A very warm evening to all my readers
Have you ever considered to become a financial market trader?
Have you ever experienced success when you first started to trade?
You might know, that traders and active investors are a largely misperceived breed and their profession/discipline is also misunderstood. Trading, whether that of Forex, Futures, Stocks, Bonds or Options, is usually viewed as gambling by the public. It is seen as a way to get rick quick through fortune. But there is so much more to it than meets the eye.
Legitimate day traders, swing traders, and active investors are true masters of their craft, rising above human nature to churn out profits consistently from the market. Just like great artists, athletes, and professionals train years to become proficient, so do great traders, honing their skills of analysis, risk control, and mental discipline to gain an edge in the markets.
As any other discipline, to become successful in trading, there is the need to be discipline and to follow the rules.
Below I have listed three rules to follow to become a long-term successful trader. Only when you master them, you can see consistent results in your trading.
Rule 1: Your desire to ‘win’ is the problem.
They say that the worst thing in life is not death, but what dies within you while you are still alive. I strongly believe in this
Dreams are powerful things, and nothing is worse than when life makes them seem impossible to achieve. In the words of a famous 1980’s song, dreams are like ‘china in your hand’ – they can break easily.
As trader, you might be familiar with this scenario: when first started out in trading, the stock market was your best friend. Everything looked so easy: technology, advanced trading software and online brokerage accounts made trading seem like child’s play. And then the worst thing that could befall a new trader to start winning.
Then the markets began to reward you for trading without any discipline or proper planning. Skimming the indices for a few points here and there – jumping in and jumping out like a trapeze artist, instead of risking 1% of your capital on each trade risk 20%, instead of honouring your stop-loss, you would start to move it as soon as you feared you might be losing. As you started to win more and more trades, you began to over-leverage and over-trade your position. And yes, the markets still rewarded you with money. Not surprisingly, your good fortune did not last for very long, within a few months you reduced your beautiful trading account to 30% of its original value.’ Does it sound familiar?
If you have experienced losses in your early days of trading, consider yourself very fortunate. That should have taught you a very important lesson about risk – there are sharks and piranhas everywhere ready to take your money. More importantly the market has no responsibility to make you money as it does not know your existence and the market never loses!
Summary: Traders should focus on executing their trading plans and minimising their risks and NOT whether they will win or lose on any single trade. Profits will come to you if you take care of the risk.
Rule 2: Your worst enemy: You & your Perfectionism
Few things in life are ever perfect such as holding your newborn baby for the first time or the smile of the love of your life.
The desire to get things perfect and ‘just right’ may serve you well in other professions – but it is a curse when it comes to trading or starting any business.
I have seen many traders follow a pattern: they go from over-confident to over-cautious. After a losing streak, they begin to question their system. Now a trade has to ‘feel right’ to them before they take action and by the time the feeling comes it is much too late to enter. And then begins the next inevitable stage: the search for the magic pill – a foolproof and easy trading system that gets you in and out at exact tops and bottoms and you never lose.
People that spent time looking for such a ‘magic pill’ – it does not exist so please do not waste your time. (I say this just in case you saw that movie ‘Limitless’ which coincidentally was about a guy who swallows a pill and becomes a stock market genius. An excellent movie, but it’s not going to happen!)
Summary: There are no shortcuts to success – only hard work and adhering to a proper trading plan.
3: Trade to make a living, NOT to make a killing
A question I often get asked in my coaching sessions is ‘Can I trade a £2,000 account to be able to quit my job?’ This is clearly not realistic. Another favourite is: ‘How do I turn £2,000 into £1 million in six months?’ Err… You’ve got to be kidding me!
There are companies out there who allow you to leverage your money through the medium of spread betting, CFDs or options. You could use £2,000 to trade on 100:1 leverage and if you are fortunate ‘make a fortune’. But that good fortune only has to turn into bad fortune once before you lose everything. And just because you can do something does not mean you should do it. You could drive a fast car at ridiculous speeds down a small country road – but you will only be a danger to yourself and everyone else.
Write this phrase down on a piece of paper and stick it on your computer so you never forget it:
Amateur traders focus on how much money they can MAKE, Professional traders focus on how much money they can LOSE.
Summary: The sole reason you should trade is for the purpose of becoming financially free – to be able to cover all of your monthly expenses and luxuries. The millions will come to you as a result of adhering to a solid trading plan with discipline.
Remember that to the extent of sticking to your trading plan and discipline, you will become a successful trader!
To your Trading Success