There’s no doubt that trading has become more popular over the past decade or more. For some investors, working from home, where ever home might be, and earning consistent profits through trading stocks, options, futures, or currencies, is both appealing and lucrative.
On top of that, markets are more accessible than ever, information is readily available and internet access has become widespread. Perhaps even more importantly, experts are willing to share their knowledge, so mentoring and coaching help are accessible.
However, no one is saying that trading to earn money is easy. You need market knowledge, a willingness to dig deep on technical patterns and an understanding that all trading requires some level of risk.
Successful trading also requires a specialized mindset, an idea explored in my 2014 co-authored book, The Winning Way.
3 Traits Every Trader Needs
In The Winning Way book, we look at three psychological mindsets that are necessary for a trader, regardless of experience, to be successful. Those mindsets are: one, accept market uncertainty; two, focus on the “now”; and three, think probability.
I thought it would be useful to outline these qualities in a little more detail here.
Accept Market Uncertainty
You have to believe that each trade is a random event and the outcome is out of your control and beyond any kind of analysis. Unless you know what each of the millions and millions of investors and other market participants are betting on each day, it’s impossible to predict what the markets will do.
I began making a trading profit when I started to believe in my own tools and systems for trading. I accepted that markets are uncertain and that leads to randomly distributed winners and losers, at least in the short term. However, in the long run, I trust that my edge gives me a higher probability of winning than losing.
Focus on Now
We’ve all been conditioned to learn from past experience. That works, mostly, since a change in behaviour usually leads to a different outcome. But in trading, it is detrimental to associate current trading decisions with past results. As every mutual fund prospectus tell us: Past results are not indicative of future performance. Professional traders understand that each trade is random, operating independently of previous trades.
Great traders focus only on opportunities that are happening right now.
The focus on uncertain markets can be difficult for some traders as they wonder how to achieve consistent and profitable results in such an environment. Although markets are uncertain in the short run, long-term predictable results are achievable. Your own trading strategies and systems give you an edge. You will have both winning and losing trades in the short run, and in the long run your edge will give you a higher probability of winning than losing. Being able to understand probability also helps you become a more disciplined trader. You will be able to trade with less emotion, allowing you to think more clearly and ultimately make better trading decisions.
I started trading in 2001. By 2003, my initial success had disappeared. I was spending thousands of dollars on complex trading systems that just didn’t work. In short, I was struggling to find a new path that would suit my goals.
At that time, I was fortunate enough to meet the late George Fontanills, one of most respected options traders in the world. I needed George to help me understand my trading personality and what type of trading would be most suitable for me. More importantly, I needed a mentor to send me on the path of developing a winning mindset.
George mentored me on trading strategies and techniques, but most importantly, he guided me to my own trading personality. He knew I wasn’t suited to day trading, because I hated the idea of staring at a screen all day. He also knew I didn’t have the patience for long-term trading. So he came up with the idea of short-term or swing trading.
The timeframe of my trades is anywhere from a few days to a few months, depending on the stock and market volatility. And because swing patterns are highly repetitive and happen over and over again, stock movements can be predicted with a high degree of accuracy.
George was able to pinpoint my strengths and weaknesses as a trader. He taught me valuable risk management skills and how to protect my trading capital. He also taught me how to trade small but win big, and how to scale up. Under George, I learned to focus on mastering one or two markets before expanding into other areas of trading.
In conclusion, I believe that you must apply the three psychological mindsets mentioned above at all times to keep trading simple. If you can do all that, you will see a breakthrough in your trading, and very soon you will become a consistent and profitable trader well on your way to achieving success.