Trading Lesson: 8+ Techniques from Some of the World's Top Traders
08/25/2017 2:59 am EST
Successful traders realize that as soon as you put in a misplaced stop loss order, there’s a target on your back. CBOT veteran Jeff Wecker shares many other ideas for swing trading and day trading. Look for more Trading Lessons every Friday on MoneyShow.com.
Here are some ideas from observing at least 2,000 traders over the past 30 years in the business. First, as a member of the Chicago Board of Trade, trading in the 30-year bond pit for 10 years; next, as an international trading coach working with traders in 10 different countries; and now as creator and moderator of “Currencies, Coffee and Croissants,” an international currency trading group with members in 8 different countries.
Make no mistake, the very, very best traders are born, not made. But if you weren’t born with the right DNA, you can still, with the right training, be part of a highly successful cadre of professional traders.
Following are some of the techniques and characteristics that differentiate top traders from the 90% who don’t make it.
First, successful traders realize that they are not in this business to trade, but rather to make money. And to do that you need patience. A patient trader with a second-rate system will generally out-perform an impatient trader with a better system. Still, your system still has significance but not the way you think. It is your system that gets you out of losers quickly and keeps you in the winners, the exact opposite of what the 90% of losing retail traders do.
It’s the system that helps you take the emotion out of the trade, remove the panic and builds your confidence.
Successful traders realize that as soon as you put in a misplaced stop loss order, there’s a target on your back.
The markets always trade toward the stops. And the best traders have always been there to take the other side of your stop and get the profit you thought you were going to get.
Misplaced stops are how the market shakes out the weak longs and shorts. The best traders understand that there is always a sharp move in the opposite direction before the real move gets underway. So you have to know how and where to use stops to avoid being grist for the mill. If you are risking more than 15 ticks to enter a trade, you’re just enriching the robots.
Successful traders understand that what everyone knows is not worth knowing. Consequently, they are just as likely to fade popular chart formations and all the well-known studies as they are to go with them. After all, popular formations and studies get everyone going in the same direction and then as they panic to get out, the best traders have already taken the other side.
The best swing traders know that once you get into the trade at the right price and the market moves in your direction...leave it alone. Trying to trade in and out of a swing trade only reduces your profit if not totally eliminating it.
Top traders know how and when to reverse their position when they are wrong. Since the odds are that many other people are caught the wrong way, a quick reversal of your position can be extremely profitable and run a long way.
The best day traders know how to ensure they have the fewest number of contracts on when the market reverses. The idea is to put on your maximum number of contracts as stops are hit and then feed them out a few at a time as the market quickly runs the other way. Then reverse the procedure when the next group of stops are hit. With practice, you’ll learn where the retail stops are so you can take advantage of them.
The best traders understand that it is better to make 20 ticks with a 95% certainty than try to make 200 ticks with a 5% certainty. This type of thinking keeps them from over-trading and substantially reduces liquidity costs.
A wise person once said: “Prediction is very difficult, especially when it pertains to the future.” Consequently, top traders don’t let their opinions get in the way of seeing the price action, which is what ultimately determines direction.
Trade price action: it removes a lot of noise from your environment.
We hope you’ve found this useful. It was gathered from many of my 10,000 followers on LinkedIn plus from students around the world in the U.S., Canada, UK, India, Australia, Hong Kong, and Dubai. And much of it is from my 30 years of trading at the Chicago Board of Trade and later online.
The takeaway is that you can learn, but like top athletes, traders sometimes need a coach/mentor to get them to the next level and keep them on track.