Do you know what distinguishes professional traders? Discipline? Trading strategy? Management of risks? Well, it turns out there are 9 things that make successful traders different. So, if you do these 9 things that I am about to share with you, then you will have everything you need to be in the top 5% of traders. Ready? Then let's get started.
Think independently
One of the reasons most traders fail is because they ask questions like this:
- Which is better: exponential or simple moving average ?
- Should you buy Tesla stock right now or wait for a pullback?
- What is the best RSI setting ?
You're probably wondering, "What's wrong with that?" Well, that's a sign that you can't think independently. This shows that you want to be spoon-fed so you can make a profit right away. Unfortunately, that doesn't work. Why? Because there is no such thing as “best” in trading. What's "best" for me may not be right for you due to our different goals, chosen timeframes, personalities, etc.
So if you want to be successful in trading (or in business), you must be able to think independently. So instead of asking "what" or "when" questions, learn to ask questions like:
- Why did he apply this trading strategy only in the stock markets and not in forex?
- Why did he use the 200-day moving average as a trend filter?
- Why did he use a trailing stop ?
Do you see the difference?
Get ready to test your ideas
Just because you hypothesized your question doesn't mean it's true. This is why your job as a professional trader is to test your trading ideas. You must find time for backtesting, forward testing, etc.
For example, you might ask, “Which is better, a 10-week breakout or a 50-week breakout in terms of return versus risk?”
To find out, you can backtest multiple stocks using these two options and see which one performs the best. To make your life easier, here are a few tools you can use for backtesting:
- Amibroker is a backtesting platform.
- Norgate Data is a data feed.
- Upwork is a marketplace for finding programmers.
However, most of you won't do this because it's easier to read someone else's opinion than to do the work yourself. The problem is that you will never know if it's true or not - which is why you have to be willing to spend your own time testing.
Have realistic expectations
Most beginner traders enter this business with the wrong expectations about trading. They want:
- Get profit every day.
- Learn a simple chart pattern that can generate huge profits with low risk.
- Grow a small trading account to seven figures within a few months.
Is it possible? Yes, but only if you're lucky. Because 99% of traders who try to do this either drain their accounts or stop trading altogether. If you are serious about trading, you must have the right expectations. So, here's what to expect.
You won't make money every day
The trading strategy aims to take advantage of certain market conditions in order to make a profit. For example, trend following is profitable when there is a simultaneous trend in many markets. But, as you know, markets are always changing. One moment it may be in a trend, the next it may be in a range. In other words, you will make money when market conditions are favorable for you.
Otherwise, your trading strategy will generate losses - which explains why you will not make money every day when market conditions change.
The truth about the rapid growth of a small account
Growing a small trading account is easy. Want to take $500 and double it in 2 days? Do you want to earn 50% per week? It's simple, because all you have to do is risk a huge percentage of your account on every trade, and if the trade goes your way, BOOM, the goal is reached.
But here's the thing. Just because it's easy doesn't mean it's possible. Of course, you can double your account in a few days. But it's also a matter of time before the market takes your profit back.
Solution? Instead of looking for luck, let time and money be on your side. This means that it is best to replenish your account regularly and increase your profits.
Set up for a long learning period
I'm sure you will agree: Professionals such as lawyers, doctors, pilots, etc. take 5 years (or more) to master their craft. This is why, in the early years of their careers, they usually don't "see the money" because they are in the learning phase.
But when they get it, BOOM, the money comes in, but it doesn't happen overnight. The same is true for the professional trader!
It will take you years to build your foundation, make mistakes, find your trading edge, and if you can stay in the market long enough, you won't be able to succeed.
So don't come into trading thinking that you can quit your day job after taking an online course - it won't work. There is a long steep learning curve ahead and you should be ready for it. I warned you.
Manage risk like a pro
For trading, the following statements are true:
- There are no permanent market trends.
- No range lasts all the time.
- No trading strategy works all the time.
That's why you manage risk all the time! Do you agree? So now the question. How do you manage your risk? Well, there are many ways here. Depending on your trading strategy, you can use things like stop loss, options, reduced leverage , position size, etc.
The key is that a losing trade should be managed so that it looks like an "ant bite" and not a "shark bite" where you lose a huge portion of your capital.
You must trade with an edge
In layman's terms, an advantage is something that produces a positive outcome. For example:
The casino has an advantage over the players, because with a large number of bets, the casino earns more in the long run. Mathematically speaking, an advantage is something that gives you a positive expectation in the long run.
For example, if every time you flip a coin it comes up tails, you win $2. And if it comes up heads, I'll lose $1. Who will win in the end? You, of course!
This is important, so I'll reiterate: You must have an edge in the markets if you want to be a consistently profitable trader. It doesn't matter if you have the best trading psychology, risk management, favorable risk/reward ratio, etc. Because without a statistical edge in the market, none of that matters.
Don't believe me? Head to the nearest casino. You can use better psychology, apply proper risk management, play games with favorable risk for reward, but in the long run you will still lose money.
Why? Because the casino has a mathematical advantage over you. The same is true for trading! If you want to make a profit in the financial markets, then you must have a statistical advantage!
Be prepared for losses
Most traders think that they can start making profits after they find a winning strategy. They say to themselves, "All I have to do is follow a risk management strategy and make a profit." Well, theoretically it's true. But in fact, everything is not so simple. Why?
Because you are bound to face losses. Imagine:
- You may have a trading strategy that is profitable in the long run.
- But after 10 losses in a row, can you continue trading with the strategy?
You will have thoughts like:
- "Does this strategy still work?"
- “What to do if the strategy stops working?”
- “Should I keep trading this strategy? What if the losses keep growing?”
It is clear that the best thing to do is to continue trading the strategy (because it has an advantage in the markets). But when you are on a losing streak, it's hard to see things objectively, especially in the face of mounting losses. What are the solutions here?
Reduce position size
You are probably familiar with the 1% risk management rule. This way, you will be able to sleep better at night and will likely execute your trades consistently even during drawdowns.
Reward yourself for results
You should reward yourself whenever you follow your trading plan, whether the trade is a win or a loser.
- Every time you follow your plan, you get 1 achievement point.
- Every time you didn't follow your plan, you get 2 achievement points.
The goal is to accumulate 100 points. As you can see, the goal is not to make a profit. Remember that a consistent set of actions leads to a stable result.
Always study the markets
Here is my learning curve as a trader:
I started with indicators, then with price action trading . In this way, I was able to receive a stable profit from the market. But it hurt my growth because I turned off everything else (and limited myself to price action trading). When I realized my stupidity, I quickly returned to studying the markets.
So I asked myself, "What do other successful traders do to profit from the markets?" That's when I started to learn a lot of other trading strategies: trend trading, system trading, mean reversion trading, etc.
Result? Today, I have several trading strategies in different markets, resulting in a smoother equity curve for my portfolio. So the lesson is this. You can be a profitable trader, but that doesn't mean your learning curve is over because you're always learning the market.
emotional control
Yin and Yang. Cause and investigation. Light and darkness. You are probably wondering: “Why do we mention philosophy?”
This is because everything has two sides, including your emotions. Emotional rollercoasters are based on the profits and losses of your trading account. Because when you make money, you will be happy. And when you suffer losses, you will be sad.
It takes a toll on your health and it's unfair to your family and friends.
So tell yourself
- Don't be too happy when you're on a winning streak because your losses are always around the corner.
- And when you face a series of losses, it's not the end of the world, because there will be better days ahead.
I know it's easier said than done. But when you control your emotions, your actions will be consistent, which will lead to more consistent trading results.
Know when to stay away from the market
The trading strategy is based on the use of certain "patterns" in the markets. For example, a stock trend-following strategy can be used to profit in a bull market. But in a bear market, this trading strategy will not work as well as most stocks will fall in value. Thus, it is important to know when to stay away from the markets when market conditions are not favorable or you risk losing more money.
“But how do I know when I should stay away from the markets?” That's a good question.
Identify market conditions that are causing your strategy to lose money
Now you need to identify market conditions that are unfavorable for your trading strategy. And it's usually the opposite of how your trading strategy makes money. For example: If you are trading a stock trend following a strategy that is profitable in a bull market, then a bear market or recession will not favor your trading strategy. Everything is simple, right?
Develop a filter to avoid trading in adverse market conditions
So now the question is, "How can you avoid trading in a bear market?" Well, you can use a filter. For example: If the S&P 500 is trading below the 100-week moving average, then you can conclude that this is a bear market and stop trading your trading strategy.
Conclusion
So, to summarize what we have learned:
- If you want to be successful in trading, you must think independently and take nothing at face value.
- You must be willing to spend your time testing trading strategies.
- Trading is a get-rich-quick scheme, so manage your expectations.
- Manage your risk so that the loss is just an "ant sting" on your deposit.
- Your trading strategy must have an edge in the markets (or nothing else matters).
- Be prepared to act consistently even in drawdown conditions.
- Always study the markets because your learning never ends (even if you are a profitable trader).
- Maintain emotional control and don't be influenced by gains and losses.
- Know when to stay away from the markets, especially if market conditions don't favor your trading strategy.