Validea is an advisory service which assesses stocks based on the investing criteria of many of the ...
Seven Steps to Becoming a Great Trader
05/06/2010 12:01 am EST
I am often asked by traders I meet, “How do I become a successful trader? What does it really take?” In any endeavor—whether the goal is to become a competent trader, surgeon, athlete, psychologist, musician, lawyer, or pilot—the path is the same: Dedication to the goal, a lot of hard work, and a willingness to keep picking yourself up when you fall and rededicate yourself to the goal.
Here are seven essentials needed to become a competent, if not great, trader:
- Have a vision about your trading. Understand why you trade. It is never just about the money. Money can be had in any endeavor. Develop perspective on why trading is so important to you and what characteristics you want to possess that distinguish you as a trader. Be clear on these. Also, add goals. Identify what it is you are trying to accomplish in your trading. A clear vision and tangible goals are motivating factors. They help you to keep committed when things become difficult. Trading is a demanding business with lots of adversity. If you haven’t got a clear sense of what you are all about in your trading, you will likely find it very difficult.
- Make a commitment to your vision and turn it into a daily mission. Put into daily practice what you need to do to reach your goals. Practice those characteristics you want to possess. Take those specific steps needed to reach your goals. Put the work in even when doing other things that are more “fun” or appealing tempt you to get off track. Do these every day, day after day.
- Know what you can control and what you can’t. You can’t control whether a trade is a winner or a loser. You can control how you react to the market. Before you can become a consistent, competent trader, you must first control how you respond to the market and your actions. Much in trading is not under our control, but we can always be in control of ourselves and how we act. Being able to regulate our actions has a lot to do with how we see ourselves as a trader. The clearer the vision, the easier this becomes.
- Focus on the process of trading rather than the outcomes of your trades. You can control how you select trades, set risk, enter, manage, and exit your trades. You can never control how they will turn out. Place your attention on the process of trading, not the outcomes. The process is where you can make a difference.
- Develop the necessary mental skills to trade well. Technical skills are important, but so are mental skills. Spend time learning how to stay focused on the present moment. Learn how to mentally “park” losses and trading errors. Learn how to let winning trades run and cut losing trades short. These are crucial mental skills that are not found in reading the MACD or price bars.
- Practice your trading. A major league baseball player doesn’t just show up at the ballpark and expect to play well; traders shouldn’t expect to just show up at the screen and trade well either. Trading takes serious, dedicated practice to develop competency and excellence. Use a simulator and paper trade historical data sets. Work on it every day.
- Make one trade at a time. Keep your attention on this trade and this trade only. Bring all of your knowledge, skills, and abilities into focus on the current trade. Let previous trades and future trades go—they have nothing to do with the present trade.
One of the best ways to put these essential steps into practice is to keep a trading journal. Write down your vision, goals, key mental skills, and other important items relevant to your trading in your journal. Then, track your progress—not just on the money, but more importantly, track your personal progress as you grow and develop into a competent trader. It’s the only way to become good and eventually great at trading. When something doesn’t work out correctly, figure out how to improve and include it your journal. Be sure to note the things that are working. It’s important to know what you can rely on.
By Gary Dayton, Psy.D.
You can find more information about trading journals, the mental side of trading, and other aspects of trading—including a free basic trading journal worksheet—at the author’s Web site: Trading PsychologyEdge.com
Related Articles on STRATEGIES
The Roman philosopher Seneca wasn’t talking about the stock market when he wrote that “T...
The Dow Theory was originally referred to as “Dow’s Theory,” since it was based on...
When stocks are selling at valuation extremes and consumer optimism is at one of the highest levels ...