Never before
have I seen so many people with such an intense desire
to make money trading futures and commodities online.
The technology we have today makes it extremely easy
to get an execution - just point and click - compared
with the old days, but even with the technological ease
and the abundance of information available on the internet
about strategy, (although most of it is just plain wrong),
the aspect of trading that is more important than technology
or strategy is having the proper mental approach
to trading.
Aspiring
traders underestimate the importance of having the proper
mental approach - they just want to know "how to
do it" without realizing that you can never really
know "how to do it" without the proper mind
set. The proper mind set that I'm speaking of is
the result of self discipline and habit. Without exception,
all consistently profitable traders have it. Some
developed it the hard way and for some it came easy.
But none of them started trading and went on to have
success without these 7 habits. A good friend of mine
told me once that it takes 21 days to break an old habit
or start a new habit. I don't know if that's true but
it's worth considering as you read the rest of this
article.
Before
you can develop these 7 habits you must first understand
the Trader' s Mentality. The trader's mentality is looking
at the futures and commodities market as a profit generating
market in motion. Trader's don't have an investor mentality.
Investors read the recurring reports for agricultural,
grains, financials, looks at the COT, listens to Greenspan,
reads news from G-7 meetings and so on before they invest.
If
a trader did any of that they would never have time
to actually trade.
After
an investor has done all this homework, they like to
watch the market for awhile to "make sure it's
good", whatever that's suppose to mean.
There is nothing wrong with the "buy and hold"
approach to investing when there's a strong trending
market, but none of the things you do before you "invest"
will help you one bit before you "trade".
There
is no guarantee that investing for the "long term"
will pay off bigger than day trading for the short term.
Investing for the "long term" is just easier
- you enter a market long or short you like and take
a multi week-month-year nap.
Traders
simply look for potential price movement. Traders realize
they don't make a dime studying fundamentals and looking
out the window to see if the rain is reallygoing to
fall over the corn crops. Their focus is on making
small, consistent trading profits with as little risk
as possible. Day traders look for small moves they
can make several times every day and close out all positions
every day before the market closes. The trader's
focus is on "what's happening now and how can I
profit from it" as opposed to the investors focus
of "how will a shortage of oil or freeze in Florida
effect a market over time ".
Now
that you understand the trader's mentality let's look
at the ...
7
Habits of Highly
Profitable On-Line Traders.
Habit
#1 - The Habit of Trading ONLY with Risk Capital.
Many
people have entered the activity of trading with money
they could not afford to lose and as a result they started
off trading with "scared" money. Their fear
of loss was bigger than their desire for gain and they
traded with a nervous and anxious state of mind. Scared
money never wins. It's wrong to borrow money to trade
or take out a second mortgage on your home for trading
capital. The way to begin is to determine how much
you could afford to lose financially and then from that
amount determine how much money you could afford to
lose emotionally. Many beginning traders will look
to their accountant, financial planner or spouse for
advice regarding the amount they could lose financially
without considering the emotional side. If your accountant
says you could afford to lose $30,000 without it severely
impacting your financial status, the next thing to do
is ask yourself "How would I feel if I lost $30,000
trading in the next 12 months"? ...or next week?
As
you can see, financially allocating an amount of money
for risk capital is very different form emotionally
allocating it. Anything can and will happen in the market.
Develop the habit of only trading with money you can
afford to lose financially and emotionally.
Habit
#2 - The habit of accepting full responsibility for
their own trades.
Successful
traders always take full responsibility for their own
actions in all of life and when it comes to trading
they're no different. In today's day and age it's easier
and more convenient to blame others for our actions
or to lie to ourselves. From our president all the way
down to our children we can see examples of not wanting
to own up and take responsibility for what we do. Successful
traders realize that their success or failure is all
their own and while it may be convenient to blame
the specialist for screwing them on an execution or
blame the advisory service for a string of bad picks,
the ultimate responsibility for their actions falls
directly on their shoulders and they know it. "I
lost "X" amount of money taking the advice
of so- and- so" is not something you' ll hear a
successful trader say. You can learn a lot from
an experienced trader but your results are the result
of YOUR actions.
Habit
#3 - The Habit of Focusing on 1 or 2 Techniques that
Work.
Rather
than constantly searching for new strategies and techniques,
the profitable trader will constantly use 1 or 2 approaches
and nothing else. New traders often get in the habit
of constantly searching for new trading strategies before
they've even executed 1 trade with a proven strategy
they've read about. They buy someone's book, then another
then another and now they have 10 books on trading without
doing a single trade. Or they'll trade futures, then
switch to options then switch to stocks then something
else. Most professional traders use only 1 or 2 techniques
and nothing else. Even the most average
of techniques, when executed with focus, will yield
better results that the technique-du-jour if you're
changing approaches every week. Find a system that works
and work the system. The grass isn't greener on the
other side of the fence. Learn your market, refine your
personal approach to it and stick with it.
Habit
# 4 - The Habit of Properly Managing their Trades.
Without
exception, every trading author on the face of the earth
say's that cutting losses is one of their "cardinal
rules" of trading. But if you've ever traded you
know how your own mind can work against you when it
comes time to sell at a loss. You'll start rationalizing
why you shouldn't sell - "it will come back",
"it's just moving around", "I'll sell
when it comes back to the price I paid", take
your pick of excuses but none of them are the right
way to think - and the next thing you know you've
got a nightmare loss on your hands. Everyone has had
this happen to them in the learning stages. Successful
trader's identify their profit and loss parameters BEFORE
they enter a trade. They set their stops and stick to
their parameters.
Habit
# 5 - The Habit of Staying Emotionally Neutral.
Successful
traders don't get too high when they have a winning
day and they don't get too low when they have a losing
day. Taking a loss is as much a part of trading
as is taking a gain. The difference is in how you emotionally
deal with the losses and the gains. The market goes
up and down constantly but successful traders don't
come home and kick the dog after a bad day in the market.
Nor do they rush out and buy a new Porshe after a good
day. Successful traders don't let the market put them
on an emotional roller coaster. Staying emotionally
neutral is the key to long term trading success. New
traders often experience "burn out" which
is more a result of emotional ups and downs than anything
else. Don't buy into the hype that is constantly
coming out of Wall Street. Don't get scared when
the market draws against your position or pop the champagne
when it roars for your position. Just trade it. Save
your emotions for the things that really matter in life
like family and friends, not futures and commodity trading.
Habit
# 6 - The Habit of Trading Without Certainty.
Successful
traders are comfortable with risk. They know that they
can't wait for certainty that the trade will be profitable
before they do the trade. They trade in anticipation
of a pattern or event. This mind set is extremely difficult
for new traders. New traders want all the facts before
they do a trade and by the time all the facts are out
the trading opportunity is gone, then they enter the
trade and wonder why it didn't work. If you're about
to drive to town and you need every traffic light to
turn green before you leave, you'll never get out of
the driveway. Accept the fact that you can't have proof
that a trade will work. Get comfortable with risk and
learn how to manage it.
Habit
# 7 - The Habit of Keeping a Trade Journal
Successful
traders keep a trade journal of their trades and periodically
review it as a way to refine their approach to profiting
from the futures and commodities market. There is a
tremendous amount of valuable information in your losing
trades. Sometimes you can find easily identifiable patterns
in your losing trades that you can easily eliminate.
When reviewing their trade journals, successful traders
don't think of them as profits and losses but simply
results. Just because you have a loss doesn't make
you a loser and just because you have a winning trade
it doesn't make you a winner. Successful traders use
their trade journal to find out about themselves in
an objective way. They realize that their trading
activities produce results and the results hold valuable
information about themselves and offer the keys to improving
the results of their activities. Keep good notes on
each trade and review your notes often, it will help
you trade better.
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