Saturday, May 02, 2009

What Are You Willing to Do to Become a Successful Trader?

Over the last couple of weeks, I have written about taking personal inventory and making the evaluations necessary to choose where you want to be as a trader. In this article, I would like to invite your attention to what you may or may not be willing to do to become a successful trader. Trading can be done successfully on a part time or on a full time basis, but it is critical to understand it is a serious business. Anyone who trades their own money is putting it at risk.

If I am going to put my money at risk, it seems to me that the question then becomes what am I willing to do to try to make the risk worthwhile. Beyond all else, I would suggest that a real commitment is necessary. The trader who wants to succeed must first commit to his trading as a business. InvestorWords.com defines "business" as: "A commercial activity engaged in as a means of livelihood or profit, or an entity which engages in such activities." Clearly, that is what the trader is attempting to do and his activities should be treated as he would any other business.

First, I would suggest that the trader commit time to the operation of his business and next he should carefully formulate a business plan specific to his own goals, needs, and current abilities understanding that the plan can be expected to evolve as he does as a trader. In my book, "Trade Your Way to Wealth," I have set out elements of a business plan and discussed how a trader might construct his personal plan. Rarely does a business succeed without a plan and trading is no exception.

Next, I would suggest that the trader commit himself to learning his business. Trading can be simple and it can be fun, but at the same time it requires effort and knowledge. Trading knowledge is not necessarily easy to procure. Most successful traders have undertaken to educate themselves. They read extensively, attend seminars, watch DVDs, obtain coaching and are willing to pay what it costs in terms of their time, effort, and money. Failure to take at least some of those steps can result in a very expensive learning experience.

The trader must achieve an understanding of the strategies he is using and particularly of the risks attendant to the strategy. He must formulate an exit strategy for every trade and, in my view, that is best done before the trade is ever entered. He must become acutely self-aware and exercise extreme discipline. He must understand that many trades may result in losses and that most of the profits result from as little as 3% of his trades. He would be wise to keep careful records and a journal of trades to which he refers regularly to keep himself on track and assure that he is following his plan.

Focus, commitment, and discipline are key ingredients to successful trading. Without them, the trader is not giving himself the best chance to achieve his goals. As I have written before, money management, risk awareness, exit strategy, and discipline are requirements and though each may be relatively simple to understand intellectually, they are not necessarily easy to put into practice when confronting a fast moving market.

If you are willing to create a business plan, exercise stern discipline over your trades, plan each trade, learn how to cut losses and equally importantly let profits run, and have a money management plan, you are giving yourself a chance. As with so many things, it is in your hands. Your level of commitment will go far in determining how you fare.

This is a business and it can be very rewarding, but it requires work, study, and practice. It may be simple (buy low, sell high), but that does not mean it is easy. As I suggested in the first of this series of articles, it is helpful to take a self-inventory. See where you have been, carefully consider where you want your trading to take you and finally have a serious discussion with yourself to decide whether you are willing to commit to becoming a good trader or whether something else is for you.

by Bill Kraft, Editor
Copyright 2009, Makin' Hay, Inc.
All Rights Reserved


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To comment on Bill's article click on the "comments" link below.

21 comments:

ypcheng said...

Again, like last week, this is an excellent article. I do about 300 trades a year and track every single trade. I have a percentage of gain in mind when I enter and I know the maximum loss I can afford. This year, my portfolio has already gained 15%. I trade only good stocks and always positive biased for my trades, i.e. buy low and hope it will go up. My hit rate is about 69%. A trader like me truly appreciate your article.

Manish Chauhan said...

Excellent article .

I am in the middle of formulating and testing the plan :)

Manish
http://www.jagoinvestor.com

Anonymous said...

I agree that you must have infor. on stocks and the way things work, the stock market has changed over the years - with the people like Milken and Madoff, and the creation of paper stock,bonds and other Junk. The laws and people over seeing things (SEC)not doing the job has been a big problem, light jail sentences, large bonues to upper management when firms are going down like a burning plane. This BAIL OUT was(is) a joke bilions given to down right crooks for the part 25/30 yrs. Ex. GM took billions and still going into charter 11, this is the 3 time I can remember that this firm has BIG TROUBLE !. As far as buying a stock some of the largest firms that you would never think of going broke, are just that. Companys Merge and large bonuses are give out and people lose jobs that make 1/5 of the salary of the person that completed the merger.
In short, you can't count on to many firms today to be productive, Failing seems to be a good thing, such as Furit Of the Loom did a few yrs ago ( and that's just 1).
In closing, I've been trading for yrs. but can't stop the down fall on the STREET when life savings are cut in half and worst, EX. Lucent, K-Mart,Yellow Pages to mention a few. I will continue to trade but not the same way. We have to take a lesson from the birds ( a nest is only for a short time and then you build a new on)

Coffee Man said...

Your Act. are helpfull, you maybe one of a few good guys on the street. Keep up the good work.

Doug N. said...

Thank you Bill – I am a regular reader of yours. I use many of the strategies from your book Trade Your Way to Wealth – your strategies and teachings have been a great help to me and I highly recommend them to others. I just rec’d my reserved copy of your new book, The Smart Investor’s Money Machine and am looking forward to getting started on that one. I hope to be a coaching student someday -- keep up the good work.

Herby said...

Bill ... outstanding advice! ... most traders I have met, new and experienced, do not follow disciplines/systems such as yours with the obvious disappointing consequences. Your advice is so much common sense that your columns should be required reading for any aspiring trader. I will help get the word out. Thanks.

Anonymous said...

I am pretty much a novice but love trading. I am OK at picking stocks as I have a plan and know what I am looking for. I am disciplined about setting a stop loss. My problem is, when to take profits. Often, I take them too soon as I move my stop loss up into positive territory to make sure i don't lose $$. Any suggestions???

Morris said...

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Anonymous said...

Your introduction, is the first one that I read in the network that someone says the real true of this business. You must be a very honest man and even is difficlut finding time, I will try following you in the future.
The main point is finding professional software to follow the market on line, to be able to enter, put stops, etc. giving orders to the brokers in real time. May you recommend some good sofware to let me make technical studies (as yours) to let me practice before entering with ral money?

Thanks - PEPE - BARCELONA - SPAIN

Bill Kraft, MarketFN.com said...

ypcheng, thank you for your compliment. It sounds like you have a plan and that the plan is working well. I congratulate you.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thank you for the kind words, Manish. I wish you great success with the formulation of your plan. I think it is important to remember that a trading plan is always a work in progress and subject to change as you gain knowledge and your personal circumstances change.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thanks for writing, Anonymous. I certainly agree that there have been changes in certain areas of the market over time and, doubtlessly, there will be changes in the future. One of our jobs as traders, I believe, is to be able to change with the markets. Years back, for example, almost everyone was a buy and hold investor. Now, many have learned that they might be able to do better by paying attention to the movement of their stocks, placing stops, and/or hedging portfolios or individual positions.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thank you, Coffee Man.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thank you, Doug N for your kind words about "Trade Your Way to Wealth." I'm glad some of the information in it has been helpful. I hope you find "Smart Investors Money Machine" to be useful as well. As you will see, the new book is designed for the investor who wants to establish more streams of income and may or may not be interested in trading more actively. Please let me know what you think after you have had a chance to read it.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thanks, Herby. I really appreciate your kindness.
Bill Kraft

Bill Kraft, MarketFN.com said...

Thank you for writing, Anonymous. Setting good stops is one of the more difficult tasks facing most traders. I find that I often spend a great deal of time with coaching students on that very issue. There is a fair amount of subjectivity involved and that means emotions can enter the process -- rarely a good thing for a trader. One thing to consider is re-entering after being stopped out if the play turns back in your direction. Another method is the use of technicals to help decide where to place the stops. The subject can be quite complex, but I hope these few thoughts may help you advance your trading.
Bill Kraft

Anonymous said...

Bill, I would love to become a trader. But because of how I am put together, I have to do it hands on. I cannot read a book or read an email and comprehend what is going on. I have to do it, and be able to ask questions while I am doing it in order to learn what I am doing or suppose to do. But I sure would like to change my financial plight which is very dismal right now. Because of what is going on as a real estate agent, I have no money right now to even try some of this. Thanks.

Bill Kraft, MarketFN.com said...

Anonymous, thank you for writing. First let me say that you are not alone in what have been tough times in real estate and, for many, in the stock and option markets. I am very concerned about your statement that you can only learn by doing it "hands on" accompanied by the suggestion that you mean hands on with real money. There may be no quicker way to the poorhouse than by trying to learn to trade by putting real money at risk. If you are really serious about learning to trade, now is a great time to learn strategies by paper trading. Some brokerage firms like OptionsXpress offer a virtual trading section of their website when you open an account (it does not have to be funded) that permits you to make trades without using real money. In that way you can begin to learn strategies and see how your efforts are working. In any event, whether you have money to trade or not, I would urge you to paper trade to get experience first before ever putting real money at risk. It will advance your knowledge with much less pain.
Bill Kraft

Bill Kraft, MarketFN.com said...

Pepe, thank you for writing. There are a number of great software programs out there and I don't feel that I could rate or specifically recommend any one since I personally have used only a few. Worden Brothers Telechart Platinum (real time) is an excellent charting service I have used for many years, for example. Various brokerage firms geared to traders, like OptionsXpress, also offer some great features to account holders. I would suggest you check those and others out on the web and see what seems to best fit your style.
Bill Kraft

Ivo Leclère said...

Of course you need a plan, but my experience learnes me that the most important goal is to read the market. Every timeframe works, and I trained myself to see the smaller timeframes into the bigger ones. I think you need this knowledge to set up a plan and to avoid to much mistakes.

Bill Kraft, MarketFN.com said...

Good points, Ivo. Every trader should have a plan and every plan will probably be different, but understanding technicals can definitely be a tremendous help. Thanks for writing.
Bill Kraft