Skip to main content

Habits of Highly Successful Traders, Part 1

(Part 2 is here.) Trading is different than investing. Simply put, trading is short-term, investing long-term. 

The goal of investing is to gradually build wealth over an extended period of time through the buying and holding (and selling at a appropriate time) of a portfolio of stocks, ETFs, bonds, and other investment instruments.

Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with annual returns of 10 percent to 15 percent, traders might seek a 10 percent return each month. 

Trading is hard work. Don't let anyone fool you. But if you're interested in this, it can be rewarding. However, you must have discipline and be able to follow rules. Most traders blow up their accounts. But the good ones follow certain habits. These habits can work well for investors also.

1. Successful traders are patient with winning trades and extremely impatient with losing trades. Let profits run, and cut your losses. When I first started trading futures, I would set my stop for a $500 or $750 loss, which is well within guidelines of not losing more than 2% of my trading portfolio (not my retirement account) per trade. Since then, I'm very aggressive with stops, and won't accept any more than $200 loss, even less. My returns are much improved, because I can be wrong more than right, and still make profits. As Warren Buffet says the two rules of investing (which applies to trading) is 1) don't lose money and 2) see rule #1.

2. Successful traders realize that making money is more important than being right. Do what the market tells you. Don't let it slap you in the face, because it will. The market doesn't care about you. Face it. If you think the market is going to go up, and it doesn't, it's OK to be wrong and switch sides (going short instead of long). 

3. Successful traders learn how to read charts. Technical analysis can provide clues to whether traders are buying or selling, on average. I pay attention to fundamentals, but don't buy or sell without looking at the charts or market technicals

4. Before entering any trade, they know exactly where they will exit for either a gain or loss. This probably should be #1. A successful trader (or investor) calculates both risk and gain before entering a trade. They use stop and limit orders to set both losses and gains. For example, I decide my entry point on a stock is $30. I also decide, before I enter the trade, that I am not willing to lost more than $1 per share, so I place a stop at $29. I also calculate that I want to exit the trade at $35, so I place a limit order there. These stops and limits can change while I manage the trade, but I've decided BEFORE I place the orders. And never lower the stop. You can move the stop up, and move the limit up. If you get stopped out for the $1 loss, you can re-evaluate and re-enter at a later time.

5. They have a trade plan and stick to it. Consistency and discipline are important. They also keep a journal of trades. This allows them to learn from their mistakes, or trades that go wrong. 

6. They don't try to pick tops and bottoms. It's extremely difficult to see tops and bottoms. Prices at all-time highs can go higher and prices at all-time lows can go lower.  As an example of this, at the time I'm writing this paragraph, the prices of a September contract of Natural Gas hit $2.08 on Aug. 2, a 20-year low. Certainly it couldn't go any lower. Right? Wrong! It opened on Aug 4 and hit $2.067 before recovering slightly to 2.078. So record lows can certainly go lower. The bottom can only be confirmed when the trend changes. Trade with the trend; you'll make more money. The old saying, "The Trend is Your Friend" has a basis in fact.  

Continue with part 2.

Some more ideas on trading, from a professional trader, here

Comments

Popular posts from this blog

The Hidden Agenda Behind the Global Warming Hysteria

Climate change activists are not just interested in reducing carbon emissions in order to "save the planet." Their underlying desire is to overturn capitalism and replace it with socialist governments worldwide. 

Our story starts with the IPCC, or the Intergovernmental Panel on Climate Change, a U.N. organization. "And any settlement of the Global Warming issue by the UN would entail massive transfers of wealth from the citizens of wealthy countries to the politicians and bureaucrats of the poorer countries." (1)

In 1992, at the first U.N. Earth Climate Summit in Rio de Janeiro, Brazil, Program Executive Director Maurice Strong stated, very candidly: 

"We may get to the point where the only way of saving the world will be for industrialized civilization to collapse. Isn’t it our responsibility to bring this about?" (2)

Former U.S. Senator Timothy Wirth (D-CO), then representing the Clinton Administration as U.S. undersecretary of state for global issues, join…

IRA Taxes: Rules to Know and Understand

Article from schwab.com


Individual Retirement Accounts (IRAs) can be a great way to save for retirement because of the tax benefits they can provide. If you’re eligible, you can choose a traditional IRA for an up-front tax deduction and defer paying taxes until you take withdrawals in the future. Or, if eligible, you might opt for a Roth IRA and contribute after-tax money in exchange for tax-free distributions down the road.


So, what's the catch? There are a few. If you run afoul of some of the IRS rules surrounding these accounts, the penalties can be quite stiff—all the way up to a disqualification and taxation of your entire account.

Ignorance of the law is no excuse, and with few exceptions, the IRS isn’t very forgiving of mistakes. Knowing the rules can help you navigate the many potential IRA tax traps you might encounter on your way to retirement.

Keep in mind that when we discuss taxes and penalties, we’re referring to those at the federal level. In most states, you will also…

Critical Financial Steps When Buying a Home

In my lifetime, I have bought six houses, and sold five. I currently live in the sixth, which was new construction, which was an adventure unlike purchasing an existing home, But the principles of buying a home are the same, whether you are purchasing a new home, or an existing home.

1. Understand why you want to buy a house
Purchasing a home is a major decision that shouldn’t be taken lightly. It’s important to define your personal and financial goals before proceeding. Think about factors such as whether you’re craving more stability, whether it makes sense financially and whether you’re prepared for the responsibility of maintaining a home.

You should explore some resources on Renting vs. Buying before you make the decision. I posted a article with a couple of good videos on this subject, and bankrate.com as an informative article here
2. Dig Into Your Credit Reports and Credit Scores Your credit score and history are the first things all lenders will look at to decide whether or …