I recently read a biography of Warren Buffet and it reinforced a thought that people who achieve the highest levels of success in their chosen fields have several important attributes in common. I don't mean to arrive at a judgment whether they are "good" people or "bad" people, only that they seem to share the same qualities in rising to pinnacles in specific categories. For example, just because a man becomes a great athlete or great statesman does not necessarily mean that he is also a good husband or father although he may well be. I only intend to look to those qualities that seem to coalesce with regard to the specific area in which a person has attained greatness and suggest that those same qualities are important in becoming a good, better, or even great trader.
The qualities I see that seem to be most important are (not necessarily in any order) passion, focus, determination, the creation of a plan, and patience, and some form of giving back. Is there any doubt, for example, that Tiger Woods on a golf course is focused and determined? Obviously he is passionate about the game as he has devoted his life to becoming the best there ever has been at golf. He demonstrates patience in that he rarely does anything foolish to try to force a result, but, instead, takes full advantage of opportunities once presented.
If we apply the same characteristics that Tiger has on a golf course to our trading is there any question that we are not likely to become better? I don't mean to suggest that each of us is capable of such passion, focus, determination, patience, etc. but only that an increase in those areas is likely to lead to an increasing chance of greater success. If we look at the flip side, how likely are we to trade well if we don't have a plan or if we fail to focus or try to force trades through impatience?
Recently in response to a questionnaire I sent to a prospective coaching student I received a reply that he enjoyed nothing about trading and considered it a necessary evil and something that he had to do. I replied saying that I thought he should reconsider the idea of retaining me to coach him because I believe it is essential to have passion for trading in order for there to be any likelihood of success. In my view that approach is true in almost all endeavors. So many of us go through the motions of life without a love for what we are doing and, at least as a partial consequence, may never rise to the heights we are truly capable of reaching.
I discovered trading relatively late in life, after age 50. It grabbed me and I have been passionate about it ever since. When I began, I had no other source of income, and not a lot of money, but I knew it was what I wanted to do. I studied trading at least six hours a day and often more. I loved learning about it and it became my focus. Even today, after many years of trading, I continue to study; I read, attend seminars, watch DVDs and do whatever I can to add to my trading knowledge. I do those things because I am passionate about trading. I do not contend that I am anywhere near being the world's best trader, but I continue to try to be and I know that requires effort. For me, trading is fun and the effort well worth it.
While it probably is not necessary to devote as much time and energy as I have to be a success in trading, I do believe it is necessary to have passion, focus, and determination to succeed in the business of trading. Patience may take a while as it did in my own case. In later articles, I'll try to discuss each of these characteristics in more detail as we continue to try to elevate our chances to succeed as traders and investors.
I hope you have a wonderful Independence Day and realize that an ability to trade is one of the wonderful things that can, indeed, let us be independent.
by Bill Kraft, Editor
Copyright 2009, Makin' Hay, Inc.
All Rights Reserved
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You mention that in you early years of trading that you studied quite a lot. Would you mind telling us what you studied. I am trying to learn, and have read your book, but I do feel a little isolated. There is lot of 'data' out there on the web, and indeed many websites trying to promote their own 'we are the best, come and sign up (for a fee)'.At present I have paper traded on CBOE website for about 4 months, and in 12 simple trades, buying calls and puts, I am down 800EUR on an investment of 30000EUR. I am not actually interested in owning stock, so my focus is on options. There is no capital gains tax in Ireland on spread betting. I would be very happy to make a small percentage profit on most trades if I could, and I would welcome any advice for further study. I take the simple approach of a good builder; he puts in a good foundation, and then the house goes up one brick at a time. I am not afraid of hard work, but I would like to work intelligently.
I too would be interested in learning what books you used as major resources for trading.
I would also like to know what amount of money you started with, as you refer to it not being very much.How much does one need to start, in your opinion?
Thanks for writing, Joe. Not to give you a short answer, but I studied everything I could get my hands on. Among the best for me were Dr. Alex Elder's "Trading for a Living" and Lawrence McMillan's "Options as a Strategic Investment." A more recent work by Charles Kirkpatrick and Julie Dahlquist entitled simply "Technical Analysis" is an excellent work in my opinion. Traderslibrary.com has a number of trading DVDs (including a new one of mine) so you might want to investigate that site as well as the Wiley Publishing site at wiley.com. I also attended a number of seminars and found even the free seminars designed to have you sign up for longer expensive seminars were worthwhile if you could stand the selling pressure. Incidentally, I am planning to visit your marvelous country in late August and early September.
Thanks for writing, Anonymous. Please see my answer to Joe regarding books I like. How much money one starts with depends a great deal on what you are going to do and how much time you intend to devote. That is all part of the trading business plan as I describe in my first book, "Trade Your Way to Wealth," and that I discuss in general, but detailed fashion, in "Smart Investors Money Machine." When I began trading, I had about $50,000 in cash and no other liquid assets. For someone starting, I always suggest paper trading with no money to begin; thereafter, if using real money, I would say at least $5,000 to $10,000 of risk money would be the minimum. When I use the term "risk money" I mean money that could be lost and if lost would not affect lifestyle at all. In other words, money that is not needed at all for the necessities of life such as food, shelter, clothing, medical costs, etc. The fact is that trading does involve risk and the whole amount conceivably could be lost.
I agree with your observation of successful people. Most are very focused on their goals. For me, the biggest issue is patience. Lately, I have been pulling the trigger on a trade to early (due to my need to do something). I have done the research on about 20 companys that I would own if assigned the stock. Lately, these companys are not showing creditable trends. Are you seeing the same thing? What do you do during periods of unrest?
Is there a service that you use that finds the type of ratios you look for when trading options?
Both of your books have been my main guidance since I started. Doing okay.
I also have been bitten by the trader bug, and am at a point in my life where I have seen 50 winters and summers pass. I thought perhaps that it was a bit late to start , but have drawn inspiration from your story. I also attend seminars (paid for a very expensive one), read books, visit online sites , do home study courses and whatever else I can do to get knowledge.I don't have a lot of money to start, but wondered
if buying/selling short term options might be a good strategy for a neophyte novice beginner like myself?toppzdg
Thanks for the great article. One common trait that I believe is necessary for success, in trading, business, exercise, sports, etc is self discipline. Often times we know what to do, but it is doing that,day in, day out,during good and bad times that determines success and also demonstrates true passion.
Thanks for writing, Dan B, and thank you for buying my books. I agree that patience can be hard to exercise, but mastering it can be very beneficial. When we see companies we like, I believe it is important to wait for appropriate entries. Entries that provide a clear nearby exit in case we are wrong and that have a potential risk to reward that looks to be 2.5:1 or better. If we don't find those set-ups, it is best just to wait until we do. Forcing trades has rarely worked well in my own experience.
toppzdg, thank you for writing. I am definitely against buying short term options particularly those that are at or out of the money. I believe that is a fast way to the poorhouse since time value runs against the owner of an option and does so more and more quickly as the option gets closer to expiration. Selling short term options is a different story, however, in that the passage of time is on the option seller's side. Selling options does have other significant risks of which you absolutely need to make yourself aware. For example, selling a naked call has theoretically unlimited risk and selling naked puts places the seller at risk of being assigned the stock and that is accompanied by the same risk as stock ownership as well as the need to have enough money to buy the stock if assigned. One thing you might consider if you like directional plays is to buy longer term options but invest in fewer contracts. Another consideration would be to trade spreads that offer limited risk. I discuss each of these strategies and the accompanying risks in "Trade Your Way to Wealth," so you might want to do a little review, particularly checking out Appendix D where I compare the risks of various strategies.
Amen, Ken. Without discipline, our trading is almost certainly doomed.
Just want to thank you for the information you present in your weekly newsletters. I can take the information and apply it to everything going on in my life and especially my trading.
Jane, you are welcome. Thank you for writing. I'm glad that you have found the articles helpful and wish you every success.
I just read your email about success, and want to say that you are so very correct in your analysis. In life, regardless of what you want to accomplish, you need hard work and determination.
Thanks, Ruth. I appreciate your comment.
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