To trade for a profit, model successful traders!
Your trading philosophy must include emulation of successful traders. Success leaves clues! That is, the successful day traders seem to all be doing the same thing while the unsuccessful day traders are also doing the same thing – which (no surprise here) is the opposite of what the successful traders do!
The successful traders have discipline and a solid set of day trading rules, and they have enough capitalization so that fear does not rule their trading. They know all about risk management, and follow excellent risk management procedures.
To be sure you have a successful trading philosophy, you need the determination and discipline to
- Learn what the winners are actually doing, so you can emulate them.
- Get very clear on what your plan is, how you will trade, what your goals are, what your risk management strategy is.
- Follow your plan to the letter.
I will show you on this site what the good traders do, what they avoid, what the best plans are, what are the indicators and automated strategies that can help you make profits. You have to be sure you have a trading philosophy that matches your personality, matches your goals, and matches your level of funding.
A perfect system or approach does not exist. Never has, never will.
If there were such a thing as perfection in this business, then that would mean (1) the markets contain no random inputs and (2) someone else would have already found the magical solution and own most of the free world by now.
Since we know the markets do have a high degree of random influence from ever-changing news, weather, and traders’ outlooks, and that even the best traders and funds tap out, we must realize that the markets are not to be traded with a 100 percent mechanical approach. Things change.
Does this sound strange coming from a trader who have just about spent all her waking hours developing systematic approaches to trading? Probably so, but read on!
Life is a judgment call, but that call is based on having data and systems to make life work better. So it is with trading. We need a systematic approach to get us into and out of trades, we need absolute stops, and we definitely need precise entry rules. But above all, we need to use some judgment of when to use this “stuff.” Let’s look at an example from real life.
If you are driving down the road and a truck is coming straight at you, in your lane, do you stay in that lane or swerve across to the empty lane where you are not supposed to be? The rules are clear, you are not supposed to be over there. The system says don’t do it, but reality is an 18-wheeler coming toward you in your lane. Do we follow all the rules of safe driving, or do we adapt to the situation at hand? Survival is a function of adaptation. Reality rules. On the road, in the markets.
The first rule of life is to survive; the second rule is that all rules can be broken if that supports the first rule. Take this as your trading philosophy.
Day trading follows the same rules we use for life. Successful trading is the art of using knowledge (systems) at the right time. This means when it is time to use the system or rule, you check for an oncoming 18-wheeler. That is what thinking is all about. We do need systems of living and systems for trading. But it is not mandatory that you follow all systems exactly all the time (just 99% of the time!). The reason is that systems do not adapt to any new bits of reality. That is what our mind is for, to observe, to record, to note changes, and then to develop an optimum use of the system.
If you do not know what to do as you are trading, you must follow the rules because they will keep you alive. If you like market conditions and they fit what your rules suggest, go for it; if the rules don’t fit conditions or conditions don’t fit the rules . . . pass. You don’t have to trade every day. The object of having systems and rules is to run them to your best advantage, and not to let them run you.
Trading Philosophy for New Traders
Perseverance is the key. Let’s say you wanted to choose a profession that would, upon coming out of school in this year, provide you with an annual income as a first year hire of over $100,000.
Not too many options are there? Here are a few:
- Physician – 4 years of undergraduate school, probably 6 years of postgraduate college.
- Attorney – 4 years of undergraduate school, 3 years in law school.
- Investment Banker – 4 years of undergraduate school, 2 years of postgraduate work. Not to mention nerves of steel and a back capable of deflecting knife wounds.
In addition, being an attorney or investment banker involves long hours as a “grunt” for years and becoming a physician generally involves an internship with unlimited hours and stress.
New traders often have been successful in other fields before deciding to trade as a career. But…
Many new traders expect virtually instant success. They open a brokerage account and expect to “easily” match their former income as a seasoned employee – immediately. They ignore the fact that to become a physician, attorney, or investment banker would require the commitment as outlined above, and that to become a successful trader requires a similar commitment.
One subscriber, who was a physician, told me, “Trading is harder, way harder, than being a doctor!”
What’s amazing is the number of “drop-outs” that occur after one bad week, in fact sometimes after one bad day! Do most new traders have wildly unreasonable expectations? Do you?
Try thinking of your losses as a new trader as “tuition” and the time you spend learning the ropes and learning the psychological stance one must take as a trader as your “college” education.
A Few Last Words
Your Trading Philospohy must include this rule: Treat trading like a business – really. No, really.
Treat it like a business
If it is your hobby, or something you “toy” in, you will not make money at it. You must treat it as your business. Put on your business mind, and get ready for success. Understand and control the risks, keep track of the expenses, don’t get all emotional about a single win, or a single loss. It is just a business.
Some days you win, some days you lose, but if you win more days than you lose, you’ll be successful.
Okay, the REALLY Last Word
Another thing – You need to wait for the trades to come to you. Don’t be anxious to trade all the time. Don’t look at every little up or down on a chart and think you should have jumped in. That is a sure way to lose capital. Have a plan, and trade your plan. Others have found that our plan works well for them. Give it a try – you can be successful with it. Sign up below to follow our blog.
Thanks, and see you in the next blog post.