Habits of Successful Traders

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  • 8/13/2019 Habits of Successful 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


    Louise Bedforddetails the habits traders must develop for success.





  • 8/13/2019 Habits of Successful Traders




    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


    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