The Psychology of a Successful Trader
By Charles J. Tanti B.Sc.(Eng). Systems Developer
Remember that becoming a Profitable Trader is a Journey, not a Destination.
The Perfect Trader does not yet exist. Try to become a better trader each day and
enjoy the progress you make. Concentrate on learning the craft of technical analysis
and on improving your trading skills, rather than focusing solely on the amount of
profit or losses in your trading.
Congratulate yourself and feel good about a trade when you have done what you were
supposed to do, according to your Trading System, regardless of the profit or loss on the trade.
Don't get overly excited about the winning trades or too depressed about the losing trades.
Try to maintain an even keel and a professional outlook regarding your trading.
The pain of standing aside and missing a good trade that your system told you to take is
much worse than the pain of losing on a trade that you entered and exited properly and
according to your trading system. Discipline first and always.
Education plays an important role in shaping the way traders think about trading.
Most of the
information you learned in a formal college setting will not give you the specific
knowledge necessary to be a successful trader. To succeed in trading, you must learn
to perceive opportunity where most others see none. And you must seek out the
information which gives you the knowledge necessary for success. Or better still get a Trading System.
Your ego can be your worst enemy. Winning can create powerful emotions that distort reality.
The more you win, the better you feel, and your ego takes over.
Always remember this: You are the sole person responsible for winning or losing in trading.
Don't blame the market. Losses are an opportunity to focus on whatever problem
occurred during the trade. Don't get caught up in personal denial.
A successful trader quantifies, analyzes and truly understands and accepts risk. Emotional
and psychological acceptance of risk is what separates Good Traders from Bad Traders.
The market is not physical. It's an amalgamation of the mindset of all trading participants.
The daily tug-of-war between the bulls and the bears reveals what they are thinking on a daily basis.
Make sure to look at the market's close in relation to the session highs and lows.
Never buy just because the price is low, or sell just because the price is high.
No one knows how high the market can go, or how low the market can go.
Never average a losing trade. Don't become impatient with the market. Always have a good reason for initiating
every trade. Remember, the market is Always Right.
Traders need to listen to the market. To listen effectively to the market, traders need to know
and pay attention to their trading system. The trader's challenge is this: Learn who you are,
and then consistently and consciously develop the qualities that allow you to trade well.
As traders, the more we can detach ourselves from the emotions of hope, fear and greed, the better
our chances for trading success. Why are there hundreds of good technical analysts but few good traders?
Because they need to spend more time on their personal psychology than their analytical methodology.
"If I had eight hours to chop down a tree, I'd spend six hours sharpening my axe."
Research and learning are very important.
Preparation for trading takes much longer than executing the trade.
The market has far more patience than the majority of traders. There is an old saying that the market
will do whatever it takes to drive the largest amount of traders crazy. Trends can persist as long as
there are traders fighting them. Don't fight the Trend. Always follow the Long Term Trend.
There is an old saying: "There are Old Traders and there are Bold Traders.
But there are no Bold Old Traders.
||Traders must remain emotionally
detached from the Market.
Futures traders should observe these points in their trading.
Requires management of the emotional states.
Emotional imbalance impairs the ability to make good decisions.
The most optimal state is one of complete emotional detachment.
To remain calm and to follow your trading system.
The Key word is to stay "COOL".
Like most things in life, without it you won't succeed. Discipline is sticking to your trading system,
including your "stops" and "entry points". It is the hardest, but most important rule of all.
Following a proven system will help you acquire the discipline you need to succeed.
TRADE ONLY WHAT YOU CAN AFFORD TO LOSE - and never ever over trade.
Futures trading is risky, so don't fund your trading with money which, if lost,
could put you into financial difficulty.
MAINTAIN MENTAL CLARITY
One of the keys to successful trading is mental independence and clarity - the ability
to free yourself from concerns that might distract you from trading. Whether they be
family, friends, or financial concerns, always aim for a complete clarity of mind in
your trading. Being clear in your goals and maintaining your mental focus will help
you stick to your trading system and not make rash decisions based on emotion.
WALK BEFORE YOU CAN RUN
Learned knowledge and practical experience in the markets are the best teachers in
the longer term. It is best to start with small amounts of contracts and less volatile
markets and build from there. You must do your homework. Nobody can do this for you.
"Paper Trading" will not help either. You must put your money at risk and see how you react.
DON'T PLACE ALL YOUR EQUITY IN ANY SINGLE POSITION
One of the keys to success in trading is lasting in the game. Don't overcommit
your account to any single position. You must have the proper funds for every contract traded.
ACCEPT THAT THE MARKET IS ALWAYS RIGHT
The market cannot be controlled by one person so it has to be accepted that it will
move regardless of what you want it to do. Fear, greed and hope can cloud your judgement
of the market and can cause emotional responses detrimental to your trading. The market
will go where it wants to go. A computerized system has no emotions. It will just measure
the forces driving the market and act accordingly.
TRADE WITH DEFINITE GOALS IN MIND
Profits belong to those who make decisions and act, not those who react.
Your trading system should signal when to get in and when to get out.
STICK TO YOUR SYSTEM
Easier said than done. That is why you need a Good Trading System. Never second guess your system. Take all signals. And never over trade.
A good trading system has to be adaptive to changing market conditions.
If you have certain indicators and analysis you feel are worthwhile, make certain you
use them in the right conditions.
DON'T FOLLOW THE CROWD
When the paper calls a bull market it's possibly time to sell. Most traders are uncomfortable when the
position is popular with the general public. However the opposite may be true if the "crowd" is made up
of mostly institutional traders.
ADMIT THAT YOU ARE WRONG
Don't fall in love with a losing position. If you get it wrong, admit it, get out, conserve
your equity and wait for another opportunity. Use a good system to control your emotions and stay focused.
LET PROFITS RUN UNTIL YOU HAVE A REASON TO CASH IN
Let profits run until your trading system gives you a siganl to get out.
BE CAREFUL WHEN PLACING "STOP LOSS" ORDERS
It is smart to use stops so that losses can be limited if the market moves against you.
A good trading system can calculate the best stops to place in any market.
WATCH CAREFULLY FOR MARKET DIVERGENCE
Professional traders are always on the lookout for market divergence. If the market sentiment
is bearish but then breaks through resistance levels, it can often be a good indicator to buy.
PICKING HIGHS AND LOWS
Let the ATS-ZB32 take care of this.
This is not easy for anyone to do. Instead it is much better to use a good trading system.
THINK LONG TERM
Long Term Trading is the least stressful. You do not have to follow the market everyday.
Trading can be stressful and if done every day, you can become tired and your judgment dulled.
When that happens, you'll begin to lose money. It makes sense to have a break every now and again
and do something completely unrelated to trading.
STAY IN GOOD SHAPE
You will think clearer if your trading activities are blended with physical activity.
Trading is time consuming and can be mentally stressful, but provides opportunity for growth,
both financially and personally. It therefore makes
sense to give yourself every chance to be successful by incorporating exercise into your trading day.
Take a break. Get away from trading on a regular basis. Do whatever you like to do to relax and enjoy yourself.
When I want to take a break I go for a ride in the countryside in my red covertible corvette or go dancing with my friends.
||Trading & investing is not easy.
If it were easy, everyone
would be rich.
Some reasons why traders lose money,
And some tips to help you get back to basics.
Lack of knowledge
Many traders jump into the market without a thorough understanding of how it works and what it takes to be successful. As a result,
they make costly mistakes and quickly lose money.
Poor risk management
Risk is an inherent part of trading, and it's important to manage it effectively in order to protect your capital and
maximize your chances of success. However, many traders don't have a clear risk management strategy in place, and as a result,
they are more vulnerable to outsized losses.
It's easy to feel strong emotions while trading. However, making decisions based on emotions rather
than rational analysis can be a recipe for disaster. Many traders make poor decisions when they are feeling
overwhelmed, greedy, or fearful and this can lead to significant losses.
Lack of discipline
Successful trading requires discipline, but many traders struggle to stick to their plan.
This can be especially challenging when the market is volatile or when a trader is going through a drawdown.
Create a system for yourself that's easy to stay compliant with!
Many traders make the mistake of over-trading, which means they take on too many trades
and don't allow their trades to play out properly. This leads to increased risk, higher
brokerage costs, and a greater likelihood of making losses. Clearly articulating setups
you like can help separate good opportunities from the chaff.
Lack of a trading plan
A trading plan provides a clear set of rules and guidelines to follow when taking trades.
Without a plan, traders may make impulsive decisions, which can be dangerous and often lead to losses.
Not keeping up with important data and information
The market and its common narratives are constantly evolving, and it's important for traders to
stay up-to-date with the latest developments in order to make informed decisions.
Not cutting losses quickly
No trader can avoid making losses completely, but the key is to minimize their impact on your account. One of the best ways to do this is to cut your losses quickly when a trade goes against you. However, many traders hold onto losing trades for too long, hoping that they will recover, and this can lead to larger than expected losses.
Not maximizing winners
Just as it's important to cut your losses quickly, it's also important to maximize your winners.
Many traders fail to do this, either because they don't have a plan in place, telling them when
and how to exit a trade. As a result, they may leave money on the table and miss out on potential profits.
Adapting to changing market conditions is paramount to success in the financial markets.
Regimes change, trading edge disappears and reappears, and the systems underpinning everything
are constantly in flux. One day a trading strategy is producing consistent profits, the next, it isn't.
Traders need to adapt in order to make money over the long term, or they risk getting phased out of the market.
Overall, the majority of Traders
Make losses because they fail to prepare for the challenges of the market.
By educating themselves, developing a solid trading plan, and planning out decisions beforehand, traders can
improve their chances of success and avoid common pitfalls.