We often hear that 95 percent of people who try to trade for a living fail within the first year. These aren't very good odds, so it's natural for new traders to wonder if they have what it takes. In this issue, I give you a list of 20 things that I think most winners have in common. I also put some facts about trading in there.
The ways that successful traders make money are very different. Even though there are many different types of traders, most successful traders share the following traits (in no particular order):
Winners have a trading plan that includes a strategy for how to manage their money well. They have the self-respect to take the money the market gives them and the discipline to carry out their plan pretty well.
They keep their cool and use their heads. Their trades don't make them happy or sad. They do not act on how they feel. They can deal with both success and failure without giving up on themselves.
- They don't trade to make themselves feel good or get high.
Trading is a serious intellectual pursuit for them.
- They always protect their capital because they know they cannot trade without it. This means that they don't get caught up in the excitement of a stock that's going up, so they don't make rash trades.
They are very interested in trading, and a lot of their time is spent trading and learning about trading.
- They know that sometimes doing nothing is the best thing to do (sit on their hands). They don't do anything unless something needs to be done.
They don't care about what other people think; they have their own ideas.
They don't try to guess what will happen because they know it's a game of odds. They know that some of their trades will always go wrong, but they keep the losses from those trades small. They don't think twice about getting rid of a position if the loss isn't too big.
They have a lot of respect for the markets and don't think it's easy to make money from them.
They act like real professionals. They own up to everything they do and don't look for something or someone to blame. Instead, they use their failures as a chance to make their plan better.
They trade because they want to do it well, not to make money.
While they're in a play, they don't keep track of how much money they've won or lost because they know that would affect how they act. They try to do well in business.
Professionals spend just as much time thinking about how to get out of a trade as they do about what trades to get into.
- When they are in a winning position, they don't let their emotions tell them when to close the position, which would lead to small gains. They know that they can't make decisions based on how they feel.
- They don't expect anything when they go to a play. They know that it could go either way and that no one knows what will happen.
They believe in their plan, are patient, and follow rules.
They aren't afraid because they've learned to think in ways that keep them from being careless.
They are good at self-monitoring and can keep an eye on their own performance to make it better.
Some Facts About Investing
- There are a lot of people at the market. Each person in the crowd tries to steal money from someone else by being smarter than them. Everyone is against me, even some of the smartest people in the world, and I am against everyone. Everyone is on his own. The money I want to make is someone else's, and they have no plans to give it to me.
- The market is like an ocean. No matter what I do, it goes up and down. I am not known to the market, so I can't change it. I can't control the market any more than a sailor can control the ocean, but I can control how I act.
- Managing myself, my money, my attitude, and my positions is the most important part of trading. It's not about guesses, predictions, or opinions.
There are two kinds of fools: the plain fool, who always does the wrong thing, and the Wall Street fool, who thinks he has to trade all the time. No one can always have good reasons to buy or sell stocks every day or enough information to make his play a smart one (Jesse Livermore).
- Trading without creativity is like painting by numbers, and it pays about the same (William R. Gallacher).
- The market will not reward anyone for seeing what is clear.
- One mistake that many traders make is that they miss the big price moves because they are too busy trying to catch the small market swings (and making lots of commissions in the process).
Advisors only make mistakes when too many of them think the same thing.
- A plan for when to enter and leave a trade won't help you if you're not disciplined and well-organized.
