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E 8 HABITS OF HIGHLY EFFECTIVE TRADERS
o youll be fine, the babysitter told me when I was
six years old. "Just stand real still, Ill slam the door
quickly, and your tooth will be out in no time." So, I did.
Deft hands tied twine around my jiggly, hanging-on-by-
a-thread tooth.
Then slam went the door. "Arrgghhh!" Blood
everywhere. Me screaming hysterically. Soul-scorching laughter
from the babysitter. Pain like Id never experienced before. Sure,
the tooth coming out hurt. But I think what hurt me more was
that my trust had been betrayed. How could she have been so
mean? She must have known the consequences. I failed to see
the humour.
Fast forward to the present day. Like children innocently lining
up to have their teeth ripped out, I see star-struck traders buying
a trading package for their computer, a
fortune promised in the blink of an eye.
"Just buy when this little green line crosses
over the red line," the charismatic, confident
presenter tells them from stage amidst a
round of applause. "Youll be achieving
your dreams in no time and it wont hurt a
bit." Sure! Ive heard that one before.
Many traders slide into an abyss
because they are sucked in by the bright
lights and the excitement of the moment. I
get to see the results because sometimesthese course junkies stumble into my
trading community. I see their financial
scars. I help them patch themselves up,
and face up to what lies ahead. What might
lie ahead? Sometimes, a few more years
of work before retirement. At other times,
a spouse who had their heart wrenched
out as their dreams were squashed. You
see, when you make a snap decision on
who you choose to be your sharemarket
trainer, youre not affecting just your
own future. Youre also affecting your familys future. Its a huge
decision so dont take it lightly.
Most people put more effort into planning their next holiday than
into their long-term financial future. The bleak truth is that the only
way to live well tomorrow is to begin planning today. If you have
chosen the sharemarket as the means to attain financial freedom,
there are eight habits you must develop.
1. Trade with the trend
Would you like to make money in the sharemarket beyond your
wildest dreams? Trade in the direction of the overall trend and
youll be amazed at the results. This sounds obvious, but in
reality youll probably spend the rest of your trading life trying to
achieve this goal. Whether you decide to pursue fundamental or
technical analysis techniques, work on developing your skills. Aim
for perfection, but be aware that there is no technique or method
that will work in all circumstances. Be rule-oriented, but maintain
a degree of flexibility and adapt to changing market conditions.
2. Set stop losses
If you do not know how to set a stop loss, stop trading immediately
An initial stop loss is designed to preserve your trading capital . A
break-even stop will help lock in a no-loss trade. A trailing stop
loss will assist in preserving your profits. Learn how to set a stop
and then follow it. Contrary to popular belief, if you exit on the
basis of a stop loss, the world will not abruptly stop spinning
You will live to trade another day. If you can keep investing in the
markets for long enough, you are bound to learn how to succeed
3. Utilise a written trading plan
When I aim to trade well and to follow my trading rules, money
flows into my account without difficulty. Detail your position-
sizing rules and entry and exit triggers, and list the markets that
you will participate in. This small display of discipline separates
professional traders from try-hards who cannot make a profit.
4. Develop money-management skills
Money management is the part of your trading system that tells
you how many of a particular share you are going to buy or
how much of your account will be committed to a given market
The most effective traders have a method of attributing a greate
percentage of their capital to low-risk, high-probability trades
Higher risk trades are still entered into, but a smaller position is
THE 8 HABITS OFHIGHLY EFFECTIVE TRADERS
Louise Bedforddetails the habits traders must develop for success.
14 YOURTRADINGEDGE MAY/JUN 2012
FIGURE 1: AUSTRALIAN ALL-ORDS
N
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THE 8 HABITS OF HIGHLY EFFECTIVE TRAD
MAY/JUN 2012 YOURTRADINGEDGE 15
taken. In all games, the difference between the amateur and the
professional is that the professional plays the odds.
5. Remain detachedThe only way to trade well is to aim to be a good trader, rather than
to make money. I have found that every time I demanded that the
market provide me with a certain monetary return, profits became
elusive. However, when I aim to trade well and to follow my trading
rules, money flows into my account. Successful traders have had
to learn how to handle the inevitable losses.
6. Use an appropriate instrument
For some reason, novices seem attracted to the futures market like
beetles to a bug zapper. The more volatile the better! they cry,
as they launch themselves headlong into financial oblivion. Begin
with shares, and trade them successfully for at least a year. Once
youve proven yourself in this less volatile arena, you can move
on to leveraged instruments such as options, CFDs, warrants andfutures. Learn how to take advantage of a bear market. By using
short selling, CFDs and options as part of your strategy, you can
make money whatever the market is doing.
Even though some indices are starting to show signs that the
bear might be withdrawing its claws, we are yet to see evidence
of this in the following chart of the Australian All-Ords (figure
1). Before you jump to the conclusion that a bull market has
begun, remain on your guard. I suggest you wait for a break past
resistance, and look for at least two higher lows. This will stack the
odds in favour of your long portfolio achieving success. Until then,
or until a break of support, it seems short-term trading is all you
can do in the Aussie market.
As an alternative, you could choose to stand aside entirely,
which is what many traders are doing. Waiting for a more defined
trend is the sign of a mature trader, even if you have to wait a
few more months. The market directly rewards the patient and
penalises the impatient.
7. Persist in the face of adversity
The only way to pass Share Trading 101 is by attending the school
of hard knocks and staying in the trading arena, even when you
feel like quitting. Take responsibility for your own financial future.
You are perfectly capable of learning how to trade. Ultimately you
will be successful if you put in the effort and learn from your past
mistakes. Others might have more knowledge than you at this
moment, but you have the resources necessary to develop you
own strategies. Any negative people that doubt your skills have
underestimated your tenacity. Stay committed and focused and
you will achieve your objectives.Anger drove me to perfect my trading methods when my origina
accountant laughed at me for wanting to be a full-time trader
Desperation about a bleak future if I didnt learn how to trade led
me to hone my skills. And wanting to show others that I could be
successful when they were disparaging my efforts led Chris Tate
and me to form the group of like-minded traders in our Mento
Program. Anger isnt always bad, and success can be the bes
revenge. Is it possible that we are defined by our enemies and
our willingness to take action when weve experienced a negative
event? I say yes.
Use negativity from others to spur you on. Many reasonable traders
have become exceptional because they felt a rush of irritation from
being judged by those around them. They have taken their negative
emotions and been galvanised into taking action. And not just anyaction directed, focused, determined action capable of revealing
hidden profits in the markets overlooked by others.
Negativity does not need to have a negative effect. Next time
someone is unkind, criticises you or is just damn disrespectful
what are you going to do about it?
8. Realise that you are worthy of success
A lot of people deny themselves success because they fee
unworthy of the rewards of trading, unworthy of being happy and
definitely unworthy of greatness. That is the reason we need to
find people to boost us and to see the best in us. Without support
we never see how incredible we can be. It seems our body cant
store positive thoughts easily. Unless we get continual shots o
positivity, our minds drift towards the negative.
Its impossible to achieve success as a trader unless you have
made some substantial steps forward in self-development. Stand
tall, claim your place at the victory table, and be proud of you
achievements.
Louise Bedford is a full-t ime private trader and author of fou
best-selling books The Secret of Writing Options, The Secre
of Candlestick Charting, Charting Secrets and Trading Secrets
Visit www.tradingsecrets.com.au to get Louises free newslette
and free 5-part e-course.
Use negativity from others to spur you on. Many reasonabletraders have become exceptional because they felt a rush
of irritation from being judged by those around them. Theyhave taken their negative emotions and been galvanisedinto taking action
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