I was asked the following question over the weekend and after giving it some thought, I’ve come to the conclusion that the answer is not a simple one. I’ve read a number of times that it can take up to 10 years of trading to really come into your own and feel comfortable to trade your plan and plan your trade.

Hi Jeff, I have been trading for two years on the dot as of this past Monday. It has been quite a roller coaster ride in terms of my skills/actions and the underlying markets. I have a question I like to ask of people who appear to be successful traders — Was there one thing that changed when you “got it”? I am very curious but also respect your privacy.

Many thanks,

Mark, thanks for a great question that has many answers. First off, it seems like you’ve started your career as a trader at one of the worst possible times possible with the level of volatility that exists in these markets. Veteran traders are getting their lunch handed to them on a silver platter, so don’t let frustration set in if you’re not making the kind of money that you thought you would be at first. The mere fact that you’ve been able to survive during this credit crisis should give you a reason to be optimistic about the longevity of your trading career. Most traders (95%) blow out of the accounts in the first year so as you can see trading isn’t for everybody, however anybody can be sucessful if they work hard, follow sound rules, and leave emotions out of their trading.

For me it seems like I’ve had a number of a-ha moments during this journey that I’ve been on for the last 10 years that lead me to where I’m at today. What I’m going to do is list a few of them call on the readers of zentrader to share a few of their own. By turning this into a group experience, I think we’ll all learn more because I certainly don’t have all of the answers, and I think it will be more beneficial to learn from others and not just me. Remember, this only works if people share, and you never know what you may know that another person may be struggling with, so all nuggets of experience are valuable and welcome.

The following are a few a-ha moments that I’ve had over the years in no particular order:

  1. Ignore the news, pay attention to investors reactions to the news. – I used to try and analyze earnings reports in my early days of trading I couldn’t figure out how a company could report stellar earnings and yet the stock sells off. Or else the earnings would be the worst in a very long time and the stock would rally. The news is not important, it’s how investors interpret the news that is.
  2. Use intraday charts to time your entries – This may sound obvious, but it is possible to trade without ever looking at an intraday chart. I did this for my first 7 years of trading and made money, but when I was introduced to smaller time frames it greatly increased my timing and consequently my profits.
  3. Develop a market timing system – It is imperative to be a top down investor.There is a time when the risk/reward favors the long side and a time for being short. To be long when the markets are falling is financial suicide, and yet many traders still make the mistake of trying to buy into falling markets and short markets that are rising.
  4. Buy high, sell higher– or if your shorting a market short low, and cover lower. It took me a long time to fully grasp this concept but when I did my whole concept of investing changed. Wall St. will have you think that the secret to investing is buy low, sell high. There is a reason that the majority of traders who try to follow that trading methodology lose money. Trying to catch a falling knife is far more difficult that riding a trend. There is a reason that Newton’s first law of motion (Intertia) is “an object in motion tends to stay in motion.” Stocks are an object and need to be treated that way.
  5. Amateurs access potential while professionals access risk – Always analyze a trade from the point of view of how much money are you putting at risk to see if a trade will work out. Being defensive with your equity will keep you in the game longer and give you more peace of mind while trading.

I could go on and on, but I’m going to stop here and see what other gems other traders can come up with. Best of luck trading Mark and everyone else.

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