The
7 Habits
of a
Highly
Successful
Trader
Bruce “Bill” Brents
and member of
Table of Contents: page
- Take Complete Responsibility: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
- Have A System That Fits You: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
- Plan a Trade and Trade a Plan:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
- Work hard at learning How to Trade Properly and Keep Working: . .12
- Positive Self – Belief:
- View Trading as a Score in Points and Not In Money:
- Keep trading as Part of a Balanced Life:
Conclusion:
#1 Take Complete Responsibility:
The successful trader knows every action he/she takes, every decision (s)he makes (s)he, and only (s)he, is responsible for that action.
You will never meet a successful trader who is looking to blame someone else, or something else for the consequences of his results. It just will not happen.
I believe, when you accept 100%, no questions asked responsibility for all your actions you close the door o\to “excuses” behind you. When something goes wrong instead of looking for someone else to shoulder the blame, you will accept responsibility; note it down and vow never to repeat it again. Simply, you are willing to accept you are going to make mistakes, but more importantly, you are going to learn and never repeat those mistakes. A vital component of any winning trader.
Could you imagine Warren Buffet losing a few million $$$$’s on a share traded and then blaming the general conditions of the market. Or blaming his broker for giving him bad advice? No Way! It’s just not going to happen. I guarantee when top traders take a loss the first thing they will ask themselves is “ Did I follow my rules?” If the answer is yes, then they will look at their rules. Is there something that could be changed in their rules to avoid this loss again? Many times the answer will be a re-sounding NO.
On the other hand, if after asking the question “did I follow my rules?” If the answer is NO. Then some deep self-explanation will be called for. Why did I fail to follow my rules? How can I stop myself from doing that again? Am I likely to do that again, etc?
But do you notice the wording of the questions? How can I, Will I, Why did I. I, I, I here the trader knows (s)he takes total responsibility for every trade and is seeking reassurance that (s)he will not break the rules again.
There’s an old saying in trading: “If you have to ask you shouldn’t be trading.”
Think about it. If you have a system that you have tested and proven over the long run that is does outperform the market and it is a system that fits you, why will you EVER have to ask for an opinion? What extra will a third party opinion provide? Apart from confusing you and clouding your opinion?
If you’re a long-term trend follower then why ask a day trader? If you are a value investor then asking a momentum trader will be a total waste of time. What I am saying is, no two people have the same opinion. Why would you believe someone else over your trading rules? It is a fact of life, and even more so in trading, most people want to be told what to do rather than acting on their own. Yet this is a major reason most people fail in the markets. Either accept total responsibility for your trading action or do not trade at all.
If your number one rule is “to follow your rules” why will you need to ask a guru what they think of your position? If you EVER find yourself wanting to ask a third party about your position do this:
- Close the position out.
- Review your plan and rules.
- Work out why you lack the responsibility to follow that plan.
- When you are convinced you don’t need a third party opinion start trading again.
How can a trader learn to accept total responsibility? Have a set of rules and realize THE most important point in trading is following those rules. Once you have a set of firmly established rules you will find yourself not having to follow outside opinion. In fact I go to great lengths not to listen to outside opinion. Simply because, I know by following my rules I will be on the right side of the market 97% of the time and I will never miss a big move. Those kinds of figures are much better that any outside source can give you.
So from today on, learn to take total responsibility for all your trading decisions. Strive to develop and then religiously follow a set of trading rules, knowing it is the importance of following those rules that ultimately determines whether you will win or lose in the long run.
If you ever find yourself thinking, “they did this” of, “the market caused that loss.” Change it to, “Did I follow my rules?” If the answer is YES then pat yourself on the back as you are on your way to becoming a market winner (one of the minority). If the answer is NO find out why and strive never to repeat this error again.
Accept total and utter responsibility for every trade you take from today forward and you’ll be amazed at how easy trading really is.
#2 have A System That Fits You:
Every successful trader, investor, money manager, etc.. Has a system that fits them. Some are long term, some mechanical, some intuitive, day traders, scalpers, arbitrage, value, and momentum. The system it self is not the important factor.. What is? It that the system fits their unique personality.
The system does not matter. Oh, I’ve heard of value investor Warren Buffet who makes untold millions from the stock market. I’ve heard of day traders taking home over $2 million per year in profits. I’ve heard of a cabbie making $2.5 million from Momentum trading. What do they all have in common? AS you can see it’s not the system but they operate a style of trading that they are both happy with and excel at. They wouldn’t dream of trading any other way. No one told them to trade this way it just happened this way.
Too many traders try to copy the latest hot fad in trading. Right now that would be day trading. But the style of trading will not suite every-one. To be a successful day trader you have to love the short term up and downs of the market during the day. Being in contact with quotes for hours at a time. Yes, there are a number of traders making a very good income from day trading, but there’s more many more who lose their shits within a couple of months and don’t even find out whether day trading is suited to their temperament.
For some traders buying a stock and holding on to it for a year as it doubles in price wood be torture. Although long term investing can offer fantastic rewards with very little work unless you have the patience and discipline to ride your profits all the way to the top then you’ll never succeed with this method.
It’s a little like choosing a career. I remember reading a book some time ago about the world’s best managers. The author emphases one characteristic with all these top achievers was their LOVE for their chosen careers. Most of them said they couldn’t believe they were getting paid to do something they loved so much. It’s no different in trading. You will only be a top trader if you trade a system, which you simply love to trade. You wouldn’t swap that way of trading for anything. And the profits you make, well that’s just icing on the cake.
How do you find a system you are happy with? You have to work backwards. First work out you objectives! Ask these questions:
- What annual rate of return do I want?
- Do I want to trade full time, part time, or hardly any time?
- Can I handle the stress of day trading and short term trading?
- Do I have the patience for long term trading?
- What kind of personally am I? Do I need lots of action; do I need to make decisions all the time?
- What trading books have I read and which top traders do I admire most and why? Could I easily copy their style of trading?
Whatever you do don’t read about a hotshot day trader and try to emulate him if day trading is not for you. Strive to find a way of trading you will be comfortable with and aim to become the world’s best at that style of trading.
For me I like the thought of buying a share at $30 and selling it 9 months later for $130. Sure it doesn’t happen all the time. But it only takes one or two of these moves per year to make it a fantastic return. I am very patient. Not only whilst in a trade but I see absolutely nothing wrong with sitting on the sidelines for months. If the conditions aren’t right for me than I will not trade. I love the idea of spending just a few minutes per day checking the charts and the rest of the time is mine to study and write, or what ever. For me the big money is in the big moves, not the individual fluctuations.
This style of trading will not suite everyone, but the point is after many years of trial and error I have found a system that fits me and I aim to become The world’s best trader with this system. You must do the same. If you are trading a system that does not fit your personally you can never gain the confidence nor the results to truly make the big profits. If you are a new trader or an unsuccessful one than I suggest you start by asking yourself “What kind of trading suites my personally?” Spend lots of time getting this correct, as this is your foundation. Build a strong foundation and your trading system will be strong and stand the test of time. Build a weak foundation and your trading system will crumble along with your money.
This is where the majority of traders go wrong. They have no idea which style of trading suites them. They keep buying into the latest software, or listening to the new guru, hoping this will change their trading results. Most never get to know what successful trading is all about as the average trader last SIX (6) months. I believe any trader who can last over TWO years in the market will probably go on to become one of those rare breeds: A Stock Market Winner. Why? Because after two years start to develop a set of rules that fits them. They start trading a way they are comfortable with. Unfortunately, in their haste to make a tom of money, most traders will never get two years experience before the lose their money and or their interest.
Say it today.
“I will find a system that first me and I will become THE world’s best trader at this ONE style of trading.”
Now get to work. There is a lot of soul searching to be done.
#3 Plan a trade and Trade a Plan:
Without a doubt, no trader will last long if he doesn’t plan every trade. But there is absolutely no point in making a plan for a trade if you are not disciplined enough to follow it.
A plan should care for every eventuality. An old trader once said, “Don’t worry about hwere prices are going. Worry about what you are going to do when they get there.”
Think about what is being said here. Once you put your money down on a trade you cannot control the prices. So stop worrying about what could happen and concentrate on you trigger points and what you will do when these points are violated. By doing this trading stops being emotional and now becomes very systematic and stress free. Look at this example:
#1 You like the look of stock ABC corp. currently trading as $40 and you place a buy 100, stop in a $42. This is just the beginning. You must them ask and answer the following questions:
- If filled on this trade where will I place my initial stop loss, i.e. “How much of my capital am I willing to lose?”
- If filled on this trade how will I take profits? By how much will I trail my stop? What exit strategy will I use?
- If filled, will I add more shares as the trades goes my way?
- If filled and the shares down not showing a profit after X min, days, weeks, will I get out, or will I let my trailing stop exit me from the trade.
- If stopped out of this trade will I be willing to try and get back in, or completely scratch the trade and look elsewhere?
#2 So having make a complete plan, prior to entering the trade you place the order to buy 100 ABC corp. at: $42.
#3 You are filled at $42.25, automatically you place a stop order in at $39. No guessing it is done automatically.
#4 The trade goes you way and a second buy order is placed in a $50
#5 You buy 100 more at $50 and the stop is now moves up to $45.
#6 The trade goes you way and you keep raising your stop at a safe distance behind.
#7 Your sell stop is hit at $130 and you exit your trade with a massive profit.
Do you see now that by having a plan everything becomes automatic? You know where to get in, place stops, add and exit. In short you are now trading professionally and not from emotion.
Not once did you have to ask for opinions. Not once were you afraid of letting a profit get away, or of a loss becoming too big. Simply put, if you make a plan and have the discipline to follow it trading becomes very simple and stress free.
In my many years of trading one point I try to get across to other would be traders is the market will always do its utmost to throw you off track. Once committed to a position it’s a little like riding a wild horse. The price will thrash around violently shaking off all scared and emotional traders. It will only be the ones who have the discipline to follow a set plan that will benefit from the full move.
If you ever find yourself having to ask some one for an opinion on a stock you hold then it can only be because you either have not make a plan, or you are second guessing the plan, in which case you may as well not bother making one in the first place.
Planning a trade should be no different from planning a journey. You must plan for all kinds of events. Especially the unforeseen ones. Most of the time a trade will go you way and the plan will barley have to be looked at but what if the shares gaps down? Or run ups? Or maybe goes sideways for six weeks, the market crashes, the company announces a complete surprise announcement that makes the shares gain $30 in one day? If you aren’t prepared for these surprises then when one does happen how are going to find yourself wandering what to do. And once you are trading from the hip, gunslinger style and not from a plan then expect your results to worsen. Having a plan totally removes all opinion and emotions from a trade and anything that does this can only be good news. Time and time again at seminars and meeting I hear the same questions: “I bought ABC stock at $25 a few months ago, do you think I should keep it?”
When I hear such questions I (discreetly) shake my head. How can anyone trade such a way? Where is his plan? When he got into the trade where was his get out point? Basically what the hell is this guy doing trading? Does he really expect to opt perform the market when he has to ask a third part about his stock holdings?
If this guy had a plan and more importantly the discipline to follow he would never ask such a question.
This is probably the single biggest reason people love to follow opinion. People just love to be told to do something rather than thinking of it for them selves. Reading a recent Internet magazine I was astounded by the numbers of followers some of the tip sheets have. The top ones have from 15,000 to 80,000. Are any of these followers really making them self’s better traders? I have no doubt small percentages are but the majority aren’t Why? Because by following some one else they abandon the principles laid down in this book. There is no system. Responsibility has now been shifted to the guru (so there’s the excuse for the losses in place) Worst of all they do not have a solid plan.
When you start following your own plan you will find yourself not wanting to listen to outside opinions. If you hold ABC stock and bought at $60 and your initial stop loss is at $56 then why would you care if the local guru were saying, “SELL ABC it’s over valued and will fall to $20.” For one, he is just as likely to be wrong as write and secondly if your stop is at $56 then let this kick you out of the trade. At least that way when you ask yourself “did I follow my rules today?” the answer will be YES.
I can guarantee before Warren Buffet, of George Soros buys $50,000,000 worth of stocks they know exactly what the will do if prices swing one way or another. Could you imagine Warren Buffet thinking, “gee, I bought $20,000,000 worth of ABC stock and it’s down by 15% what shall I do?” No way! And why should it be any different for your trading? The point is it doesn’t matter whether you are trading with a $5,000 account or a $50,000,000 the principles are the same. You must eliminate all emotion and follow YOUR plan.
To be a winner in the markets you can never trade from emotion and the only way to eliminate emotion is to have the rock solid discipline to follow your own plan. It’s said most traders never plan a trade never mind have the discipline to follow one. If you want to become one of the few market winners you must “Plan every trade and trade every plan.”
#4. Work Hard At Learning How To Trade Propertly
and Keep Working:
Thisn is no different from any other trade. Would you expect to become a airline pilot after attending a weekend seminar and reading a book on how to fly an airplane? Yet, why do som many people expect to become a Market ‘wizard within such a short period of time?
If you ever have the privilege to ask questions to a successful trader you’ll reqalize just how much effort, time, detgermination and lost money it took until they arrived at where the are. Being a consistent stock market winner is no different from being a top airline pilot, doctor, Lawyer, or anyother business professional.
First you must decide that you really do want to trade. Ask yourself is trading the stock market something I am genuinely interested in or are you lured by the potential money it has to offer you? I always remember reading a book called “Grow Rich With Piece of Mind” and “Think and Grow Rich” both by Napolean Hill. Once whyle he was interviewing the top people in a number of professions he came to the conclusion that these people loved their chosen fields. They would have done it for no money. Trading is the same. If your mumber one goal is trading the markets is simply to make as much money as possible then I doube you’ll make it into the super trader status. If you are simply chasing the money it can ve a motivation as long as hyou are motivated to learn and work at what really works in the market and NOT keep chssing the latest hot new trading idea that exploits peoples love of money to make them act.
I am amazed at the nember of traders who have not even read a number of very vasic stock market books. It seems it is too much effort for them to read a book and learn some basic principles. Yet, these people will blow a $10,000 account in less that 6 months chasing the pipe dream. Get real! Successful trading requires not only a lot of ground work but on going effort in order to keep at the very top of your game.
In market wizards’ I and II you will find that, all but one trader, went through years of trail and error, not to mention huge amounts of effort until they became consistent, successful traders. Why should it be any diffenent for us? Are we saying we are better that they are? Make no mistake, just like it takes many years of intense studing to become a tip lawyer, to become a top trader is no diffenent. If you are new then don’t expect to strike out and make 70-80% returns fron the day you start. If you do then please give me a call. I want to see what you have thqt no one else has. Consider the first three years of your trading as going to The University. The stock market is the teacher and your initial account are your fees so please keep it small.
So, what does it mean to work hard at you trading? Well I have broken it down into two sections:
First you will have to spend much time on analyzing yourself, your personality, find a trading style you are most confortable with, learn how to trade properly, read, stydy, askd questions. Bacically, ou are going to have to start from scrach and build a system that fitrs you. It will take a couple of years at a minimum. If this sounds like too much effort GOOD. You have just saved yourself a lot of lost money. Forget trading and move on to something which genuinely interest you.
If doing the above works sounds good, and you can’t wait to get started then maybe there is hope.
Once you have developed a trading system that first you and you have the strong discipline to follow you plan then it is a constant battld ot stay on top of your tadidng. As a trader you will never get there, you are always getting there. You must strive to keep imporing. Never be satisfied with you trading system. I am not saying, “keep looking for a fault,” but I am saying every system and trader can be improved. The markets change their character over time, so keep working on what impoacts new developments have on them. Strive to become even more disciplilned and keep working on your mistakes.
Yes, even vetran traders still make silly mistakes. Look at Jesse Livermore (I suggest you read his book and study and fear the way this guy operated). Jesse Livermore was a stock and commodity trader back in the early 1900’s. He began on a small shoestring account into several millions but kept losing it. On the one hand he was dangerous in that he could not control his emotions. Having run an account up to millions and then losing it, one would think this experience was painful enough so as not to be repeated? Yet when he painfully started from scratch, build his account into several million again, only to lose it in one bad trade, then the alarm bells should have been ringing. Anyone can make a mistake but to not learm from it is fatal. Sadly, after repeating this event one more time he could not face the thought of making a comeback again and took his own life.
So while Livermore was a top trader he never worked enough on his own psychology. Had he worked on a sound money management plan and strictly followed a plan for every trade he would not have created this situation.
The moral of the story? Evey when you have made it to become a successful trader that one fatal mistake is lurking in the dark waiting to hit you. Only by keeping on top of your emotions and working on you trading wiol you avoid running into a casastrophe.
How long does it take to become a competent trader? There is not set time but I would say as a ageneral rule here are some guide lines:
(1st.yr)
- Work on finding out whether you are willing to put the time and effort into finding a system that not onlyt works but fits your personality.
- Read some basic books on the stock market. Don’t just read them and think “humm that ‘s interesting, next one. Really try to get inside the traders mind. Get a feel for how much time and effort was put in before they became successful, how many times did they go down closed roads? What characteristic make them such a good trader?
- Attend a copuple of seminars. But not ones where the “Secrets of t The Stock Markets are Revealed”. The secret is there are no secrets. Give them a wide berth. Go to seminars about basic chart reading skills, psychology of trading, money management, etc. and if the lecture knows his stuff then get his contact information and keep asking as much information as possible.
- Using a very simple charting package, start looking at some bar charts of shares and the markets. Do nothing but ovserve.
- Buy a self help book. Could be a motivational book or similar work and work through it. My trading and life has become so much better since I started working on myself. It will difitely help in finding a system that fits you.
At the end of year 1 (one) you shoud know whether trading is for you. And a certain kind of trading rechnique should appeal to you more than others. Go with this natural feel, it is the one that first you personality.
If you find trading is not for you? That is ok! You have saved a lot of time and money. Just move on. I is not for everyone. I have personally known of traders who have to go back to the start if they wish to succeed. In the meantime they keep handing money to the market. It is sad because the’ve been trading for years. When will they ever learn?
(year 2)
- Open an account wit a small amount of cash. This is your learning fees or I like to say your college tution. Expect to lose it all as part of your fees.
- Continue reading, stydying, attending seminars and asking successful traders.
- Develop a style of trading you are confortable with. Back test it by hand and get a feel for the size, regularity and number of trades your system gives out. Try to determine how many it comes out worth. Ie did it havce 5 successive losing trades? Did it have 5 successiv e winning trades? That way in the heat of the battle and your system has just given you 5 successive losers you know there is nothing wrong. Get a feel for how it reacs in certain market cycles. Every system acts better in certain market condiditons thatn in others.
- Develop a plan ( re-read section #2) Try to accommodate for every possibility.
- Keep observing the charts. I am not a great believer in paper trading in order to find how much progress you have make in trading. Simply because you have no emotions while lplaing games and it si controlling emotions that separates the winners from the losers.
But what I am a great believer in is playing simulation games so as to get a feel for how money managementg plays such an important role and for you to get a feel for how any game of chance can and will have streaks.
This is a pratice that I have used from time to time.
Get a jar and place 100 marbles inside. I paint the winners blue and the losers red. I paint a HR (home run >10 * Risk gain) on just four of those marbles and I paint a BL (big loss >4 * risk) on four of them. All the rest are either 4 * Risk gains or 1 * risk losses. Here’s the interesting part. Start risking different dollar amountrs on each trade and see the differene in you results after 100 trades. This should really hammer home the importance of money management.
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I hope you will learn from my years experience as a professional trader.