminate distractions. It’s difficult enough to find trading time at all if it’s not your regular job. If you’re a part-time trader who trades at work between meetings and phone calls, think about this: there are full-time professional traders who are concentrating on nothing other than taking your money. It’s not that they’re better or smarter than you – they just have the time to focus. If you must trade, set aside blocks of time to study or trade without distraction. Or it may be more feasible to do your trading on an end-of day basis, meaning you
place your orders and do your ‘homework’ the night before when you can
focus on it.

3. Choose a method or a small group of methods, and stick to them. Far too often we see a trader adopt a new indicator or signal only to see it backfire. Become a master of your favorite signals, rather than a slave to any and every signal. Understand that an indicator will fail sometimes. That’s ok. The sizable winning trades should more than offset the small losing trades initiated by an errant signal. This trading method is designed to eliminate the emotional bias of trading.

4. Choosing not to trade can also be a prudent choice. You’ll frequently hear ‘don’t fight the tape’. The same idea also applies to a flat market – you can’t make stocks do something they’re just not going to do. Wait for good entries into a developing trend rather than force a bad entry into an unclear trend. (more…)

Patience

  
  Education
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The most difficult thing for traders to do is to sit there and wait. Why? Because, we live in a world that is on a total dopamine, hypomanic binge. This is never more clearly manifest than by those who absolutely have to be in the markets at all times, desperately need to be trading and simply cannot wait. They are human do-ings, rather than human be-ings.

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There is a wonderful advantage to waiting for the right entry and exit points. This allows you to be in a market- neutral mindset, and frees you from looking frantically for bearish or bullish views to justify your biases. Granted, you are not making money, but you are also (and much more importantly) not losing it. You are preserving capital. You can take time to reflect study, hone and refine your trading plan, adopt some healthy exercise and dietary habits, and become a stronger and more centered person. Simply waiting without stress for the right opportunity allows you to become a more rational and impartial observer.

Patience frees you from active involvement in the chaotic, and often reckless, behavior of others in the markets, and it puts you and your trading plan into a clearer perspective. It allows you to see yourself as a human be-ing, rather than a human do-ing.

When you first started trading, what did you hear constantly? Preserve your capital. You heard it, but maybe you did not listen, or did not understand. If you have no financial capital to use, you are out of the game. If you are chasing or getting in just to get in and are getting whipsawed daily; and you are losing, drip by drip, or in larger chunks, you are out of the game. If you are cutting your winners too quickly and letting your losers ride, you are out of the game.

If you wait, take time, assess the situation and then pounce like a jaguar at the right opportunity, your chances for trader longevity increase significantly. You have preserved your financial capital, and deployed it appropriately with a good risk/reward ratio.

10 Positive Assertions

  
  Education
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                                                                             positive-energyI want only what the market wants !
I enter in the market only when all of my indicators are pointed in the same directions !
I place stops as I enter trades !
I let any trade go that misses my entry !
I only initiate trade with a target price and a risk reward ratio of more than 1 : 1.
I have a reason to exit every trade !
I stay peaceful, calm and cool and see any and all of my emotions in a disassociated
vision apart from me while trading !
I cut my losses short with every trade !
I focus on each trade meeting its trading plan to measure success.
I trade in a regulated, even and controlled way so that I am always prepared in my mindset to pass on all trade should there be none for the whole day !

How does the mind of a trader work?

  
  Education
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MindpowerIn order to understand behavioral finance and crowd behavior on the capital market, first of all we need to understand the factors that influence the trader mindset. Traders are “misled” by many things. Let us put these factors in two main categories, depending simply on their source, external or internal.

The most important external factor is “everyone else”, the trading crowd, the general opinion. We form an opinion about the others. We believe them to be either smart or stupid, either right or wrong, then choose one of the two main psychological trading strategies: “go along to get along” or be a contrarian. Then we have other external factors like payoffs, scale, psychological and academic background, social structure, external advisory and resources. (more…)

15 Trading Paradoxes

  
  Education
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Here are 15 paradoxes that I have learned on my own path to consistent profitable trading.

 

  1. The less I trade the more money I make.
  2. All my biggest profits were made on option contracts I bought not ones I sold.
  3. My number one job as a trader is to manage risks not make money.
  4. The best traders in history were the best risk managers not the best at entries and exits.
  5. The ability to admit you are wrong about a trade and get out is more important than being confident in a wining trade and staying in no matter what.
  6. Winning traders think like a casino losing traders think like gamblers.
  7. Opinions, projections, and predictions are worthless, trade the price action. (more…)

What you WILL DO vs. NOT DO is what it comes down to

  
  Education
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In trading you MUST take action and control.  It’s not the market makers, or the talking heads, or your neighbor, or any of the experts or people you entrust with your money that are causing your losses or your poor investing performance.  You are making the decisions, directly or indirectly.   Any trading and investing decisions made in your accounts are all DOWNSTREAM from you and your initial decisions, so you can make different ones in the future.

But you must take measurements.  You must have a plan.  You must assess, then make DECISIONS to GET you to your FINANCIAL, HEALTH and RELATIONSHIP goals.

In trading we teach a very simple and effective way to make consistent profits in the markets.  There is a learning curve and much of that curve is you getting to know you.  It’s understanding the psychological aspects of trading profitably with consistency and making those thought process changes that are necessary to get you in a winner’s trading mindset.

For many people this is a challenge.  The actual steps and actions you must take are not laborious or physically draining, they are simple things that need to be done but will go against the natural instinct to just want to go through each day on ‘autopilot’.

And this is why many a trader who is struggling slips into the ‘blame’ or ‘victim’ game.  Being aware of this is important and we are all human and capable of slipping off track……but the key is to catch it early, forgive yourself for it, and then learn and ‘zig zag’ your way back onto the path that will get you to your goals.

7 More Trading Lessons for Traders

  
  Education
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  1. You don’t choose the stock market; it chooses you.  A little bit of early trading success can have a profound effect on a person’s soul.  If it does choose you, you’ll have to accept that your life and investing will become forever connected.
  2. Your methodology must provide an unshakeable foundation that you believe in totally, and you must have the conviction to trade based upon it.   If your belief is tentative or if you don’t have complete faith in your methodology, then a few bad trades will destabilize and erode your confidence. 
  3. A calm mindset that can focus on the execution and not on the outcome is what produces profits.  It takes total emotional control.  You must maintain your balance, rhythm and patience.  You need all three to stay in the game.
  4. The markets are always conniving with ingenious techniques to get you to lose your patience, to get you frustrated or mad, to bait you to do the wrong thing when you know you shouldn’t.  A champion doesn’t allow the markets to get under his skin and take him out of his game.
  5. Like a great painting, all good trades start with a blank canvas.  Winning traders first paint the trade in their mind’s eye so that their emotional selves can reproduce it accurately with clarity and consistency, void of emotions as they play it out in the markets.
  6. The “here and now” is all that matters.  You can’t think about the last trade or the last shot or worry about the future.  You need to put on your “amnesia hat” in order to remain completely unfazed by what came before.  Only by doing so can you be totally absorbed in executing your present trade.
  7. Being prepared and having put in the work results in the bringing together of your intuition and confidence.  The two go hand in hand.  Extraordinary results can be expected when you are able to see it, feel it and trust it. 

Traits of the Successful Trader

  
  Education
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1. Find the plays that make the most sense to you.

Build from your unique personality.  Some traders will make a career of momentum trading, killing anything that is moving.  They could care less about a balance sheet or even the actual full name of the symbols they trade.   They just want to play and are damn good at it.   Some will find this intellectually suffocating.  They will want to trade all the markets, reading as much about as many longer term opportunities as possible.  This fits their inner need to learn, think, and grow intellectually.  Both are totally acceptable save if the momo trader is forced to trade macro plays.

2. Spend as much time trading, thinking about trading and talking about trading as you can possible stand.

The past years have gifted us a treasure of research on elite performance which provides a clear path for our success.  Time at our craft, experience, practice, reps gained determining plays are the road to successful trading.  Put down Boring New Book About Some New System You Do Not Understand and start reading The Talent Code, Bounce, Talent is Overrated, Mindset, Drive, Outliers, The Art of Learning.

3. Find a GREAT mentor.

And I do not mean necessarily at a trading firm.  Before Dr. Steenbarger went off-line and joined one of the great hedge funds of our time, I peppered him with questions.  Phil Mickelson, considered one of our greatest golfers ever, has three coaches watching his game.  Peyton Manning has a head coach, offensive coordinator, quarterback coach, and father providing him feedback.   There is little evidence of elite performers reaching their potential without high level coaching.

Is market a battlefield for you?

  
  Education
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Have you ever heard something like “The market is a battle, be ready to fight with all you’ve got,” or “The market is a war,” or any variation of this theme?  I bet you have, it’s a fairly common theme. But is it true, or better question might be: is this a mindset that you want to adopt? 
Don’t get me wrong – by no means do I want to present a marketplace as a happy place where  refined gentlemen high-five your each win (hmm, do refined gentlemen high-five at all? or they back-slap only?) and console you with fine whiskey and cigar after each loss. No, they are out to get you just as much as you – them. In that sense, anyone in the market is an enemy of anyone else. But that’s not really the point. The point is, is kind of attitude toward the marketplace and its happenings going to help you survive it, navigate it successfully? Or is it going to undermine your success? 
 
If the market is war for you, you are going to be in the fighting mode all the time. Can you function well for long in a constant fight mode? It’s extremely tense mode which is going to wear you out rather quickly. Instead, allow me to offer you a very different attitude – one where a market is a natural environment for a trader – environment where certain patterns govern all the comings and goings. Is it a dangerous place for a trader? Of course it is. Think of it as of ocean. It’s a dangerous place to be and swimming in it is a dangerous thing to do – just as trading the markets.

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