We’ve all heard that only about 10% of people make it in the trading business, so how do they do it? What is their mindset like, what is their trading process and routine like? What are they doing that you are not? In today’s lesson, I am going to give you some insight into these questions that will hopefully be the catalyst for a significant improvement in your trading performance.
Lower your trade frequency
How frequently are you trading? Once a week? Three times a week? Twenty times a week? Maybe it’s so frequently you literally have no idea? The odds are, that if you are not in the 10% of consistently successful traders you are probably trading far too frequently.
I know that for me personally, the biggest ‘ah ha’ moment in my trading career was when I realized that I could dramatically improve my trading results by simply being more patient; by waiting for only high-probability ‘absolutely obvious’ trading opportunities.
Many beginning and struggling traders do not realize that trading less often will typically increase their overall profit factor, and the more patient and precise you are with your trades, the more control you have over your trading and that means you can ultimately extract more money from the market. One thing the 10% of successful traders typically do that you are not doing, is back themselves and go in ‘hard’ when they spot one of the high-probability trade signals or events they’ve been waiting so patiently for. They typically are not using some silly risk model like the 2% risk model, they are instead focused on risk reward and dollars risk vs. dollars gained.
Understanding simple math will show you that making more trades will increase your error rate and decrease your overall profit factor. For an example of this, checkout my article on low-frequency vs. high-frequency trading. Being a more patient and precise trader not only means you’ll be eliminating a lot of low-probability / losing trades, but with that also comes obvious psychological benefits.
Remember that all the other traders are your opponents
In order to win at trading, you need to outsmart and out-think your opponents (other traders). Each trade takes careful planning, and if you are cutting corners or looking for ‘short-cuts’ or even just being lazy, I promise you that somewhere some other trader is not. You need to be sure you’re doing everything you can to put the trading probabilities in your favor, this is the only way you can ‘outsmart’ and preempt your opponent, because I can guarantee you the approximate 90% of losing traders are NOT doing everything they can to put the trading probabilities in their favor.
It’s often a game where the contrarian trader (person who does the opposite to what feels natural or seems logical) will make all the money and consistently win. So, the next time you think something is what it seems, have another look, because it’s probably not what it seems at all. The market is set up to deceive novice traders, be mindful of this when making decisions. Always look at things from your opponents point of view, as he is betting in the opposite direction that you are…remember there is always somebody on the opposite side of your trade, wanting the market to go in the opposite direction and having equally strong convictions in their trade as you have in yours. Try to put yourself in their shoes and understand why your opponent might have that alternate view, weigh all the possibilities before committing to your view or trade and see if it still makes sense, if it does then trust yourself and proceed.
If you don’t love the markets, you won’t make money
All great traders love the markets and love trading, it should never be a chore to look at charts or find trades, and you should only be in this profession if you have 100% true passion for financial markets and trading in general. I have never met a successful trader that was not obsessed with the markets and absolutely loved what he/she was doing. They live for this stuff, it is part of them, and if you want to be in the 10% of successful traders it needs to be a part of you too.
Incorrect stop loss placement can destroy you
A very important factor in your long-term success as a trader is CORRECT stop loss placement. Whilst stop losses are a necessary risk management tool, they are also the reason a trader gets stopped out of a trade for a loss; because there stop loss gets hit. Many traders misplace their stop losses by placing them at the wrong levels, and they are often too wide or too tight.
Stops can’t just be placed randomly nor placed based on the position size you want to trade, they need to make sense and be in the context of the price action trade signal / setup and also in the context of the current market dynamics. I won’t get into detail here, but as a general guide, most traders place stops arbitrarily and don’t place them at logical areas of the chart with any real though behind them. This will destroy even the greatest trader with the best analysis skills. There is more in my course about stop placement for various trade setups…
The market will always go further than you think
Great trends are often self-fulfilling, meaning they tend to continue higher or lower, often just by the very fact that the longer they persist the more traders jump on-board, until the very weakest hands are on-board right before the trend comes crashing to an end.
People like to bet against trends for a variety of reasons; arrogance from wanting to pick the top or bottom, or believing something like: ‘what goes up must come down’ or ‘what goes down must come up’. This is a ridiculous thing to believe, because it’s obvious from looking at any price chart that markets simply don’t behave like that, yet traders seem to never learn because most of them continue to fight what is logical and obvious in the market.
If a market is trending and moving in one direction for a sustained period, the probability is obviously that it will continue in that direction until it has clearly ended. However, due to their emotions as well as the tendency to over-analyze the market, most traders always try to fight this probability.
Ever seen a chart that is moving up in one direction very quickly and just when you think it’s about to swing back and retrace, it starts moving up or down yet again? This is a self-fulfilling concept, in that the longer a trend goes the more momentum it has and the more people jump on-board, until finally the last and least experienced traders jump in right when the trend is coming to end. The amateurs and ‘worst’ traders we shall say, tend to jump in right as trends are ending because it’s at this point that they are feeling the fear of “missing out” on the move…because it has come so far and looks so good…but this usually about when it’s ready to end.
As markets trend, they weed out stop losses and create position liquidation or position covering that pushes the trend further, it’s a natural phenomenon that contributes to the self-fulfilling aspect of trends. In bull markets, when a market makes a new high consistently, every day a large heard of bearish traders are getting stopped out of short positions and liquidating, which fuels yet more buying.
Again, going back to the contrarian concept…if you think the market is ‘too high’ or has gone ‘too far’…chances are it will actually keep going further…so more often than not, try to avoid betting against a freight train that is headed in one direction. The only sure-fire way to know a trend has ended is when the new direction trend is underway.
Here are some recent examples of strong trends that acted like fast-moving ‘freight trains’ that kept moving (and still are) basically in one direction, stopping many top and bottom-pickers out along the way:
Daily Crude Oil chart showing a strong downtrend and all the “bottom pickers” along the way…
Daily Dow Futures showing showing a strong uptrend and all the “top pickers” along the way…
Take on risk and be confident (even if you don’t feel it)
Great traders need to back themselves and have the tenacity to take risk and handle the emotions that come with it. You can’t make money unless you can handle risk and the emotional ups and downs that come with it, no one ever said trading was for the fragile-minded or for those are weak emotionally. The top 10% who are consistently pulling money out of the market do not feel ‘regret’ over missed trades or losses, they aren’t chasing the market or trying to ‘make back’ lost money. They take the punches as they come, shake themselves off and get up again to fight another day.
To be one of those 10% traders who make it over the long-term, you have to try to be unemotional, back yourself and act with conviction…even if you have to fake it in the early days (fake it till you make it). Start believing positive outcomes have already happened, tell yourself and affirm to yourself that you are profitable and your about to make a massive trade. You will need to act as if you’re already a seasoned professional and believe you are living the lifestyle you desire, if you truly want to attain it. Your mind is extremely easy to train if you repeat this day in day out. Soon it will become part of you and how you act naturally.
One thing I can promise you is that the market will chew you up extremely fast if you don’t walk into your trading room every morning with an extremely confident mindset ready to take on your opponents.
Trade with sound strategies and beliefs
In reality, markets can do two things, and if you’re in a trade these two things result in a profit or loss; the market can go up or it can go down…pretty simple really.
Amazingly, traders over-think this, and the whole industry is designed to deceive you and try to make you believe that trading is complex and sophisticated. Thus, the ‘trick’ is to have a strategy and belief system that will be applicable to any market, on any timeframe at any point in the future. You need to conduct analysis on a chart that is based on price, because if you can anticipate price movement you can profit from it. Again this is all quite logical really, and for some of you the penny has already dropped I hope.
It’s no secret my trading career is built on studying and trading price action, an incredibly simple yet immensely powerful form of market analysis which most of you already have a basic understanding of hopefully. Your beliefs in the market need to be logical but also simple. As I have said, markets only go up or down, so don’t make analyzing and trading them more difficult than it has to be.
It’s actually everything ‘in between’ that causes traders to win or lose. The stop loss placement, the entry price, the target price, the emotional roller coaster, self-doubt, etc. The trading method really is only one part, so don’t get caught up in finding the ‘holy grail system’, trust me, it does not exist.
If you can learn to read basic price action, understand how to plot key levels on charts and understand the general trend of a market, you are already on-track to be in the top 10% because you’re looking at the real market without the hazy goggles that your competition (other traders) are looking through. By combining this trading approach with the important points we have discussed above, and applying yourself consistently, you stand a chance in the jungle we call the market. If you want to start thinking and acting like the top 10% of successful forex traders, checkout my Professional Trading Courses for more information.