Based on experience, here are my thoughts on what makes a successful trader.
I have been teaching beginners to trade for many years, and over all those years I have found that things do not change very much, with one exception – the technology improves. When I started out, never in my wildest dreams could I envisage trading from a mobile phone or an iPad. However, it can be confusing to the newcomer. I’m sure if I was starting my trading adventure right now I would be faced with mind boggling choices and really wouldn’t have a clue where to start. When I started all those years ago, there were very few places you could go to get a solid foundation in the basics of trading.
Now, you are spoilt for choice. There are literally hundreds of websites, dozens of trading companies and brokers who have recently set up, some from the U.K. and many from overseas, charging the unwary high prices, selling courses covering a wide range of subjects and systems. It’s a minefield for the inexperienced. Should any beginner buy one of these courses, then their grounding is usually set for the rest of their trading career, no matter how short that might be. There will be many opportunities for new traders, and, my one suggestion, before you spend your hard earned cash, is to spend some time on the internet and research the individuals behind the offers, before committing yourself. It is time which can pay real dividends and save you anguish and frustration.
Personally, I learnt the basics, I was self taught in the beginning, as there was little information when I started, and I still trade and teach the same way today. I like trends, support and resistance, chart patterns and volume - the basics. I do not use or believe in Fibonacci, Gann waves, Elliot waves, candlesticks, pivot points, pitchforks or the dozens of others things that exist to impress, confuse and part you from your cash. They just don’t work (in my opinion); if you press a different timeframe they all change and nobody has convinced me which timeframe they work in; is it daily, one hour, or three minutes forty seven seconds? However, I do always try to learn new things and one of the things that really matters, is the improvements in trading software, and the things that it can do to make my trading life easier.
I like software which I can download to my computer (i.e. not web based), which can be adjusted to suit me, and my advice to beginners is to learn your platform backwards to reap and benefit from the rewards. Firstly, I don’t like software or brokers which intercept your trades with a dealing desk, I like my trades to go live when I press the button and to close when I press the button; no interference, simple. I also like my software to be adjustable, so I can change the parameters of indicators and visualisation on the charts. Another thing I look for is seeing my live trades and ‘trading off the charts’, along with stops, limit orders, alerts, and being able to watch the charts in real time, even on a practice account.
Also, I like my software to have sophisticated extras, such as facilities to add such things as Heiken Ashi charts, the best trend indicator there is, and OCO’s, trailing stops, automated trading and backtesting facilities. It also helps if they have a demo account which does not run out after two weeks. That is the basic requirements for my main trading software: incidentally, these are not things you will get on your iPhone or iPad, yet.
The last time I wrote an article for Trade2win was nearly a decade ago, and during that time my enthusiasm for trading has not diminished, but I have gained an immense amount of experience and pleasure from teaching and introducing hundreds of beginners to the world of trading. The greatest pleasure I get, is speaking to, and receiving emails from, my ex students who are now making a full time income from this challenging venture. I rarely hear from those students who have given up. The latter being the vast majority and, as this will probably be the last article I write for another decade, I hope you don’t mind if I give you my opinion as to what makes a successful trader. This also gives me the chance to tell you about some of the people who have attended my training courses.
I think it’s best to start by giving you one simple rule that separates the winners from the losers. Can it all boil down to one simple thing? Yes it can! The winners have a set of rules that they discipline themselves to stick to, and rigidly adhere to. The losers are the vast majority of the others that think they know best - but don’t. They do their own thing and lose big time.
You see, I joined the R.A.F at the age of fifteen and was taught discipline and the importance of sticking to the rules. I survived 18 years; enjoyed travelling the world to Hong Kong, Cyprus, Singapore, Germany and Northern Ireland, helping to keep the Queen’s aeroplanes in the air. So, from an early age, I knew what sticking to the rules was all about. Over the years I have developed a set of rules for trading, all 42 of them, and I think that those taking the time to read this article might benefit from them. You will need to know what every rule means and fully understand them. Thinking you can be a successful trader and ignoring any of them will lead you into a part time job stacking shelves in Tesco’s.
There are only two types of people that want to learn to trade: those that want to know everything about trading and are prepared to spend the time to learn about the markets and those who just want to make money. No matter which type you are, the same basic rules apply; neither type can succeed without them. So, if you are keen to be a success in trading, then you had better know and stick to all 42 rules. I suggest that you get yourself a plume and paper and jot these down. These rules are not in any particular order, as they all count with equal importance. So here we go:-
RULE 1 – Keep losses small. I am more concerned about protecting my capital and ensuring any losses are small, than I am about making money. I’m going to have losses, but I control them and let the winners take care of themselves. The hardest job of any trader is to get out of a losing trade, believe it.
RULE 2 - Do not forget Rule 1.
RULE 3 - Learn the basics; fundamentals, charts and indicators etc.
RULE 4 - Position size every bet in relation to your bank.
RULE 5 - Always use stops, not as a trading tool, but as a disaster avoidance technique.
RULE 6 - Give your trade room to breathe, don’t place stops too close, most beginners lose because of this. Remember, the wider the stop the smaller the trade size. This is also dependent on the timeframe you are in, simple tip if you are trading on the 5 min. chart. Check the 10 min one as well. Stops should be placed visually in my opinion.
RULE 7 - Don’t be greedy, appreciate small and consistent gains. Once you’re in a profitable position, consider moving your stops - especially to break even - and then you are using the broker’s money. If your software has the facility, then trailing stops could the answer. Many of my students have a minimum daily target of just 10 pips/pts.
RULE 8 - Accept that the markets are totally random and unpredictable and practice makes perfect - give yourself time before trading ‘live’.
RULE 9 - Control REVENGE, after a loser take a break, always. Never strike right back, never, and never double up to recover your losses.
RULE 10 - Never HOPE that you will win, trade only when you see a good trading opportunity, and remember live trading is different mentally from demo trading.
RULE 11 - Keep accurate records of each and every trade, winners and losers, even on a demo account, you must learn the correct habits.
RULE 12 - Eliminate fear, fear of failure and fear of trading. If you suffer from fear then trading is not for you.
RULE 13 - You do not have to trade, if there are no good trading opportunities then do not trade, there is always tomorrow. You can always spend the time practicing new techniques on a demo account.
RULE 14 - Reward yourself, I’ve been teaching trading for over a decade, I would love a pound for every beginner that has ploughed money into a trading account and then just traded it until the money completely vanished. Most traders have some good wins, my advice after you have had a great trade or a profitable week is to take some money out and spend it! That’s what trading is for. We all know the compounding effect of mathematics and we can all dream. But my advice after a good win - say £500 - is to take out £100 and spend it. You will feel great about your trading, I promise you.
RULE 15 - Take full responsibility 100% for your own trading - only you can win at trading, do not rely on any external crutch to blame.
RULE 16 - Be patient, most new traders are impatient. Impatience is probably one of the biggest problems to control with new traders. I recall the situation where an Asian lady, after completing one of my two day residential courses, opened a live account the following week, and promptly started trading at £100 pounds per pip! But that’s another story in itself.
RULE 17 - All markets are bearish, they will eventually reverse, prepare and profit from them.
RULE 18 - If you lose, bet smaller. If you win, bet bigger.
RULE 19 - Only bet with money you can afford to lose; this eliminates fear. If you cannot win with a £2,000 bank - why invest £10,000?
RULE 20 - Don’t buy or take tips. Don’t buy, listen to, or be influenced by outside sources. You are not a trader unless you learn to do it yourself; it’s so easy to blame others when things go wrong! RULE 21 - Don’t trade the news. As a beginner, if you try to prejudge the market’s reaction to the news, you will lose; don’t trade for 15 minutes either side of it. See how the markets react to the news and then trade.
RULE 22 - Have faith in your trades. Once you place a trade with stops, switch the computer off, they all have an “off” button, take the dog for a walk. Do not screen watch, it will scramble your brains.
RULE 23 - Learn and use effective money management; money management is the front door key to profitable trading.
RULE 24 - Always trade with the trend.
RULE 25 - Analyse your trading results, daily, weekly, monthly and annually.
RULE 26 - Be disciplined, stick to your Trading Plan, Targets, Position Sizing, Money Management, only YOU can enforce discipline on yourself - you had better learn to do it.
RULE 27 - Use multiple timeframes; keep the bigger picture in your head.
RULE 28 - Add to your winners. If you are on a winning trend, lock in some profits by moving your stop and increase your position size.
RULE 29 - Do not overtrade, it is the main reason that men go bald!
RULE 30 - Learn to get out of a losing trade. It’s the hardest thing to master but, if you don’t, you will quickly join the ranks of the losers.
RULE 31 - Have a trading plan. It’s important, a must, essential, life saving, lifeline; you cannot win without one. Do not be fooled into thinking you can trade without one.
RULE 32 - Have an experienced mentor who you can turn to when things go wrong, or find yourself an experienced trading buddy. Do not expect to get a mentor for free.
RULE 33 - Do not - under any circumstances - let trading dominate your life. Take regular time out for family and friends, go and play football in the park or on the beach; it’s the real reason why you are trading. Think about it!
RULE 34 - Don’t blame yourself when things go wrong. Trades will go wrong - learn to accept them. Trading is a game of possibilities and probabilities - forget the last one - get the correct setup for the next one and have faith in your interpretation.
RULE 35 - Learn your own weaknesses, the best critic of yourself is you, concentrate in rectifying them. But first, you have to admit to them; and you will know.
RULE 36 - Aim for consistency. One of the keys of successful trading is to repeat good habits time and time again, boring but profitable.
RULE 37 - Take trading seriously. It’s not something that you can say ‘you’ll give it a try’ or ‘have a go’ at. It is a proper business, treat it as such, or it’ll be a case of goodbye loser!
RULE 38 - Understand the software and what it will do for you; OCO orders (One Cancels Other), trailing stops, limit orders and indicators etc. You have them at your disposal, learn how to use them.
RULE 39 - Understand the different styles of trading and practice each one for a while. Once you are happy with a style that suits you, practice it until you perfect it, it may be day trading, swing trading, scalping or longer term trading. They are all there for you, but ultimately you must decide.
RULE 40 - Don’t listen to hype, this industry is full of the biggest and best conmen in the business, if it sounds too good to be true, then stay clear and do not part with any money on dubious trading systems or advice. I’ve seen trading systems for $50,000 and more – quite simply they do not work. If they did, we would all have them. You can check out many conmen and crooked brokers at Forexpeacearmy on the internet.
RULE 41 - Keep accurate and honest records, I know I’ve said that before but I want you to do it. Good traders are good record keepers, poor traders are the opposite. And finally, enjoy trading! It is a life changer for those that can trade within these rules. If you want to add rules of your own to this list - feel free. The last rule of trading is
RULE 42 - Don’t forget rule number one.
Well, I didn’t get the chance to tell you about some stories of my students as promised in the beginning. I may make that another article for the future, however, let’s hope it’s not so long as another decade.
John Bartlett can be contacted at LearnTrading