One key difference between an active private investor who is losing money and a successful professional trader is discipline. This is not usually down to a lack of knowledge on the part of the private individual, but has more to do with jumping from one technique to the next. A professional trader that fails to stick with one trading plan will get a serious and merciless dressing down from his manager, even if the trade was profitable. When things get tense, private investors frequently struggle to stay with their trading rules or system. Discipline prevents the emotions of fear and greed from getting the upper hand. Clear rules for taking profit and loss provide a firm footing.
Trading must be seen as a profession. Though it is possible to be a good trader without arduous training or first wrestling your way through dozens of books, you shouldn’t approach the subject too lightly. It is definitely not a free lunch. Improved performance only comes as a result of approaching this subject seriously and being prepared to learn from the inevitable setbacks. Don’t mindlessly accept everything you hear and read on trading strategies, tips and other well-meaning advice. Maintain a critical distance and try to assimilate matters that reflect your requirements. Talk with other investors and traders and try to learn from their mistakes. But watch out for boasters and blatherers who – unfortunately – can be found in abundance in the world of investment. Smooth talkers in chic tailored suits with (ridiculously) expensive cars, who come over all mysterious when asked about their techniques and astronomical earnings are rarely good counselors.
‘There are times to go long, times to go short and times to go fishing’ – Jesse Livermore.
Successful trading is also the ability to wait till a good opportunity comes along and all signals are green. Though ‘trading for trading’s sake’ is likely to please your broker, a successful trader is quite happy to watch from the sidelines for a while. In fact, holding cash is to run no risk.
Even if you have done your homework very thoroughly, the market is always right. A series of successive losses makes one unsure. Doubts about your trading plan begin to creep in and the temptation grows to adjust rules or switch to another technique. A good trader can deal with disappointment. Experience teaches him that even a good system has bad periods. He deals with this and perseveres. However, perseverance is not the same as stubbornness. Every trader has moments when he wants to pull the plug on his system. However, he’s thought about this scenario beforehand and, when the moment comes, he applies an effective money-management system and ensures a healthy diversification to limit his losses as far as possible.
A successful trader always has a vision on how he wants to play the market. Whether he uses a mechanical trading system, technical analysis or a fundamental approach. A clear focus on one or more markets or systems is essential. This must result in a clear trading plan, which should be executed with discipline.
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