Traits of successful traders

[Tony Beckwith]

Hi everyone

For those who might appreciate a quick summary of the qualities and skills shown by the most successful traders, this piece is very useful:
http://www.optionsxpress.com/educate/advanced/psychology.aspx?sessionid=

Much of it is exactly what underlies the MTPredictor software routines and the complete emphasis on risk control. MTP tries to enforce the disciplines needed to trade well, rather than forecast or over-analyse.

BTW We have no connection to optionsXpress.

Thanks

Tony.

[dctommy]

At some point in your trading career you will be faced with a string of losses that will bring your confidence to an all-time low. Every trader hits this point at least once, and some will visit it several times. Here are some tips on how to deal with this situation.

First, I recommend that you take a break from trading. A one week break will allow you to relax and regroup. It is impossible to trade effectively when you are under extreme stress. When you have decompressed and returned to a more positive frame of mind you will be able to reaffirm your goals and think clearly when you come back to your trading room.

You should pay careful attention to your mindset. If you do not have a positive approach to your trading the best tools and strategies can be at your disposal, but they will not give you the results you want. There are a variety of meditation and visualization techniques that can help you achieve a positive mental outlook. Learn about them, and use the ones that work best for you. Once you can effectively see yourself an up-and-coming trader, sure to meet and exceed all your trading goals, you are more than half way there. Remember, your mind is the greatest asset you posses.

Next, consider your trading experience up to now. It makes sense to take stock of your trading, and ask yourself some important questions. The most important one is “Have I been following my trading plan?” Often failure in the market is caused by not following your plan. See where you departed from your plan, and consider what you need to do to not make the same mistakes. This kind of analysis will give you valuable insight into your trading, and help you attain much greater success in the future.

With your consideration of your trading past in hand, make whatever adjustments you need to your trading plan. Your trading plan should define your approach to trading, and should give you a course of action for any circumstance that might arise. Without a comprehensive trading plan, it is very difficult to be a successful trader.

Lastly, when you begin trading again, follow your plan flawlessly. You need to acknowledge the fact that this is hard to do. But commit to doing it, be disciplined. Ultimately, undisciplined behavior will be punished by the market, either by direct losses or by the loss of profits you could have made. However, the market can confuse this issue with random reinforcement. Random reinforcement is the market's tendency to reward bad behaviour from time to time. This is one of the reasons why it can take so long for traders to understand the market. However, even with random reinforcement, it makes no sense to have a system if you are not going to follow it.

Given that it is so hard to follow a system, you should take some time to reward yourself for doing this difficult task. Celebrate even if you have more losses than winning trades. Remember, losses are just as important as winning trades, they are a part of any system, and a sign that you are following the market wisdom of cutting your losses short.

When you are up and trading again, you may want to consider finding yourself a coach. Even I have a coach. In fact, I have coaches in all areas of my life. I learnt the importance of mentors from Tiger Woods. Even he has a coach. Now why does best golfer in the world have a coach? It certainly isn't because his coach plays a better round of golf than him. No, it's because a coach can see things from a different view point. A good coach can be vital in helping you along your trading journey.

It isn't easy to pick yourself up and start trading again after a long series of losses. But with these techniques, you should find yourself trading again, and making money. With the right approach and a well-designed trading system, it's only a matter of time before you become a successful trader again. :)

[dctommy]

I recently found this quote on a stock site:


'You are the biggest obstacle to your success. You have to keep working on yourself all the time because your own psychology is ultimately the most limiting factor in the arena of trading.'


If I learn nothing else from Matt & the MTP team it is this!

Happy Holidays! :)



dctommy

[Matt Bowen]

Hi Tom,

Great Article... most people will not relate to this because their expectations are completely on the opposite spectrum. In other words, they are still caught up in the stupid game of trying to win on 8 of 10 trades.

Listen, I'll be the first to admit I made this same classic mistake but you can only spend so many years losing money before you finally say: "Something about this concept of having more winners than losers is not working".

Why? Because look at your account statement, you might have 80% winning trades, but you have less money... well it doesn't take a genius to figure out something is screwed up. You have to go back and find out how much are you making on the average winner and then do the same with your losing trades... this will show you where the problem is.

I have found that generally when people struggle to enter their first series of trades it's not because the model is broken ...it's because they are confused -- and they think if they have 4 or 5 losers in a row the system is must be broken.

A confused mind always does nothing! What people don't understand they will not use... that's why you see so many people not using position sizing, they don't understand how it relates to actually making money.

As you can see from the metrics below... making money has got nothing to do with how many times you are right... it's all in the risk/reward of the average loser to average winner.
Here you see a system that only makes 42% winning trades, but after 100 trades its up 133% and the win/loss ratio is only 2.50 per trade.

God only knows I've tried to pound this into peoples heads...

The problem is...you can lead a horse to water, but you can't make them THINK or DRINK

[Matt Bowen]

Here...for all you visual thinkers this chart should drive home the point much better :D

[qitrader]

To Matt and Steve,

I have a simple question. Did you guys attend Van Tharp's Supertrader program? If yes, can you comment on your experiences and how it made you a better trader. I've read that even succesful traders attend his seminars and are able to multiply their current outstanding earnings. What are your thoughts?

thanks

Qi

[qitrader]

Hi all,

Have anyone here purchased or attended any of Van Tharp's seminars, especially the Supertrader Program?

Thank you,

Qi

[ericd2281]

I went to the Peak Performance 101 course in 2006. I found it to be very informative and well worth my time. I would recommend it to people that have an open mind to better understanding how their psychology affects their performance in trading and many other areas of their life.

Have you read any of his books? I would recommend that a person read Trade Your Way to Financial Freedom (new version from 12/2006) before attending a seminar as Van's teachings are much more psychology based. If a person is not open to that method of thinking then its probably not a right time for them to spend money on his seminar.

I think there is a lot of good material around about trading psychology that is good to read to open one's mine to the concepts before spending that amount of money on a seminar or series of seminars like the supertrader program.

Just my thoughts...

E

[qitrader]

Hi Eric

Thanks for your reply. I have read both 1st and 2nd edition of Van Tharp's book (3 times already) and have found alot of his information extremely valuable. However, I have found the book to be abit too general in my opinion and doesn't go into too much detail in regards to position sizing strategies and exercises that deal with issues that sabotage traders. I am looking forward to his seminars in hopes of learning a few exercises that will help me deal with my impatience. I tend to exit too quickly and not letting trades run. No matter whether I use ATRstop or anything similar, I still make the same mistakes. One example was yesterday when I caught the long entry on the Russell around noon. I was carrying a -.5R loss in the morning and took a 2nd trade around noon. Then I decided to exit the trade with +2R. However, it moved +6R later in the afternoon. And if held today, I would have made almost +15R. We'll see how it all goes today.

Good trading all,

Qi

[ericd2281]

Well then the seminar may be a good idea to look into further.

Several things helped me a lot with position sizing:
1) Van Tharp's position sizing game (go to iitm.com and search for it)
2) Van Tharp's position sizing report. (go to iitm.com and search for it)
3) Testing out different position sizing strategies using a program designed for that. I use MSA for that and like it quite a bit. (adaptrade.com)

Van's seminar should be good to help you identify some different ideas to help out with the psychology aspect of things. Also, books by Mark Douglas are great too

E