While relaxing on a Saturday afternoon, doing some market related work, I thought I would pass this on to my fellow traders on The Slope.
A while ago, I listened in on a video done by Tim Bourquin who has interviewed hundreds of successful traders. He has distilled some excellent points here that he keeps hearing over and over again. Said in different ways but the messages are the same. Here are actually 31 "habits" and in a few instances I have added a few comments to them. Some over lap as well. You would do well to incorporate these "concepts" into your trading. Tim Bourquin has done some excellent work in the area of trader psychology and great interviews with superior traders. You might want to visit his site. Here is a link to his latest work.
1. Wealthy trades are patient with their winning trades and enormously impatient with losing trades. —This is the exact opposite of what most do. Most traders are hesitant to "take" a loss, even though they already own it. "Taking" the loss means to them they have to recognize the fact that they were wrong in the trade. At the same time, most traders are very impatient to take profits, missing out on some great trades as a result.
2. Wealthy traders realize that making money is more important than being right.
3. Wealthy traders look at technical analysis as a picture of where traders are lining up to buy and sell.
4. Before they enter any trade they know exactly where they will exit for a gain or a loss. —In other words, they trade by plan.
5. They approach trade #5 with exactly the same mindset they did on the 4 previously losing trades. —How many times have we done this? Same setup (with positive expectancy). Trade after trade taking a stop loss. After a number of these, we no longer believe in the expectancy and pass on the next trade. Only to watch it work so well that it would have wiped out all the previous losses and handed us a nice profit.
6. They use naked charts and focus on price zones. —How many of us put on so many upper studies (on the chart itself) that we have a difficult time seeing price action?
7. They realized a very long time ago that being uncomfortable trading is OK. —As human beings, we are always uncomfortable making decisions with incomplete information. When trading it is impossible to have complete information.
8. The markets they trade fit their personalities. They view themselves as market participants, not as on-lookers. —In other words, their perception is not that one of an on-looker trying to make a buck but rather as a market participant say, like being in the pit.
9. They stopped attempting to pick market tops and bottoms long ago and stopped losing money by doing so. —Take a look at any chart. What do you see? Major turns at tops and bottoms come maybe 2% or so of the time. The rest of the time, price goes in the direction it was going. When it does turn, confirm the turn and then trade it.
10. They stopped thinking about the market and price being either "cheap" or "expensive." —In other words, is some one going to pay you more or less for it in 10 minutes? 30 minutes? Tomorrow? Next week or next year?
11. They are willing to change sides, short to long and visa-versa when the market tells them to do so.—This cannot be over emphasized. You must be equally comfortable being short as being long. As comfortable being long as being short. You must also be willing to flip in less than a heart beat should market and price tell you that is appropriate.
12. They are aggressive when trading well and trade modestly when they are not.–Here is a thought. I would rather lose money to my broker than to the market. So, when you get three or four losing trades in a row, forget about the commissions! Trade ONE share until you get two winning trades in a row then go back to your normal trade size!
13. They realize that the market will be open tomorrow. —You do not have to justify your screen time by trading if no good trades are available on any given day. Just because you have the cash to trade does not mean you should always be in a trade.
14. Cash profit is, of course, the target but they set goals for their trading that is anything but money. –Make your goals things like sticking to your trading plan, looking at your trading as earning expectancy on your proven setups, etc. anything but trading for the money. If you are trading for the money, you will lose.
15. They never ever add to a losing trade. —If nothing else is taken from any of this, just do this one thing and you are half way there. This does not mean that if your trading style is to be a liquidity provider, you cannot average down in a position to a predetermined stop loss level. Don Miller is such a trader. It does not mean that if you are building a long term position, you cannot add at a lower price levels to end up with your final size. IF you are doing any of that, it had best be by plan, however. By and large, not adding to a losing position is solid and verysound advice!
16. They do read trading books, but they tend to read more "crowd" books.–here are some of my favorites: Mobs, Messiahs And Markets; Wisdom of Crowds; The Art Of Strategy; Markets, Mobs And Mayhem and Extraordinary Popular Delusions And The Madness Of Crowds.
17. They provide liquidity to markets while watching price and volume. –This concept is a tad more difficult. They view themselves as market makers. They supply liquidity to other traders by making markets in what other traders want or don't want.
18. They have a way to gauge fear, greed and speed of transactions. —one way is the 612 tick!
19. They practice reading the right side of the chart, not the left side! –the right side of the chart is that big blank space on all your charts. Patterns tend to repeat and if you are constantly saying "what IF" then you understand this.
20. Every wealthy trader has an "edge" or better yet, numerous "edges." —remember, an edge is merely the higher probability of one outcome over another outcome. If you cannot explain your edge to a 15 year old it means you do not have one. If you do not know what your edge is, cease trading until you do.
21. Their position sizing is calculated exactly on risk tolerance.
22. Profit targets are based on Average True Range (ATR). —What is meant by this is if your profit target in a trade is $3 per share and in the time frame you are trading, the ATR is only $2, why is your profit target at $3??
23. One or two trades a month make their month. —The patience of the professional poker player. Looses small on a lot of hands. When he has the cards, the money flies into the center of the table. That pot more than makes up for all the small losses he has taken in the session. Same thing applies to your trading.
24. They are confident decision makers in the face of incomplete information. –part of being comfortable with being uncomfortable.
25. A losing trade is not a reflection on themselves as traders. –Remember: to be right or wrong in a trade is not a decision. It is just what happens. To stay right or wrong in a trade is a decision! NEXT TRADE!
26. They buy higher highs and they sell lower lows until it turns. —In other words, do what is already happening. Goes along with not attempting to pick bottoms and tops.
27. They view their business as not trading but rather finding the right trades.
28. They write down or record every trade. Price, thoughts, mood…—Keep a journal, folks!
29. Their conviction in an active trade remains constant unless something major changes.
30. A winning trade does not result in taking extra risk in the next trade.
31. They trade the "reaction" not the "news."—Trading is boring or it should be. You are replicating winning edges over and over and over again.
I hope this helps. Good "list" to periodically review. See where you can improve and give yourself a much deserved "atta boy" pat on the back when in sync.
Yours in the constant search for trading edges.-The Market Sniper