My observations and interactions with various traders, seminar attendees, and coaching students has led me to conclude that there definitely are certain characteristics shared by successful traders that are not shared by the unsuccessful, at least in their trading activities.
Successful traders almost always have a plan for their trade -- and they follow it. Those who fail generally have no specific plan, but tend to enter and exit on an almost whimsical basis or they enter and then don't exit until losses have become quite significant. In other words, the unsuccessful have no exit strategy, or if they do, they simply don't follow it. The old refrain "it'll come back" becomes their mantra.
Successful traders wait until the trade comes to them rather than trying to force the trade. They exercise discipline in their trading and generally are able to ignore that "little voice" in their heads that may suggest they let a loss run just a little more. The loss that runs just a little more often runs a whole lot more. The successful traders don't rush to cut profits while the unsuccessful frequently grab the profit as soon as it appears because the "little voice" suggests that the price could turn down. The successful trader employs some strategy that results in following the move up with an exit that is only activated when some pre-determined turn down (for a bullish play) occurs.
The unsuccessful traders are almost universally impatient. They may jump in without waiting for a good entry (such as one where there is a nearby exit in the event they are wrong on direction). They might pull the plug on the slightest adverse move, apparently failing to realize that is the natural action of the market for stocks to move up and down. If they buy a stock that is trending upward, for example, they may abandon ship on the first little downward move even though the stock price has remained comfortably above the uptrend line. Anyone who offers subscription services sees this impatience with great regularity. The service may have demonstrated 80% winners or more, but subscribers often quickly run the other way on the first loss only to use some other service. They then repeat the process, evidently failing to realize that some losses are a part of trading.
In that same vein, good traders don't keep their eyes glued to the money. They concentrate on making good trades, knowing that making good trades will ultimately result in success. By good trades, I mean trades in which the trader enters at an appropriate point, has an exit strategy in place before entering the trade, and follows his plan for both entry and exit. That trader knows that some trades will inevitably lose, but if he has set an appropriate exit strategy and followed that strategy, the losses will be cut and they will be cut at acceptable levels. Similarly, the successful trader will not exit prematurely. He will have a strategy that permits his gains to continue to accumulate until and unless the pre-determined exit strategy takes him out of the play. In that fashion, he will have let his profits run instead of cutting those profits as many of the unsuccessful so often seem to do.
Yet another difference between the successful and the not so successful is that the former take it seriously in the sense that they continue to add to their knowledge. They read, watch DVDs, study other successful traders, learn nuances, attend seminars, and utilize a coach or mentor. The successful are not the ones who say coaching or a seminar is too expensive because it may cost a couple of thousand dollars or more. They realize that they can recoup costs like that in a single trade. The unsuccessful seem to have just the opposite outlook. They shy away and criticize the cost of trading education. I frankly confess I started out just that way. Finally, I did take a seminar that cost $3,500 in 1999. I made that cost back by the Tuesday following the seminar and learned a valuable lesson that changed my whole life for the better.
In summary it should not come as a big surprise that a plan, discipline, patience, learning to make good trades, and education are all elements that can help us become better traders.
by Bill Kraft, Editor
Copyright 2009, Makin' Hay, Inc.
All Rights Reserved
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Love your articles ..
Lots of sense ..
spoken sensibly too ...
Can I post your articles to my list and yahoogroups with your name and website link??
Let me know if you would prefer it some other way??
You can get back to me at firstname.lastname@example.org
Thanks, Bill. Have read most of your book, and taken an excellent course from onlinetradingacademny.com
One of their instructors sounds like he's repeating your book nearly word for word. I lost nearly $47K in Sept. because "It will come back". after taking the course I am back in, and my first trade made 24% profit after commissions in less than 23 hours.
Trailing stop really worked and the stock continued to decline after it stopped me out.
I've been reading these articles for awhile now, and so far have never been led astray. I like this one about entry and exit strategies because it's so easy to jump on a trade without undergoing your due diligence and just as easy to tell yourself when the trade starts losing money that it will come back. I due my fundamental and technical analysis, but my exit strategy involves trailing stops and I'm wondering if this qualifies as a qualified exit strategy?
I have your book, and I must say that a good deal of your writing is accurate. I've often wondered, however, why you continue to tease your readers with the old bromide about cutting losses short and letting winners run. Most traders would agree that it's a good thing to do, but I've never seen any description of how to do it. Why not include a few examples once in a while to give people an idea of how it's done. You may say that it depends on individual risk tolerance or trading style, but that's a copout. Your credibility would be enhanced, and you just might help some people who are struggling with this notion.
Thank you for writing, Rahul. I'll have to discuss the use of my articles with the publisher. I do own the copyrights, but have an agreement in place with him regarding use of articles and websites. I will get back to you once I have made contact with him and advise whether we have been able to reach any mutually agreeable decision.
Congratulations, Lynn B. Glad to hear your trading is going well and you are back in the game. Thank you for the kind words about my book.
Thanks for writing, Rod. Trailing stops can definitely be an exit strategy and at times a good one. I often use trailing stops myself once a position is profitable or if I am going to be away from the market. In fact, I mention their use in "Trade Your Way to Wealth."
Thank you for writing, Anonymous. You make an excellent point about HOW to cut losses and let profits run. I certainly don't intend to make it a tease since I believe it is one of the most important things successful traders do. I spend a great deal of time with coaching students on that precise issue and there is no single answer. However, the first way I know to cut losses is to have a pre-determined exit strategy. That strategy could be to set a stop loss a specific percentage away from an entry or it could be to exit on a break below a price support or a close below a price support or a break or close below a trend support. Letting profits run can be a more difficult proposition, particularly psychologically for many traders. One way that I describe in "Trade Your Way to Wealth" that you may not yet have read is to use a trailing stop. That is described in some detail in the book. Another might be to exit on a cross over a moving average. As an example, in a bullish play, if I decide to use a 40 day moving average, my exit could be when the stock price crosses beneath the moving average. As the price is going up the moving average line would also be going up, but once crossed, the trader could pull the plug understanding that the MA has been broken. As you can see, there are a myriad of ways to cut losses and let profits run. The important thing, in my estimation, is to utilize one that works for the individual and though you say it would be a cop out to say it depends on the individual, the fact is it does depend on the individual as to what specific discipline to use. For example, I may use an 8 day moving average while you might choose a 50 day because of time we are willing or able to devote or because of personal comfort zones. I may trail a stop at 4% while you might prefer to use a dollar type trailing stop and choose to trail your stop at $1.25. So there you have some examples and as you read "Trade Your Way to Wealth" you will find several others. Thanks, again, for writing, and thank you for getting my book.
I really like your column. However, I do not know how to read charts! Is there a "magic touch"?
Please answer if you have time. Thank you.
Hi Judy, and thanks for writing. If there is a "magic touch" I think it would be gaining knowledge. There are a number of excellent books available on charting (also known as technical analysis) that I would suggest. Among them are Charles Kirkpatrick and Julie Dahlquist's "Technical Analysis," Martin Pring's "Introduction to Technical Analysis," and Steven Achelis' "Technical Analysis from A to Z." Pring's book might be a good starting point while the others would add to that foundational information. Charting can be extremely helpful in establishing entry and exit strategies.
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