Discover the secrets of successful traders. Part 1.
We have covered quite a number of trading topics in our blog for the past several years. These were the articles of a wide spectrum encompassing both the advanced Footprint chart of the ATAS platform and exchange trading in general, and trading psychology and even the cryptocurrency market, which gains popularity.
While preparing our articles, we focused on authoritative opinions of professionals and acquainted you with their analytical elaborations. Nevertheless, a proper market analysis is just the tip of the iceberg. Today we will tell you about those principles and ideas, which are rarely mentioned by successful traders, but which, undoubtedly, are fundamental components of success in trading.
In the first part of the article we will tell you about five little-known secrets aimed at improvement of your trading. You might have heard about some of them and you will hear about some of them for the first time. You will be able to significantly improve your trading results if you use correctly, at least, one of these principles.
In this article:
- Disloyalty is good.
- Never think in terms of absolute categories.
- Availability of a trigger.
- Do not focus on money.
- The less, the better.
Disloyalty is good.
Loyalty is a positive quality practically in any sphere of human life. Loyalty with respect to the family, friends and even pets has always been a good and desirable characteristic for each human being.
However, the loyalty of a trader who trades in the Forex, futures or stock market may result in catastrophic consequences. For example, loyalty to an open loss-making position results in a situation when a trader holds it longer than necessary. The loyalty to false trading ideas, which contradict the trading plan, also have a negative impact on trading balance. Stay disloyal in trading. Never be psychologically involved in a trade and ignore any trading ideas, which push you to unsystematic behaviour.
If the market accepts your idea as unviable, close the loss-making position and do not focus on the failure. If a good trading idea becomes unprofitable due to the increased market volatility, forget about it and move to the next idea. Tomorrow always brings new opportunities for a profitable trade.
Never think in terms of absolute categories.
Trading in the financial markets doesn’t mean to be right or wrong. As a trader, you need to have an open mind. For example, you would hardly wish to publicly state that “the EURUSD currency pair will achieve parity next month” or that “the GBPUSD pair will test the level of 1.4980 after it breaks the level of 1.5170”.
Of course, they can. But you do not know for sure what would happen and no one knows. Moreover, this is not the trader’s business to know such things for sure. Remember that this is just a matter of probabilities. You might have noticed that professional analysts and traders use such words as ‘perhaps’, ‘maybe’ or ‘there is a probability …’ in their comments. They never speak and never think in terms of absolute categories.
We can say the same about a trend. A trend is such until its structure changes (for example, the price brakes the key trend line), which can happen in the market at any time. That is why you would also have to be alert and be ready for all possible scenarios when you execute a trade.
Availability of a trigger.
A combination of various price and/or volume patterns could play the role of a trigger. The classical reversal head and shoulders pattern is an excellent example of a trigger for a trader who applies technical analysis. Closing a day candle below the neckline would become a trigger, which confirms a possibility of opening sell trades during a day.
In addition, the increased volume of trades during the breakout of the neckline of this pattern may become a trigger for a trader who applies volume analysis in his trading. Such a situation could tell us that a big number of participants exit the market during the breakout. The ‘b’ and ‘p’ patterns, discussed in the Demand and supply engulfing in the Footprint chart article, could play the role of triggers, which confirm your trading idea, in other market situations. There are several reasons why the use of a trigger may be useful for a trader.
It helps to maintain discipline. A necessity to wait for the emergence of a pattern or confirmation of the breakout of the key level, especially on bigger timeframes, makes you be patient. Now, you do not have to follow the price or be afraid of missing the beginning of one or another market movement.
It helps to maintain an open mind. The trading setup would either work or not, that is why it does not need additional interpretation.
Do not focus on money.
The most popular question among beginners is: how many points can I collect during a week? It is obvious that it is impossible to answer this question, since no one could guarantee anyone success and especially a number of points. Nevertheless, such attitude to trading represents a problem, which clearly shows that a big number of traders mistakenly focus on money.
The rise of a successful trader doesn’t assume focusing on a number of collected points or earned money. In fact, this way of thinking may create problems for a trader very soon! If the trading doesn’t bring profit yet, a focus on these two things would provoke the growth of emotional pressure in the event of bad trades.
Instead of becoming an invaluable experience, a bad trade becomes a pain, which may cost you your most desirable goal – money. Focusing on these two things also makes you trade more frequently. Surely you know that the overtrading is one of the main ‘killers’ of trading capitals.
Do not trade for the sake of money. Do not think about money, at least, at the stage of your development. If you seriously want to become a successful trader, first of all, you need to master your skills and abilities. Money will come later, as a side effect of improvement of your professional skills. Focus on studying the trading in the financial markets and money will come to you.
The less, the better.
This is one of the most unobvious topics for the traders, who have got acquainted with the world financial markets recently. It is unobvious partially due to the fact that it contradicts the way of thinking of the majority of people. Development of the “the less you trade, the better the result is” thinking shows efficiency even in the intraday trading, since intraday trading is not every day trading.
Practically in all spheres of human life the more we do, the better results we get. The more clients a real estate agent finds, the bigger commission he gets. The more goods a shop sells, the bigger receipts it gets.
The situation is different with trading in the financial markets. The less trades a trader tries to execute, the more successful his trading would be. A well-known quote of Bill Lipschutz, a famous American trader, perfectly renders the idea:
“If most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money”.
He says that high quality trading setups do not emerge in the market frequently. It means that it is better for a trader not to undertake any action, at least, 50% of the time. However, there is an opinion among traders that this percentage should be increased from 50% to 80%. This statement perfectly fits the Pareto principle, which (in its most general form) is formulated as “80% of the effects come from 20% of the causes, while the other 80% of causes produce 20% of the effects”.
Nevertheless, the idea stays the same – if you a patient trader and trade only high quality setups, you would send the yield curve in the proper direction much faster than if you try to jump into the market at every emerging setup.
The second part of this article will be published soon. Happy trading!