Will You Be a Good Trader?
Will You Be a Good Trader?
Want to know if you will be a successful trader or not before you dive too deep into the world of trading and spend too much time in front of your computer? The successful trader is a very different person than the unsuccessful trader. First of all, we need to define what a successful trader is so we are on the same page; let's consider a successful trader someone who is active in the markets (5 or more trades a month) and makes a consistent, low risk living over a multiñyear period of time. The successful trader understands that moves in markets are a result of mass psychology and pure supply and demand. We make money in the markets by being masters of human psychology and supply and demand. Winning and losing in the markets is more defined by your mental make-up than your trading style. What is more important than chart reading is to first understand how you think. Instead of focusing on changing your actions if you're having trouble with trading, it's time to notice where those actions come from. Actions stem from behavioral patterns, and behavioral patterns stem from beliefs. So, it's at the level of beliefs that decisions are made, and moreover, where your ability to differentiate reality from illusion lies. It's time to start considering where your beliefs about what works and what doesn't in trading come from. In life, which includes trading and investing, most of us tend to repeat the same processes over and over, expecting a different result. Over my many years in the business of trading, there are some very clear differences between the consistently profitable trader and the consistent losing trader. To have a good idea in advance whether you will be a consistently profitable trader or a consistent losing trader, take a look at the traits of the two groups below and see which group you fall into.
The Unsuccessful Trader
- Tends to follow the crowd.
- Comfort in numbers.
- Avoids taking risk unless others are sharing the risk as well.
- Feels that if others are buying, then it is "ok" for them to buy as well.
- Acts on the advice of so-called "experts." For example, the advice of market gurus, CNBC, analysts, and your brokers.
- Tends to complicate the trading process and ignore the important simplicity of markets. Do you tend to complicate other things in your life?
- Makes the same two mistakes consistent losing traders make; buying and selling after a move in price is well underway (late and high risk) and buys into resistance (supply) and sells into support (demand) (low probability).
- Waits to see what others in the group are ordering at a restaurant before they order.
- Has trouble following simple rules.
- Lacks self control in regular life situations.
The Successful Trader
- Leads the herd.
- Tunes out all the subjective noise that can get in the way of making proper trading decisions. Doesn't care what others are doing and makes decisions based on a very mechanical and unemotional set of criteria based solely on the laws and principles of supply and demand.
- Knows how to identify the proper high profit margin entry that most people never see.
- Only buys after a period of selling and into price support (demand). They buy fear.
- Only sells after a period of buying and into price resistance (supply). They sell greed.
- Successful traders:
--Can identify opportunity before others.
--Execute trading plans mechanically. - They can follow simple rules.
- They have strong self control in every part of life.
There are certainly more traits in both groups, but I think you get the point. If you find that you are not suited for trading, that's ok. If you think you fall into the successful group, you may want to give it a try. Keep in mind, however, that if you don't have self control, for example, you will likely lose your money in the markets to someone who does. I am not trying to scare anyone out of trading mind you. I simply feel that the industry has the responsibility to be real with people and not disguise risk with the hype of easy wealth from trading the financial markets.
Successful Trading
Let's go over some more characteristics of a successful trader...
- Having the ability to find two sets of ill-informed individuals in any markets and any time frame.
- Those willing to sell their stock, futures, forex or options to you at a price you know is too cheap. You know by objectively assessing supply and demand.
- Those willing to buy your stock, futures, forex or options at a price that you know is too expensive. You know by objectively assessing supply and demand.
- Having the tools, knowledge, and ability to take the proper action when these two groups appear.
- Play the bandwagon correctly.
Proper trading is knowing how other market participants think and react when they are correct and, more importantly, when they are wrong. Price patterns on the charts we analyze are thought patterns.
Mental Musts...
- Confidence
- Discipline
- Patience
How to get these...
- Reduce and eliminate subjective analysis.
- Learn to fight the urge to do what others are doing and make decisions based on a very mechanical and unemotional set of rules and criteria.
The Proper Entry
- Know Where To Enter, Support (demand) and Resistance (Supply).
- Smart money enters here.
- Entry Must Be Low Risk.
Most important part of the trade.
- Enter Before Others.
- This is how we get paid.
One of the most important things to understand about proper trading and investing is that the successful market speculator focuses on what is real and is able to distinguish this versus the many forms of illusion such as news, opinions, conventional technical and fundamental analysis and more. This is no different than the dance of light and shadow each morning of our lives. If you focus on the shadow, you will see different pictures all the time, however, the object and light that create the shadow never changes. Shadows can really distort reality if you let them. The dance between reality and illusion is the dance of light and shadow. Do you know the difference in trading?
Hope this was helpful. Have a good day - Sam Seiden
About Sam Seiden
Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange where he facilitated institutional orderflow.. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.
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