Much of what you’re about to read, I'm sure, you already know. Al ot of what's below is going to be recycled information. With that said much of what I’ve written about is geared towards the newer trader...and NOT everyone knows this stuff. The truth is a lot of what you’re about to read is helpful either way. Whether it is new information you were not aware of OR if its all a friendly reminder...the content below is of value!
Jack Schwager, who is a long standing Market G.O.A.T, defines a stock trader as “someone who is as likely to go short or long, and who is willing to change positions with more frequency than someone who might be called a long-term investor, or swing trader for that matter! As a trader, we are PURE opportunists that DON'T care if markets are bullish or bearish...in fact, we don't even care about which market we’re trading…(stocks, bonds, Options, commodities etc) we’re just here to apply our “edge” for profits...and we do it quickly! PERIOD.
What is the primary job description of a trader?: “someone that is making quick decisions on when to get in or out of a position, no matter what the asset class is. That is what a trader does...NO questions asked! On the contrary to a long-term investor, who says, ‘I long equities...indefinitely! Investors buy an index, $AAPL, $FB or
“fill in the blank” bellwether stock that has perceived market value!
Schwager is stock market industry expert and author of a number of critically acclaimed financial books, including The Market Wizards series ( i’m not plugging anything here). The guy is a G.O.A.T!
It’s important to know the he is a legend in his own right! Hence why I’m going to be quoting him a lot in this blog!
The True Secret To Success in the Financial Markets:
Find a trading approach that suits you
It’s clearly obvious that there are many different ways to succeed in trading. Some suggest and allude to the idea that trading systems only work for a period of time before everyone is using it and it becomes irrelevant...to that I call BULL SHIT! For example, I’m using the same trading system that Jesse Livermore used close to 100 years ago… his strategy is still working today. It’s alive and well! So, the idea that there is not a single way that works continuously is, in my opinion, not true! With that being said,the very first thing one should figure out is the right trading method that suits him/her, as there is no “one size fits all” in trading. People must know themselves and their personal attributes and figure out a way to apply that to trading. What we all need is to have a high level of chemistry with the asset class we are involved in. Market participants need to know a few things straight out of the gate...such as their comfortable level with fundamental or technical analysis, long term or short term trading, certain types of markets, wider risk or less risk… You can go through a whole checklist of things and find out it’s different for each individual.
It’s a discovery process, an evolutionary process!
A prime example is Jim Rogers (another market G.O.A.T) was never able to make money using technical analysis, BUT
Marty (the Pitbull) Schwartz could not profit using fundamental analysis, and became rich using technical analysis... Yet both of them did very well using the approach each was comfortable with.
That's the chemistry I was talking about!
Some people, like Jim Rogers, have complete disdain for technical analysis (whatever, to each their own). On the other hand, you’ve got people like Martin Schwartz who’ve done phenomenally well using technical analysis...it's about WHAT FITS FOR YOU!
You Must Have A Trading Approach With An Edge!
You need an extra edge that can set yourself apart from others.
A trading approach must be well tested with better than just reasonable results...keep this in mind,if it lacks an edge,you’re dead in the water! You MUST trade something that has a proven success ratio. A strategy It can make all the sense in the world (on paper), but if you can't make it work in practice...in real-time, you’re in trouble! . Markets don’t play and will not pay traders who haven’t proven their trading strategy! Mother Market (as I call her) will ONLY pay out to what works, and what works may often be very counterintuitive to what you want to do. Understanding how to be a contrarian is a skill that you need to acquire!
Traders need to have the confidence that the approach they have chosen to follow will work in the long run. This confidence comes when one starts making more money than what is lost.
Manage risk properly is the REAL name of the game!
After developing a method that has an edge and that suits a trader’s personality, the next step should be to plan appropriate risk management. Correct risk management is extremely important as traders run the risk of losing a lot of money...that goes for ALL traders, retail and institutional. Remember, a method that has an edge is of no use if risk management is not taken very seriously. Build your trading profile around strict money management principles.
You never want to be at the mercy of having a few mistakes knock you out of the game. So, trade with “worst case scenario” in mind...manage your risk FIRST and foremost!
Part of having solid risk management principles in play is also following strict disciplines to properly implement their trading strategy. Those who follow a disciplined trading approach are more likely to achieve success in the long run...and that is the real name of the game.
You need the discipline to take your method, with the edge and the risk management, and stay true to it. There are trading opportunities that jump out at you, but if it’s part of your methodology, you should not take them. There are times your methodology, or your risk management, tells you, ‘here’s where you’re out’. You may hate to get out, but that’s your methodology, that’s your risk management, you get out. You have to be strict on the discipline part.
Sometimes it’s not just a matter of making the right trade, but also not doing anything even when things aren’t going right. There are times when the market is not conducive for making trades and that’s when successful traders show a lot of patience and wait for things to get better.
Good and bad trades Happen..It’s Part of the Game!
Traders make the mistake of distinguishing between good and bad trades by the amount of money the trade has earned...I personally don't look at my P/L after any 1 trade. I do a 20 block trade review.
Any approach that a trader follows gives instances of winning or losing situations, but if one has an effective approach, he makes more money than he loses on a regular basis. #FACTS
If you take a trade that follows your process exactly and if that trade loses money, that is not a bad trade. It’s a bad trade only if you deviate from your process and lose money. I would go further and say if you deviate from your process and make money, it’s still a bad trade. People have to differentiate between trades that are consistent with a winning strategy, and trades that are inconsistent. That’s the mark of good and bad trades.
You Must Admit When You Mistake Mistakes!
The fact is that successful traders have the ability to quickly admit that they’re wrong. Also, regardless of their personality, they are also quite flexible and can adapt to situations. On the contrary, ordinary traders do not show much flexibility.This also includes being flexible.
Many successful traders have actually had multiple failures in their early trading days, but they managed to bounce back from those failures due to their self-belief.When most average traders simply give up on trading after experiencing a few rounds of negative experiences, successful traders tend to have absolute belief in their abilities to make things right in the end.
Good trading strategy goes through ups and downs and how successfully one deals with these bad times is what would separate them from the rest. Accepting losses as part of the trading game is a critical mind-set that traders must have. When one has this belief built into his mind, it gets easier to deal with small losses decisively and take necessary action to prevent them further.
It’s also well known to veteran traders that Successful traders do not show loyalty to any particular stock and treat it merely as a tool to make money, if a trader starts becoming too loyal to a stock, then it could spell danger. Don't be afraid to dump a stock if it is not making money.
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