Why Professional Traders Make Money & You Don’t

I’m sure you’ve wondered what professional traders do to succeed over the long-run. It’s easy to hit a few winners, but how do you parlay that into more consistent, longer-term trading success that you can turn into a full-time income? What are professional traders doing differently from you?

The typical day in the life of a pro trader is probably very different from yours. From what they think about to what they do, there’s a lot you can learn from the daily habits of a professional. The novice trader is racing to look at the charts, desperate to find a trade, whereas the professional is calmly going about his or her routine because he knows there’s no rush. The novice trader is constantly thinking about the live trades they have on, whereas the professional trusts the process and the trading plan so there is no need for them to worry.

The mind of a pro trader and how they think

Professional traders understand their own minds and how their own personalities may interfere with their trading success. They have identified and worked on solving these mental issues, becoming a better trader and person as a result. Some of these issues are over-trading / gambling in the market, being afraid to enter a trade, being greedy, revenge trading, to name a few. Developing a profitable trading mindset is a requirement to become a professional trader. It’s something you must work on, it doesn’t just ‘happen’. It begins with education, with learning about common trading pitfalls and understanding why you make them, then developing a plan of action to combat them and hopefully, to defeat them forever.

• Professional traders know they may not always be in a trade

The bulk of pro traders are not day-traders, because quite frankly, day-trading is extremely difficult to succeed at. Most pro traders are patient, calculating swing traders who know what they’re looking for. So, professional traders do not think about the market from the mindset of needing or wanting to be in a trade. They think about it much more objectively; “Is my trading edge present? If so, then I execute my trading plan, if not, then I don’t trade, no big deal either way”. The primary difference in mindset between an amateur and a professional trader is that the professional has no urgency in his trading approach. He or she is simply playing the game because they want to win at it, not because they are ‘trying’ to make money. Making money is a by-product of doing everything well enough to win.

• Professionals trade when most people are too afraid to trade

Perhaps more than anything else, the hallmark of a professional trader is that they trade when others won’t. Perhaps more specifically, a professional trader will typically be on the opposite side of a trade than an amateur.

As an example – A trend might seem very ‘old’, like it ‘should’ end any day now, but the professional knows that markets can go much further than people think; even when it looks ‘too’ high or low, markets can continue to extend. Thus, the professional trader will have no problem buying into a ‘very high’ up trend or selling into a ‘very low’ downtrend, whereas the amateur trader will be trying to pick the top or bottom and continuously get stopped out for losses as the trend inevitably continues.

The strategy of a professional trader

Professionals wait patiently for their trading edge (trading strategy) to setup. This may not always be as black and white as just a price pattern or an EMA crossover; some professionals just know when market conditions are ripe for an entry. This could be a combination of technical and fundamental knowledge or just one or other. The point here, is that a professional knows what they are looking for and they don’t waste energy and money going after anything that isn’t exactly what they’re looking for. They’ve developed their trading edge through years of learning and trial and error, which has developed a strong gut feel to compliment chart reading and market analysis.

They have confidence in their trading strategy and they don’t doubt whether it works or if they should keep using it. If you aren’t trading your strategy with 100% confidence in it, then you need to re-think that strategy and perhaps learn a new one.

• The crocodile and sniper metaphor

I obviously can’t speak for every professional trader out there, but I do know a common thread that all our strategies have in common. We all take a sniper-like approach to our trading, which basically just means we only trade if our edge is present and we do not waste ‘bullets’ on less than obvious targets. Another good metaphor to explain the strategy and mentality of a professional trader is how a crocodile behaves. A crocodile is a finely-tuned killing machine. It has developed its hunting strategy through millions of years of evolution, to the point where it has become habit. It doesn’t hesitate. It waits patiently because it knows what it’s looking for so well, it can feel it. For more on what crocodiles can teach you about trading, check out my article on crocodile trading.

Capital management and managing risk

Professionals have a risk and money management plan. You, most likely do not, if you’re losing money that is. Do you understand why risk management is so important? Do you understand capital preservation? Do you understand the importance of having a proper exit strategy in place for every trade you take? Professionals do understand these things and they do have plans for them.

• Being aware of not trading correlated markets

A professional trader is aware that trading correlated markets and not properly reducing risk, will result in taking on more risk than they are comfortable with. You must understand market correlations to a certain degree and make sure you are not doubling up a position by trading two markets simultaneously that are highly correlated, like the EURUSD and GBPUSD for example.

• Being aware of current market volatility, stop distance changing

Professional traders have a keen awareness of market volatility. They understand that volatility changes often and they know they need to adjust their approach accordingly. For example, you would not use the same stop loss distances or profit targets in a market that has very low volatility as you would in one with high volatility.

Trading plan

A professional trader has built his or her trading plan on a solid foundation consisting of the three main points discussed above: Mindset, Method and Money. I refer to this as the “3m’s of trading”. Without a firm understanding, mastery and development of all three of the M’s, you will not succeed. You must build your trading foundation on those 3 m’s. If your money management is off, even if your strategy and mental state are on point, you will fail. The same goes for the other parts, if one of the three is off, you won’t make it.

Professionals Continue to Learn & Study

Professionals learn from others, more experienced than them. I have a good article that I wrote recently that goes through 20 quotes from trading legends, check it out to learn more. Don’t be afraid to admit you don’t know it all and take instruction and insight from others who know more than you. The hallmark of an intelligent and successful person is not that they know a lot, it’s that they admit they don’t know everything and they are constantly learning more.

A poor man is one who thinks they know all there is to know and does not continue to grow their knowledge. The rich man is humble and knows that to earn his fortune he must continue to study, his thirst for knowledge and personal growth is insatiable. So, if you really want to start making money trading, start by learning how to trade, keep learning and never stop.

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