The world of trading has outlasted the longest living empires of men. In fact, it has outlasted the combination of all the greatest civilizations since the beginning of time. This is logically true, since trade is the foundation of any economy, even before the start of any great civilization. So why is it successful speculation is still such a mystery for us?
First and foremost, we are risk managers. The longer you stay in the game, the more money you are going to make. It’s simple logic isn’t it? So if you want to make money in this game, you know what you need to do.
But the Fantastic Four which I want to share with you today are really more about profitable trading.
Here are 4 points of trading which have stood the test of time.
You might have heard these before, or you may not, but they are absolutely essential for your success in this speculative endeavour.
If you have heard them before, then maybe I can offer a twist to your perspectives and reinforce them in your minds.
#1 Your First Loss Is Your Best Loss (I Bet You Heard This One Before)
This is a cousin to the rule of “Cut your losses short…”.
Most traders dislike taking losses, it causes their equity curves to take a step in the wrong direction.
But it is very important to accepting the loss.
I say accept the loss, not just take the loss.
This is because that loss is extremely valuable, the information it gives you is definitely worth more than the loss you took for it. But you need to keep an open mind and extract value from it.
The first loss tells us that it is not time yet, not necessarily that our context is wrong, so sit back and re-evaluate your entry.
Don’t argue with the market, just listen to what the loss just told you. Likely you are just too early, the market is not going in your direction.. YET.
Usually after having some experience in the markets, traders are often able to tell which the direction the market will be moving. However, timing the moment when price does start moving in that direction is an entirely different matter. So no matter what methodology you are using, it’s ok to take that first loss. The first loss is important, it gives you information.
And being early is good, it means you are not too late to get on for the ride. Patience.
Many years ago, the head of a proprietary trading firm told me this, and I paraphrase, ”don’t just take a loss, get information from it, you already paid for it anyway.” It was truly one of those “Ah-ha!” moments. Took me a while to fully understand what information I could extract from it, but it made a difference in my trading. Thank you.
#2 Don’t Second Guess Your Winners
I am sure you can tell this one is a cousin to “…letting your profits run”.
How many times have you been on a winning trade, but exited much much too early?
How many of those times did you turn and trade in the other direction?
How did that work out for you?
In many instances, second guessing comes from trying to be on both sides of the market at the same time. This can mean a lack of confidence in your trading methodology. Which is a fairly serious problem, and you need to fix it by either doing rigorous back testing, or trading it enough times to acquire the confidence.
Develop simple rules to make yourself stay on the side of the trend. If your methodology tells you the market is in an uptrend, then give your long trades more time to develop.
If your methodology tells you there is a reversal and the market is going up, give your trade time and space to develop. (Keep your risk in check of course)
Being on both sides of the market might work in range bound markets, but will totally kill you in trending conditions.
Have faith in your decisions, give your trade time and space to develop. The market will tell you the rest.
#3 Know When To Take A Break
The markets have been there since the start of civilization, and probably earlier when families were barter trading with each other. And as long as there exists scarcity of resources, we will always have a market to trade. Nowadays the markets look very different from their original form.
Now as traders all we see are numbers on a screen, we just need to click a button to enter into a trade. In its original form, you would need to bring your wares to the village market and look to negotiate with another trader for your trades to get done.
There wasn’t any fiat currency(paper money that we value so much), either you traded something the other guy needed (such a cow maybe), or you offered some kind of service, in return for what he has to trade.
The markets will always be there, there is no need to sacrifice other things in your life to watch the markets all day long.
Trading deals with a lot of physical, mental and emotional stress derived from decision-making and the feedback of these decisions. It is a performance sport in many ways.
So we need to keep ourselves at peak condition when we trade. Athletes keep themselves at peak performance by not only training hard, but also taking breaks at appropriate times to recharge themselves.
This is important to your trading performance and actually having a life. It is impossible that you will miss any life-changing trades by going out for dinner with your family.
#4 Study Winning Traders
I haven’t met a single trader who said they learnt how to trade entirely from looking at the market. I’m sure none exist as well. They must have learnt something in their trading from an external source. It could be from speaking with other traders, reading books, watching videos or even taking courses. Although the source you learnt from may not know you, but you did learn some nugget of wisdom from them.
This is also how you can truly fast track your trading to profitability.
There are numerous examples of traders who achieved huge amounts of success by learning from successful traders. Look at the turtle traders. For an activity with 90% failure rates, the majority of the turtle traders who studied under Richard Dennis, went on to run their own funds with great success.
Perhaps a better but lesser known example, are the traders who learnt their craft from the Commodities Corporation. The company was bought out by goldman sachs in 1997. Don’t fret if you never heard of this company, the following names would certainly ring a bell, Mike Marcus, Paul Tudor Jones, Bruce Kovner. There are many others, but these market wizards got their start learning from the successful traders at Commodities Corporation
To learn more about how amazing this firm was, take a read here.
But the key takeaway from this last point, is find a winning trader to learn from.
I’m gonna do quick shameless plug here: Collin does run a very successful equities trading course supported by a proprietary software to help traders learn the methodology and save massive amounts of time!
Good trading you animals!
