Source: Melbourne Investor Feb/March 2007

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The Seven Keys To Successful Trading

Source: Melbourne Investor Feb/March 2007

Written by Warren Stokes

Universal Trading Solutions

Warren Stokes has been promoting trading and investing programs in Australia for eleven years. He has seen all the pitfalls and attributes and has mixed with 25 of Australia’s leading millionaire traders.

 

The Seven Keys To Successful Trading

I have had the good fortune to mix with a number of highly successful traders over the years and have found a number of traits that about four out of every five high level traders have. It does not matter what instrument they use to make money; like success, these attributes are universal principles.

1. Is your behavioural style suitable?

It is staggering how many people make the huge life decision to become a full time trader without seriously assessing whether or not they have capacity, or ability, to be able to sit in front of a computer screen and trade. This is crucial! A small investment of a few hundred dollars into either behavioural testing software, or a specialised consultant, will establish whether or not trading is suitable for you.

2. Run your trading as a business


If you plan to make trading a part or full time business
you must treat your trading as a business. I find this is a major issue for many new traders that change from a 9 to 5 job to trading, where they may only need to be actually focused for 30 to 60 minutes a day. You must be disciplined. Get some free business planning software off the internet; set goals, evaluate and review your trading performance at least monthly to see if you are in line with your original objectives.

3. Be completely focused when you trade

Having sat in a room and watched some great traders the thing that always impacts me the most is how focused they are when analysing a trade. The room could be on fire but these traders are not going to move until they execute a trade! Trying to day or intraday trade when the dog’s barking or you are  thinking about what’s for dinner is a sure way to lose money.

4. Understand probability

This subject is rarely covered in trading but is incredibly fundamental not only to trading but to any serious decision you make. If you don’t think this is so, ask yourself: “Who has the most money in the casino, horse racing and gambling industries?” Do you see a casino or horse owner sitting in a betting institution in a pair of shorts and thongs? I don’t think so! The probability in these industries is so weighted towards the house it is madness to get involved. And it’s all about understanding and applying probability.

5. Find a mentor or at least mix with other traders
Find yourself a mentor. At least find an educator, author or ‘guru’ that has been incredibly successful at what they do and get feedback from them. Mix with other traders; find out what is happening and have some inter-personal relationships. I find it very frustrating when people say to me: “I was making money trading but I gave it up ’cause it was so boring”.

6. Be patient and practice first

Great traders have a pattern: 1. Study the history of a stock [or a system]; 2. Back test almost religiously; 3. Paper-trade (practice without real money) until you know the system/stock; 4. Stick to the system!

7. Learn to accept losses
I hold a belief: There are hundreds (probably thousands if you include the US) of different trading systems in the marketplace. The vast majority are good to outstanding in terms of results. Where the problems start is when you put a human into the equation! It is almost impossible for anyone including yourself to know how you will react to a trading result until you have actually traded. The hardest part is losing money; and this is where trades go right off the rails. I am still amazed when people tell me they follow a system that says ‘Take a loss at 20%’. Even when they have a legitimate opportunity to take a loss at this level [or less], they hold onto the trade and take a massive loss. If you are day or intra-day trading you must be able to exit a trade at a loss point.

As a final point I recommend that you continually educate yourself. I find that outstanding traders are like a sponge when it comes to education. Always give yourself a specific goal. For example: “I will find three new strategies from this seminar that will increase my trading profits by 10 per cent”. Try this next time you attend a course or read a book and see if you get better results.