What Successful Traders Know
This is a big subject. But we can cover a lot of ground by looking first at the biggest differences between successful traders and those who are not finding the success they would like.
90% Of All Retail Traders Lose 90% Of Their Money Within 90 Days
This is the first problem for people starting out trading the markets. And it's a really big problem.
Anton Kreil, a former trader at Goldman Sachs, and the Managing Partner of the Institute of Trading and Portfolio Management talks about the 90/90/90 rule.
What does that mean? It's a euphemism for '90% of all day traders lose 90% of their money within 90 days'.
A statistic so well-known amongst brokers that it has its own abbreviation. Pretty scary.
But Trading Is Easy Money...
And yet, the idea persists that trading somehow represents 'easy money'.
I don't know why that idea is so strongly implanted in so many people. I see an alarming number of questions that show clearly that the person has no idea what they are getting themselves into, and they are starting from an assumption that is not true.
The most persistent assumption is that they will make money quickly and easily. But the fact is that nothing could be further from the truth.
Ferraris, Mansions, Beaches And Palm Trees
I think what happens is that people interested in trading quickly develop a mental image of themselves making money, trading from home.
All the ads and infomercials featuring mansions, Ferraris, beaches and palm trees probably contribute to that fatal first incorrect assumption.
The brain quickly jumps to thinking of that as a fact, when it is really a very large uncertainty whether a person can make any money at all.
Trading Can Be A Fantastic Business
Trading as a business has some fantastic plus points.
You rely on nobody else.
For an individual trader, working from home, you have no premises or staff to worry about. No inventory. It's a pretty cheap start-up.
It's completely scalable -- you can make more simple by investing more.
If you crack it, you're set for life, in that ideal situation where you can make a living from a skillset that lives between your ears.
The Elephant In The Room
But the big drawback, the elephant in the room, is that not many people manage to make a success of it.
Trading is a business, just like any other venture intended to make money. And it can only succeed if it is treated as a business.
You need to know your craft, or learn it, you need to repeat certain processes over and over.
Compare it to opening a restaurant -- you need to know how to produce good food, and you need to use the same recipe consistently every time you prepare a certain dish.
First, you learn how to make that dish great. When you have that, that's how you do it every time -- you don't prepare the same dish a different way every time.
But new traders seem to think they can jump into the market next week and start making money.
I completely understand this — it’s exactly what I did. But most are not as lucky as I was.
They have no recipe -- no trading plan. They get into trades for any number of reasons -- maybe someone else said this is a good trade, perhaps they saw something on CNN, etc etc.
Once they're in their trades, they often exit as soon as there is a small profit -- they don't operate according to a plan which allows their profits to run.
And they don't like taking losses, so when a loss comes along, they hold onto the trade, hoping it will 'come back'. Again, no plan, just trading on emotions.
This is an utter disaster. And it's the number one reason that the huge majority of traders fail.
We will look at this in more depth later but, basically, as a new trader, you must understand that it's crucial to have a trading plan which has set out in advance why when and how you will take a trade, and why when and how you will exit that trade under any scenario -- win draw or lose.
The reality is that, unless you do something different from those who populate the statistics of the 90/90/90 rule, you're going to join them.
The Solution To The Biggest Problem
And the first problem a beginning trader faces is actually believing that.
Shocking as it may sound, they all think they're better than the rest. A bit like 80% of drivers thinking they're above average -- it's not mathematically possible.
So the first tool in your beginner trader's toolbox is humility.
The ability to not think you're better than everyone else, and you're somehow magically subject to a different set of rules.
You're not. You're really not.
If you go into this with the wrong mindset, the trading arena will strip you of your money faster than Las Vegas.
The true nature of trading is covered extensively here:
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