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Difference between Skill & Luck in Trading

  
  Education
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Many times, good traders make the right trade but still lose, but it is okay because they will win in the long term because their method is tested, their risk is managed, and their mind set is right for long term trading success. They have developed the skills of a successful trader. Other times a new trader with no skills makes a trade based on a hunch and wins big, the danger is that the new trader will confuse luck with skill. The delusion begins with winning on a few trades, the new trader trades bigger, and bigger, until their luck runs out and they are wiped out. We need to all keep a good understanding of whether we traded will the right skill set or we just got lucky.

Traders with skill have large gains after 100 trades and are relatively quiet, traders that were lucky have huge gains after a few trades and are very loud, then very quiet for the next few trades that usually bring their account to zero.

Traders with skill risk 1% to 2% of their trading capital per trade and win in the long term, traders that are just lucky risk the majority of their account for a few big wins in the short term but lose in the long term when their luck runs out.
Traders with skill use a successful method with different stocks, currencies, commodities, future markets while traders with just luck are only successful with one lucky pick in one of those markets and when its up trend ends their winning streak ends. (more…)

10 Things that Great Traders have Declared Independence From –

  
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  1. Great traders do not have to be right about any one trade, their success is based on winning more than they lose on a large amount of trades.
  2. Great traders do not need trade ideas from other traders, they trade a system and method independent of others opinions.
  3. The best traders are independent of holding on to losing trades stubbornly trying to prove they are right, they cut losses.
  4. The best traders are not prisoners of their emotions they can make clear headed decisions due to trading like it is a business not an ego trip.
  5. Rich traders became rich because they had systems that allowed winning trades to be free to run as far as they would go. They are independent of price targets.
  6. Rich traders trade independently from BLUE CHANNEL sentiment.
  7. Great traders trade charts independently of market sentiment.
  8. Great traders trade independently of talking heads on financial television.
  9. Winning traders are independent of market gurus they have proven systems and methods.
  10. Great traders are free from the risk of ruin because they never risk more than 1% to 2% of their total capital on any one trade.

3 Elements of Trading Success

  
  Education
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What all winning traders must have, regardless of timeframe and system are as follows:

Trading System

  • They trade a robust system or method that wins more money over time than it loses.
  • Their system gives them a reward to risk ratio that is in their favor.
  • Their system or method is proven to work with a live trading record over many markets, trades, or has  historical back testing.

Trading with Managed Risk

  • They manage the risk of ruin to avoid blowing up their account.
  • They risk no more than 1%-2% of total account equity on any one trade.
  • They manage risk through proper position size so they do not risk their account and their ability to trade in the future.
  • They do not risk more than 6%-12% of their capital at one time, across multiple trades.

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14 Emotions of Traders-Really Dangerous

  
  Education
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  1. Anger- Revenge trading
  2. Fear- Inability to take an entry or hold a winner in a trend.
  3. Disgust- Can lead to loss of a traders confidence.
  4. Happiness- Surprisingly can lead to trading too big and taking on too many positions.
  5. Sadness- Can lead to having difficulty taking the next trade entry or cutting a loss.
  6. Surprise- Can many times lead to making decisions based on emotions and abandoning a trading plan.
  7. Neutral- Trading is a lot of work and only passion and energy can move you toward doing the required homework that leads to eventual success.
  8. Anxiety- Can lead to exhaustion due to excessive stress.
  9. Love- If you truly love trading the markets then only time separates you from success. If you love the wrong things or people it can be destructive.
  10. Depression- Leads to abandoning your trading.
  11. Contempt- Having contempt for the markets or other traders will result in bias and bad decision making.
  12. Pride- Leads to trading too big, not cutting losses fast enough, and wanting to be right and prove something more than being a rational trader.
  13. Shame- Makes it difficult to talk to others about your trading and look at your account capital due to your bad decisions.
  14. Envy- Leads to external focus instead of the internal focus needed to trade successfully.
  15. Trading is only successful long term when it is done with the mind,  emotions are only valuable if they create the energy in you to get you where you truly want to be. Emotions are positive if they protect our psychological boundaries, not so great if they just support an out of control ego. Emotions are great tools at times but terrible masters.

80% of trading is behavioral

  
  Education
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80% of trading is behavioral, maybe only 20% is based on the other things that a trader does. Like much of personal finance it is not the math but the behavior that makes all the difference. Most people’s problem with being broke does not lie in their budget it is due to their behavior of spending too much money becasue they lack self control. The inability to say no to yourself in the present is what leads to most of the problems that we encounter at a future time. You can’t out earn stupid and you can’t budget away a lack of self control or work ethic. The same applies to trading.

Wanting to be a trader is only the beginning, once you make that decision you have to do the work to learn how to create a winning trading system. Having a robust trading methodology is still by far not enough it has to be expressed in a trading plan that also controls risk and fits your personalty. Even then, a trading plan is not enough you still have to follow it with discipline consistently for it to work out for you in the long term and make you profitable. But wait, there’s more…. you have to have the passion and perseverance in the market to shake off a losing streak and draw down and keep going. A great trading method is useless if you quit before you give it a chance to hit the big winning streak. (more…)

A Winning Mindset is Required To Succeed

  
  Education
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  • A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to
    transform himself. That’s the kind of thing winning traders do.
  • The winning traders have usually been winning at whatever field they are in for years.
  • It is a happy circumstance that when nature gives us true burning desires, she also gives us the means to
    satisfy them. Those who want to win and lack skill can get someone with skill to help them.
  • The “doing” part of trading is simple. You just pick up the phone and place orders. The “being” part is a bit more subtle. It’s like being an athlete. It’s commitment arid mission. To the committed, a world of support appears. All manner of unforeseen assistance materializes to support and propel the committed to meet grand destiny.
  • In your recipe for success, don’t forget commitment – and a deep belief in the inevitability of your success.

You Might be a Bad Trader if:

  
  Education
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You Might be a Bad Trader if:
…You are 100% sure about a trade being a winner so you have no need to manage risk.
…You go all in on one trade and  it will make you are break you.
…You like to buy deep out of the money stock options not understanding how bad the odds are on them.
…You love directly giving unsolicited advice to other traders due to not understanding they have different trading plans and time frames.
…You are so new to trading you think it is a place of easy money.
…You think traders that talk about risk management and trader psychology are silly and that you are above that.
…You brag to much about your account size and last trade, it indicates to me you do not understand the long term in the markets.
…You are very loud about your winners but never discuss your losing trades.
…You brag to much.
And You Might really be a bad trader if: If you attack trading principles that you do not even fully understand due to lack of real trading.

 

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