What Does It Take to Become a Successful Trader

Before I get into today’s blog, let me say how great it feels to connect with you all again. I am still restricted to limited periods in front of the computer. But, at least, I’ll be able to start writing and trading.

So, to my USA readers, I hope you all had a great July 4 holiday!

One more item – I’ll be putting up a site with details of the free webinar for Nature of Trend readers – the webinar will be held end of August. The idea is a simple one. Quite a few buyers of the book readers have asked for guidance. Since the NOT material is applicable to both day-trading and position trading, I felt a free 3-hour live trading session would give the readers some idea of how I approach the markets. With that information under their belts, readers will be able to develop their own style. For readers who are unable to attend, I’ll have a Camtasia file made for later viewing.

I’ll post the site as soon as details for the webinar are finalised.

Now let’s turn to today’s topic.

While lying in my hospital bed, I had occasion to reflect on why some STC students (mentor students) failed to make the grade while others succeeded. There are many reasons but if I had to choose one, I’d say that those that failed, failed to appreciate full consequences of the Expectancy Return formula:

(Avg$Win x WinRate) – (Avg$Loss – Loss Rate) > 0.

I could write a book on the ramifications here; but here are a few main points:

  • Our trading approach must have a positive mathematical expectancy. Unless you have a proven methodology, consistent execution (winning psychology) and appropriate position sizing (effective money management) will mean only that we’ll die a death of a thousand cuts.
  • We know what our ideal trades look like. Each of us have setups that work better than others. We need to know which ones work better for us than others. Knowing this, we can increase our position size on the ‘better setups’. In addition if we keep track of our ‘average result per trade’ and the ‘average result per contract per trade’, we’ll know if our increased position sizing is working: our ‘result per trade’ (on a one contract basis) ought to be greater than the ‘result per contract per trade’.
  • Since the formula is about averages, we are looking at a large sample size rather than a small sample or a sample based on trade-by-trade basis. Viewed in this light, we realize that there are only two types of trades: “profitable trades” and “lesson trades”. The failed STC students viewed each trade as a ‘do-or-die’ situation rather than just one ‘in the next 100,000’. By taking this view, they emotionally over-invested and made it almost inevitable that they would breach their trading rules on the next trades.
  • To take advantage of the formula, we need certain emotional qualities:
  1. ‘Honesty’: the value of never consciously faking reality. If there is one trait that distinguishes the successful STC graduate, it has been this one. Successful STCers were brutally honest with themselves. Failed STCers tended to provide excuses and rationalizations for their failures e.g. in a down-trending equity curve. I had a student who failed to execute his written trading plan in the simplest way: he’d usually enter intra-day when his plan called for end of day entry. And, since his results showed that EOD entry for him would be profitable, we both knew that EOD was the better path for him. Yet rather than take action to ensure he’d enter on an EOD basis, he’d make excuses for his breach of discipline.
  2. Responsibility: Successful STCers took full responsibility of their successes and failures. With successes, their question was: how can I repeat this? With failures, their question was: what can I learn from this?
  3. Tenacious: Successful STCers did whatever was neccessary to achieve their goals. This included, first learning the material, then adapting it to suit their needs. Failed STCers, tended to resist the material whenever that led outside their comfort zones.
  4. Disciplined: Finally successful STCers were disciplined enough to write out their trading rules and executed those rules consistently. They were disciplined enough to keep their psyche and equity journals so that they could learn from their trades. And they were disciplined enough to celebrate their successes and take time from the markets to recharge.

I believe that traders wishing to do well could learn a great deal from STC successes. It would be interesting to hear your thoughts.

14 thoughts on “What Does It Take to Become a Successful Trader”

  1. Reproduced:

    Thu 5 Jun 2008
    NOT Announcement & Pot Pourri

    Posted by ray under Miscellaneous
    For Nature of Trend (NOT) purchasers I have an announcement. In early August, I shall hold a free 3.5 hour webinar to illustrate how to use the NOT material to day trade. I’ll do this ‘live’.

    For those that would like to attend, just send me a scanned copy of your receipt and I’ll reserve a spot. When you send in the receipt, do nominate a time that would be most convenient.For those who have bought NOT but are unable to attend (pressures of work etc), send in the copy and I’ll send you a link to a recording of the event.

    At this stage I don’t know the capacity I’ll have for the webinar but will allocate seats on a ‘first come, first serve’ basis.

  2. Wise reflection Ray which touches on lots of what I know now as the main factors of success in trading . Becoming successful (profitable) will be different for every trader based on where they start from and how long it takes to really ‘get’ and use these ideas. So STC teaches how to approach pro trading and sometimes (most times) it takes time to ‘sink in’. Welcome back Ray – TomC

  3. Hi Ray, I thought the articles written by your students, Tom and Anthony were very interesting indeed.I would like to read from more from your students. Toms comment about the newer edition being more ‘user friendly’,well,i have found it tough going at times.Personally, i would like to see more examples and larger charts in the book.But yes,i would like to hear more from your STC successes i believe they would have some interesting comments that people would relate to. cheers baz

  4. Hi Tom

    Thanks for the kind wishes.

    I agree with you – each trader has his own journey and that journey takes longer for some.

  5. Hi Baz

    I can’t promise more articles from my students as that is outside my control. Certainly I’d be happy to print any contribution from them.

  6. Ray,

    Welcome back! Hope you’re well on your way to full health again.

    Looking forward to Nature of Trends Webinar – find the webinar / camtasia stuff useful for demonstrating how you integrate the ideas / concepts into coherant decisions and actions in real time.

    Best Regards, Ryan

  7. Thank you Ray for doing this.
    NOT has helped me great deal in calrifying some ideas and has given me many new ones.

    Actually, I still cannot believe that so much valuable trading ideas were presented in one book! Many courses don’t cover 1/10th of NOT (I mean: stuff that can actually be used). NOT has became the most valuable material in my 3 years of learnig how to trade.

    I’m looking forward to your webinar.

    Best of Health!

  8. Interesting insight and well summarised. In never ceases to amaze me how simply the rules can be but how difficult they can be to achieve. The main counter balance to a successful trade often tends to be emotion. The amount of times I have questioned myself or hesitated on a good trade because of irrational fear.
    trading2k.com

  9. I completely agree, Ray. Trading successfully is about positive expectancy (not winning 9 out of 10 trades) and having the discipline to do things in one’s best interest. I just came across your site and I like your wisdom. Please continue the posts! – Kris Matthews

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