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Characteristics of a Successful Trader Importance of a Trading Strategy Guidelines for Successful Trading Fundamental vs Technical - A Trading Example The Nature of the Markets, Contrary Trading and Self Awareness Why is Successful Trading so Difficult
Introduction
Futures markets are a highly leveraged form of investment, where price movements can be rapid and extensive. This makes futures a particularly attractive investment medium for the individual with sufficient capital to risk and the temperament to trade. Margin deposits to trade futures contracts are often less than 5 per cent of the full value of the underlying contract, which means that it is possible to make substantial profits. By the same token, it is also possible to sustain substantial losses. For more than a century, futures markets have attracted individuals who have been willing to risk their capital with the aim of profiting by correctly judging short, medium or long-term trends in prices. But consistently profiting from the futures markets is certainly not easy. In fact it is often quoted that around 80 per cent of inexperienced traders lose money in the futures markets. This statistic in itself is most valuable. It suggests that in order to be successful, the trader not only has to have a well planned strategy and an enormous amount of self-discipline, but that trader must also behave, think and act differently to the manner in which the majority of inexperienced traders behave, think and act. One thing you will hopefully learn as a trader is that the mental resources you use in every day life, will most likely not work in the trading environment. This means you may have to change your own attitudes and your own way of thinking. After years of trading, experienced traders often realise that the battle to become a successful and profitable trader is not external, but rather internal. The difficulty is changing ones own attitudes towards the structure of the markets, the trading environment and towards winning and losing. This pamphlet or any other publication will not turn you into a profitable trader. But it should draw your attention to the most common mistakes made by traders and the most important areas for you to focus on.
While the experiment proved that almost anyone can become a successful trader, there are certain things the trader must learn in order to be successful. And although the Turtles klearnt some specific trading techniques, which are still secret today, they also developed a number of essential characteristics which helped them to achieve their success. Some of these characteristics are as follows:
Self-discipline
Self discipline is always high on the list of essential characteristics of the successful futures trader. Traders will naturally tend towards impulsive and erratic behaviour - reacting to emotions as prices fluctuate. The trader must therefore learn to adhere to a reasonably well defined strategy - both in terms of trade entry and exist, and money management. There are times when for example, irrespective of the traders expectations or beliefs, that a position must be closed - simply because it has reached a certain pre-defined limit. The whole concept of self-discipline is tantamount to the traders methodical and structured strategy.
Dedication
If you expect to become a successful futures trader overnight or believe that trading is easy, then perhaps you should put your money in a secure, high-interest account and save yourself from learning the hard way. Trading is one of the most difficult professions in the world - the statistics prove that. If you are committed to becoming a successful and profitable trader then you must be committed to a reasonable amount of work, study and research.
Self awareness.
Without self-awareness, a trader will not be able to learn or develop any of the above characteristics. In order to change and learn from past mistakes, the trader must be able to look at him or herself in a clear, objective way. Watching ones own feelings, thoughts and emotions in an impartial and detached manner, will without doubt, help the trader to become successful.
Additionally, you should be prepared to protect your profits to some extent, but that will depend on your time-frame and trading style. A long-term trader for example, will usually be more prepared to give back profits in order to remain in the longer price trends. Short-term traders however, may use tight stop-loss orders to prevent erosion of profits.
imparting market predictions, telling everyone your views and your positions then you should ask yourself if you are trading to make money, or to be seen as a market guru. If you are a trader, then no one needs to know your views or your positions. Your profits alone are the best measure of how successful you are. 13. Maximise the size of profitable trades rather than the number of profitable trades The size of a traders profits is far more important than the success rate. Even a trader that makes 60% losing trades and 40% winning trades, should be profitable if strict money management is adhered to. 14. Avoid market orders Traders should aim to enter orders with specific price limits to encourage a disciplined trading strategy. This will depend however, on the time-frame a trader chooses. 15. Always use stop-loss orders, but use them carefully. The disciplined use of stop-loss orders, whether they are actual orders placed with your broker or self-imposed limits where you cut your losses, is an essential part of any successful traders system. But it is important not to place stops to close to the market volatility. Deriving a stop level that is not too large and yet is not too easily hit, is difficult and will need to be related to your own individual system. 16. Dont favour the long position Dont get into the habit of favouring either long or short trades. Markets often fall faster and stronger downwards than they do upwards, so always be prepared to go short. 17. Find or develop a system that suits your personality The type of system you use should depend on your own personality and the type of trading that suits you. Some systems will require large stoplosses and therefore are better suited to the longer-term trader. A purely mechanical system, where no judgment is involved, may suit the trader who finds it difficult to maintain objectivity. 18. Learn to be responsible for your actions You must learn to be full responsible for your actions as a trader. If your system is based on a market newsletter or your brokers advice for example, you must accept responsibility for losses that may occur. 19. Learn to treat trading and the Markets with detachment One common characteristic amongst successful traders, is that they are often emotionally detached from trading and the markets.
above example, if the price were to rise to 1790, the trader may place a stop-loss sell order at say 1775, to protect unrealised profits and also allow the market to move higher. This basic example provides the essential ingredients for a successful trading strategy; a well defined method that indicates when to open or close a trade, along with disciplined money management that includes the use of stop-loss orders to limit the size of losses and protect unrealised profits.
Traders often begin their trading career believing that the battle is against the markets. But gradually they realise the battle in fact, exists within themselves.