The Two Essential Traits of Successful Traders
When you trade, you’re entering an arena full of automated algorithms and seasoned professionals. It takes a certain mindset and two important characteristics in order to compete successfully. Whether you’re trading the stock market, futures or options, practice them and you can not only survive, but thrive in the market arena.
Don’t think of discipline as in “50 Shades of Grey” where you submit to the whims of others. Think of discipline in the martial arts perspective, adhering to a time-tested solid foundation without distraction.
Discipline involves patience. Undisciplined traders often get bored waiting for a precise signal, and enter trades that are pretty good just because they’ve been staring at a screen for so long and crave some action of any kind. Do not trade pretty good entries! They most often turn into pretty bad entries. Have the patience to wait for the best signals. If no best signal comes along today, so be it. That’s not a reason to trade lesser signals.
Discipline involves precision. You don’t want to be on the back of a military vehicle spraying in the direction of anything that moves with a submachine gun. You want to be like Chris Kyle, picking off high value targets with a sniper rifle. Have the mindset of a machine, a technician. And make sure to use the proper precision tools. A brain surgeon works with a scalpel, not a chainsaw.
Discipline involves adhering to the rules… the rules you’ve set out. If you decide to only trade certain setups, stick to it. If you decide to trade only at certain times of day, stick to it. Whatever you decide as your trading parameters, stick to them. You can always decide to change or expand your trading parameters, but do so after some deliberation, not on the fly.
Discipline involves leaving out emotion. Do not trade if you are anxious. Often, after a bad trade, the natural instinct is to want to immediately win back what you lost. Regroup. Collect yourself. Jumping back in will only make your trading day even worse. Stick to your disciplined plan. Another solid opportunity will come along. Also, sometimes we are under pressure to earn a certain amount each day by trading to make a living. Leave that pressure at the door. And likewise, do not let a bad day cause anxiety at your trading desk. Keep in mind that you may need only average a certain amount per day. Bad days happen. It’s your overall that matters.
Do not trade (or not enter a trade) out of fear. It’s natural to have a little fear or anxiety when putting money at risk in a trade. Yet, sometimes we see a great signal, but are afraid to pull the trigger. This happens more often with new traders. Trust your system. If you notice this fear regularly, take smaller steps. Set targets at fewer ticks until you build up more confidence. If your system is solid, there is no need to fear trading with it. If your system is not solid, you should not be using it at all. Also, you may be exiting trades too early out of fear. Scalping and using small targets are legitimate trading strategies. Yet, if you have a system that’s telling you the trade is going to run a little longer, let it run. Getting out too early leaves money on the table. Again, only let trades run if your system indicates it. Otherwise, you are correct to get out.
Keep other emotional matters out of the room as well. For example, if you had an argument with your spouse and you can’t focus because of your anger, do not trade. Cool down, put it out of your mind. Ideally, resolve the issue first. Just don’t let it enter your trading room.
Discipline involves consistency. If you are starting out, stick with a few instruments at first until you get consistent results. Then, you can expand from there. You can start trading other instruments and/or add on more contracts.
Why is discipline so important? Being disciplined will give you consistent results. Waver and your results will waver. Often, lack of discipline will lead to unintentional self sabotage. You would not want to enter a martial arts tournament without being disciplined. Likewise, do not enter the trading arena without it.
Accountability is taking responsibility for your actions. In trading, it is being responsible for the trades you make. There is no one else to blame. Not market conditions, not your neighbor’s barking dog, not your data provider. If trading conditions are not right, don’t trade. Sit out and wait until your have the right trading conditions.
Accountability is learning from your trades. If you make a bad trade, don’t get upset. Look at it as a learning opportunity. Why did the trade go bad? Did you misread the entry signal? Was it not the best possible entry signal? Did you get in too early? Too late? Was your stop too tight? Were you distracted, physically or emotionally? Is your system not as reliable as you thought? Use the answers to improve your trading. You can also learn from your good trades. What did you do right? What could you have done better?
Accountability is prudently managing your account. Many traders blow through their accounts rather quickly. Obviously, you don’t want to go all in at any particular time. That’s not a long term winning strategy. The best strategy is to determine what percentage of your account you’re willing to put at risk at any particular time, and stick to it. Obviously, the less you risk, the longer your account will potentially last, yet the slower it will potentially grow. Only you can determine your risk/reward comfort zone. Just keep in mind that slow and steady wins the race. Whatever you determine, stick to it. Don’t be like the U.S. government that can’t rein in its spending so it constantly raises its debt ceiling. If you’re constantly raising the ceiling, it’s not a ceiling. So, stick to your account management plan.
Discipline and accountability may seem like common sense. Yet, if it is, it’s not commonly practiced. Make sure to adhere to them, because if you practice discipline and accountability, you give yourself the best possible shot at winning in the market arena.
Best of trades.