Do YOU Have What It Takes?

Do you have what it takes to be a successful trader?

Of course you do – but only if you do things as they should be done.

At this point I must put this caveat in as many people will class themselves as “good” traders or more likely investors – those people are likely to have made money during BULL markets only – if you or they have ever lost 5%+ on any one position and held onto that position then you are not a true trader/investor.  Why do I say this? because true traders/investors have a set of rules that define buying, selling, exiting and more – that means if you hold on to a position during a bear market you don’t really know what you’re doing as there’s no rational & logical reason as to why you would hold onto that position.  It is perfectly possible to learn though.

I am sure that there’s some lucky people out there that have managed to defy the odds and amassed large capital and class themselves as successful investors/traders by those very means – In my opinion the only way to truly judge yourself are by the returns you make during a bear market, if the market falls 40%, it is no good if you lose more than 5% – bear markets do not happen out of the blue.

It saddens me to say this but the only way you’ll find out is, if after 5-10 years of trading your profitable.  If you’re breaking even then somethings wrong with your trading plan/methodology and if you keep blowing up accounts and losing hard-earned cash then your simply not destined to be a Trader.

Obviously average traders/investors slip through the net, they always have and always will – If a trader starts trading at just the right time such as the 1990’s, they could have built up a massive financial cushion, thinking they’re a great trader and reader of markets, albeit in raging bull market when even a retarded monkey could have done just the same, these very traders then start to have many bad and losing trades during the severe falls in the markets!  which I am afraid to tell you, tells me that they aren’t really that skillful at this game – The danger you face is that you buy one of their books or attend a seminar by them and think that they know it all.  Ask for their exact results during the major bear markets.

Did you know that 90-95% of people who try to trade FAIL?  That means there’s only 5-10% successful traders out there.  By traders I mean actively buying and closing positions, not buy and hold investors (Buy & Hold investors are either lucky or unlucky see the Trading v Investing page).

Why such a high failure rate?

No-one knows for sure but it probably has the following components involved:

  1. Would be traders try to get rich quick
  2. No thoughts or consideration of losing
  3. No plan or rules
  4. Lack of understanding how the markets work and move
  5. Reliance upon an indicator for trades
  6. No understanding of how that indicator works
  7. No understanding of WHEN the indicator will work and when it WON’T work
  8. Holding on to a losing position
  9. Not using stop losses
  10. Not knowing WHEN to sell – lack of knowledge and greed for wealth
  11. Impatience
  12. Fail to realise this is a business

This list is not conclusive and I’m sure I’ll be adding to it in the years ahead

Let me tell you how a Professional looks at things:

  1. Is the market in a position to meet my set-up criteria? – If NOT I don’t trade – It’s not uncommon for me NOT to place a trade for 3 months if a set-up fails to show
  2. I’m only prepared to lose 1% of my account on this trade do the figures fit?
  3. If the trade works where do I get out and how
  4. Every trade I place conforms to the rules of my Trading Plan
  5. Am I still happy with my “edge” over the market?
  6. Trading/Investing is a business – I need to run it tightly as I would a company
  7. Understands the mental aspects required

If you DON’T have a set-up and an “edge” that you use then you’re simply gambling on the markets, the professional knows that statistically if they control their losing trades but gains more with their winning trades AND their set-up or edge meets a certain win:loss % then over time they will be successful.

I bet if you took a poll of those 90-95% would be traders, most of them would tell you that they thought they’d end up in the 5% – the maths are impossible, so something has to be amiss with people’s thinking and I think it’s this :-

I think people are so used to doing well based on hope and hard work that they think they can apply the same thinking and traits to the markets and force success out of the markets.  Their will and determination driving them to be right, make the right calls and when they take a loss or a position goes against them – they emotionally and mentally can’t take it because they’re unable to understand why the market went against them.  After all, their judgement and analysis was based on sound, well thought out and argued analysis, the news was reported in the investors favour yet the market moved against them! How come?

The market is made up of 1000’s of different investors all investing for very different reasons and 1000’s selling for different reasons – unless you can call them all up to find their exact reasons for action you’ll never ever full understand why a market moves the way it does.  But by looking at the price charts you can see where the majority of people sat on any particular day.

If you can follow rules you can do well in the markets, if you can follow rules and place orders only when your guidelines tell you you’ll do very well from the markets, if you can follow rules, place orders and not allow any emotions to cloud your thinking, you’ll become a professional trader

The buy and hold investor lives by a different set (although similar) set of investing rules, but they are happy for their holdings to fall 10%,20%, maybe 60% as they know that if they hold on long enough the market will bounce back – the risk here is that the markets fails to conform to their investing timescale.  At the time of writing (Nov 2011) if that buy and hold investor can hold on 20+ years then they should be profitable, but that’s entirely dependent upon what the markets do.

Can you all see that it’s the markets that are in charge, if the market is in charge then surely the best course of action is to cash in your profits as often as possible and preserve and build your capital, not leave it to the markets whims and moods!

Forget any notion of starting out with £10,000 and turning it into £1 million in 12 months – that just does not happen (often)

The aim is for you to find an edge over the market, exploit it as often as possible and make sure most of your winning trades are twice as much as your losing trades

Trading is in my opinion 90% mental and 10% about your set-up & money management – Because the failure rate of would be traders is so high, it has to be said that 90% of traders obviously do not have the necessary mental capabilities to cope with the emotions & discipline trading subjects them to – the moral is, It would be advantageous for traders to seek out a mentor to help them with the mental aspects 1st and then look to the set-ups last!

No matter what you see, hear or read, there IS a Holy Grail of trading & Investing – but it’s NOT an indicator or trading strategy – It’s something completely different.  If you ignore or abuse this Holy Grail you will eventually fail, I do detail what it is on this site for free.  But believe me there IS a Holy Grail to Trading/Investing.

How You Can Make Yourself a Better Trader

Define Yourself: What Kind of Trader Are You? By Elliott Wave International

As a trader, it is imperative that you define your approach to the markets. For instance, do you follow the trend or do you like to play breakouts? Are you a commodity trader or an index trader at heart? What’s your trading time frame, five minutes or five weeks? Read More.

What Personality Type Makes the Best Trader? EWI’s Jeffrey Kennedy shows you how your psychological strengths and weaknesses determine your ability to “live long and prosper” in fast-moving markets By Elliott Wave International

A trader’s psychology is “one of those things that can sabotage us if we’re not aware of it, or, more importantly, [don’t] have a well-defined methodology and the discipline to follow it,” says experienced analyst and instructor Jeffrey Kennedy. Read more.

Once you’ve defined your trader type and style you can then set about creating and working a system that suits your trader style.  If you try to work with a system that does not suit your style you will not feel comfortable, it is essential to find out your trading style and then design a system to suit that style.

Take me for example, I cannot trade breakouts, I feel that I’ve missed the move, I like to be in right near the start – that just suits my style, but it also means I have to take losses when the move is not ready to start.

On this blog I have provided many considerations for you – If you really want to be successful and win at this game you will take the time to research and understand all aspects of trading – or pay someone to tell you (which is a big shortcut) – either way if you don’t bother to do either and you lose money look in the mirror and you’ll see the only person you need to blame.

I’ve posted a blog post about the Legend Trader Dick Diamond, I suggest you locate it, click through the link to Elliott Wave Internationals site and download the FREE 12 page report – the framework to successful trading is contained within (which needs to be understood and learnt) – It’s your money not mine so whether you do or not does not affect my account.

Although I personally aim for 100% a year returns that does not mean you always obtain them – I would recommend that you sit down and work out how much your account could grow to obtaining just 10 or 20% a year – It’s not all about doubling your money fast!

Here’s a video clip from Dr. Van Tharp that you also need to consider:

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