I am continually amazed at how few things separate winning traders from the average trader that loses their shirt over time.
Ive known some extraordinarily talented and gifted traders and Ive met more than my fair share of traders that had been murdered by the markets.
After so many years of doing this and so many years of knowing such a wide variety of traders, it has become obvious that more than anything else there are three things three BIG mistakes that the vast majority of average traders make, that winning traders do not.
You see, the stats on the issue of trading are staggering. 90% of all traders will lose their ENTIRE investment. 3% will exit the market at a steep loss before admitting defeat and stopping their activities. 3% of traders will, over time, essentially break even. 2% will find that they are minorly profitable, losing some, but winning just a tiny bit more. Only 2% of traders are successful at it.
Interestingly, there are some very common traits among the top 2% of successful traders that I find astonishingly lacking among nearly all other traders. I call those missing traits the Big 3 Mistakes.
#1 Technical Trading
It isnt that the top 2% of traders dont trade technically, its that they understand something very crucial. Major movements even direction of the markets or changes in direction always occur for FUNDAMENTAL reasons.
Therefore, every single super successful trader I have ever known has spent far more time on fundamental analysis than they did on technical analysis. Yes, there are exceptions to this especially among stock traders. However, and I promise you this is the case, those exceptions are VERY rare.
The truth is that nearly all successful traders look FIRST at the fundamentals, then wait for technicals to give them entries and exits.
By looking at the fundamentals first, it becomes easy to separate the wheat from the chaff and to ignore false signals.
#2 Mindset
A winning trader understands that you have to be mentally in the right place before you open a position, or any time you have one open. Successful traders will NOT trade if they arent mentally ready, strong, and relaxed and if for any reason they lose their composure while positions are opened, they will close them.
Trading is an intense mental exercise and in ways that non-traders have difficulty understanding. Therefore, if you are not mentally ready to trade, then dont do it.
You should be calm, fairly relaxed, and emotionally steady. Trading when you are fearful or angry for ANY REASON is a recipe for making poor trading decisions that result in losses.
#3 Knowing What Matters
This one doesnt refer to family. Im talking about knowing what matters to what you are trading. Because the best traders understand that the markets move because of fundamentals, that automatically means that you have to know what fundamentals to look at. It does you no good to kick back and watch CNBC, MSNBC, Bloomberg, or what have you if you dont really know what to watch for.
Knowing what kinds of things are likely to drive price action in your investment of choice is of VITAL importance to trading profitably.
You should be able to easily, and off the top of your head, list the five most important drivers of price action for anything that you are seeking to trade. If you cant do that, then dont trade.
Now, remember point 1 above a driver of price action should be something fundamental, not technical.
Bringing it home
Successful traders are those that know their fundamentals for what they are trading, know what fundamentals will matter, and also understand the correct mindset they need to be in to trade.
Successful traders will then utilize a proven technical system to provide them entries.
Ive known some extraordinarily talented and gifted traders and Ive met more than my fair share of traders that had been murdered by the markets.
After so many years of doing this and so many years of knowing such a wide variety of traders, it has become obvious that more than anything else there are three things three BIG mistakes that the vast majority of average traders make, that winning traders do not.
You see, the stats on the issue of trading are staggering. 90% of all traders will lose their ENTIRE investment. 3% will exit the market at a steep loss before admitting defeat and stopping their activities. 3% of traders will, over time, essentially break even. 2% will find that they are minorly profitable, losing some, but winning just a tiny bit more. Only 2% of traders are successful at it.
Interestingly, there are some very common traits among the top 2% of successful traders that I find astonishingly lacking among nearly all other traders. I call those missing traits the Big 3 Mistakes.
#1 Technical Trading
It isnt that the top 2% of traders dont trade technically, its that they understand something very crucial. Major movements even direction of the markets or changes in direction always occur for FUNDAMENTAL reasons.
Therefore, every single super successful trader I have ever known has spent far more time on fundamental analysis than they did on technical analysis. Yes, there are exceptions to this especially among stock traders. However, and I promise you this is the case, those exceptions are VERY rare.
The truth is that nearly all successful traders look FIRST at the fundamentals, then wait for technicals to give them entries and exits.
By looking at the fundamentals first, it becomes easy to separate the wheat from the chaff and to ignore false signals.
#2 Mindset
A winning trader understands that you have to be mentally in the right place before you open a position, or any time you have one open. Successful traders will NOT trade if they arent mentally ready, strong, and relaxed and if for any reason they lose their composure while positions are opened, they will close them.
Trading is an intense mental exercise and in ways that non-traders have difficulty understanding. Therefore, if you are not mentally ready to trade, then dont do it.
You should be calm, fairly relaxed, and emotionally steady. Trading when you are fearful or angry for ANY REASON is a recipe for making poor trading decisions that result in losses.
#3 Knowing What Matters
This one doesnt refer to family. Im talking about knowing what matters to what you are trading. Because the best traders understand that the markets move because of fundamentals, that automatically means that you have to know what fundamentals to look at. It does you no good to kick back and watch CNBC, MSNBC, Bloomberg, or what have you if you dont really know what to watch for.
Knowing what kinds of things are likely to drive price action in your investment of choice is of VITAL importance to trading profitably.
You should be able to easily, and off the top of your head, list the five most important drivers of price action for anything that you are seeking to trade. If you cant do that, then dont trade.
Now, remember point 1 above a driver of price action should be something fundamental, not technical.
Bringing it home
Successful traders are those that know their fundamentals for what they are trading, know what fundamentals will matter, and also understand the correct mindset they need to be in to trade.
Successful traders will then utilize a proven technical system to provide them entries.
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