Last week we talked about two key pieces of your financial blueprints that one must have to achieve success, today we will discuss two more in 4 steps to profitable trading – part 2 . Would you ever build a house without well thought out blueprints? Of course not, but when it comes to personal finances people simply don’t understand the importance of proper blueprints. I remember building a house; it all started with the architect and creating blueprints to then build the house. I was new to this, so the biggest challenge I now see I had was not even knowing the key items to think about or questions to ask. I see so many people in the financial world who simply don’t understand how markets and money really move and change hands, but that is also opportunity. All the nicest houses have exceptional blueprints and all the best blueprints were created by people who stuck with rules that lead to success.
It would be great if, as we discussed last week, proper education and discipline were enough, but I am afraid not. Patience is also a key piece to the trading puzzle and it comes in three forms. First, you need to have the patience to let the market come to you. Meaning your rule based strategy identifies the low risk, high reward and high probability trading opportunities in the market. It tells you exactly at what price to enter and exit the market. So, you will find yourself waiting for market prices to come to your key entry and exit prices which can take time. In general, people like to be doing things; taking action, not waiting. This is in direct conflict with success in the trading world. You must have the patience to wait for market prices to come to your pre-determined entry and exit points.
Second, once you’re in a trade you must have the patience to let the trade work out as planned, win or lose. I have seen so many times, new traders enter a trade as planned only to cut the profit short and/or remove a stop loss order from the market because they didn’t want to take a loss! This is account suicide.
Third, you must have the patience to let your newly learned skill turn into profitable trading over time. Many make the mistake of being a little too eager to pull the trigger when they sit down at their computer and end up clicking buttons a bit too often. They think that just because they took some education, they have the ability to immediately start making money. Be realistic with your new skill. It’s very much like taking your driving test: the minute we pass doesn’t mean we are ready to drive a Ferrari.
The truth is there are not many ways to make money in the markets. You buy low and sell high, period. This means having a strategy that helps you identify market turns and market moves in advance with a very high degree of accuracy. Knowing that the only thing that causes market prices to turn and move is significant demand and supply, your strategy must do a very good job of objectively quantifying demand and supply in any and all markets. This needs to be the foundation of your strategy whether it is for short term income or long term wealth. Knowing what real bank demand and supply looks like on a price chart is the key. Whether you use price and price alone or conventional technical analysis like the trading books teach, real market supply and demand needs to be the foundation of your strategy. Make sure you have VERY specific rules for this which will then allow you to have entries and exits that are 100% rule based.
As I said earlier, if it is suspected that a new student clearly doesn’t understand one of these four key items, we encourage them not to get involved in the markets as their chances for success are slim.
Think of the skill to fly an aircraft and the discipline needed to follow your plan. You first go to school to learn the rules and skill and then you train with someone who is already an experienced pilot. This takes time and the highest amount of discipline as following rules is a matter of life and death. While losing money in the market is not life or death, the key personal traits needed when speculating in markets is not all that different.This completes the second part of our 4 steps to profitable trading series
Written By Sam Seiden, Online Trading Academy Instructor
Online Trading Academy, Chief Education, Products, and Services Officer
As the Chief Education, Products, and Services Officer at Online Trading Academy, Sam shares his ideas on day trading, investing for beginners, online Forex trading and his personal passion—the futures markets.
Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange where he facilitated institutional orderflow. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated thousands of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.