Most struggling traders seem to think it is extremely difficult to make money on the market. In reality, making money by trading is within everyone’s reach.
Upon reading this article, some traders will be surprised to realize that they probably have the skills they need to trade, but that they are not applying these easy-to-understand principles.
Oftentimes, traders who aren’t making money in the financial markets already know what they need do to succeed but, ironically, they are not using this knowledge. All traders are motivated when it comes to generating profits, but most of them are focusing on the wrong things.
Professional traders are motivated by long-term outcomes, while amateur traders are motivated by short-term outcomes. The first thing that a beginner needs to understand is that he must set aside his impulsive desire to earn immediate profits so that he can begin to adopt the mentality of a professional investor…and later become one.
Here are 10 reasons explaining why professional traders make money:
1. They don’t spend as much time analyzing the markets as beginners do
After having lost money, beginners might think that they haven’t sufficiently analyzed the markets or followed up on the latest economic news. Most of the time, though, this is not the case, quite the contrary in fact. They probably spend more time analyzing and thinking about the markets than most professional traders do. The professional knows exactly which trading configurations he is looking for and he will simply analyze the markets at certain times during the day. There is no need to stare at charts for hours when you know exactly what you’re looking for.
2. They trade what they see and not what they predict
Beginners are often obsessed with a specific thing that they expect, they are convinced that the market will do what they think it will do or what they want it to do. This leads them to do stupid things.
Professionals are aware that they cannot predict what the market will do, this is why they do not become mentally or emotionally attached to an expected trend. They simply use their experience in analysis to determine the market direction that seems most logical and likely to occur, and then look for price action setups that are consistent with the market’s trends. If they don’t find any trading setups that are in line with their trading plan, they will go play a sport, read or spend time with their family. Successful traders know exactly what they want and they only trade when a real opportunity pops up.
3. They don’t rely too much on technical indicators
Indicators complicate the reading of charts and decision making. They don’t help you to stay in tune with the market. Professional traders know that they need to have a thorough understanding of how to read a chart with the least possible interference, which would otherwise impair their judgment.
Most traders evolve and chase after the Holy Grail by trying every trading system, indicator and EA, and then they either give up or start to simplify their approach. A good trading strategy should be simple and based on price action. Basic support/resistance lines allow one to see significant price zones which fall into confluence with chart patterns and Japanese candlestick setups.
4. They rely on their brains, not on EAs or trading software
Lots of investors are tempted to buy trading robots… but these trading systems are just programs that do the same thing over and over again; they are not flexible enough to adapt to market conditions which are constantly changing. In reality, the market goes up and down and no computer program can earn money as effectively as a human being can over the long run. Genuine artificial intelligence does not exist today, the human mind is the best trading tool. To trade with an Expert Advisor, you need to be able to update the robot on a regular basis and therefore know how to code.
5. They don’t spend too much time studying fundamental data
Although there are traders who heavily rely on fundamental analysis, most do not. Those who use it do it mainly to confirm what they see on the charts. There is simply no real reason to heavily rely on economic news because it is eventually reflected through the price movement on the chart. Of course it’s good to be aware of the most volatile economic news announcements such as the non-agricultural employment figures or interest rate changes. Knowing the timing of these news releases may be useful to tighten stops or take profits, but it is not essential to study this information thoroughly. To see how an economic news announcement affects a market, all you have to do is look at the price action on a chart, since all of the variables eventually translate into price action within that market.
6. Professional traders don’t listen to others
It is common to see novice traders follow the advice of a trading guru. When you look around on the internet, it is easy to find economic news websites with contradictory “expert” opinions. You should not follow these “experts” blindly, a good investor relies on charts, has confidence in his/her abilities and will not be influenced by other people.
7. They have a well developed sense of discretionary transactions
As we explained in paragraph 4, humans have the ability to be better traders than computers, because they have the ability to use discretion. The best traders have managed to develop a trading instinct due to years of practice. Discretionary trading is a flexible approach, which means that some technical configurations are not traded. Unlike trading robots which systematically execute a trade according to mathematically calculated criteria.
8. They don’t feel the need or pressure to win every time
In trading, the most important key is to not become emotional. The feeling that you need to make money to be happy or have a nice life develops pressure in a trader that leads him or her to make mistakes. Most people who excel in the market do not put all of their money in the same basket, they will not become homeless if they lose in the markets. It is therefore important to have a stable life and a plan B in case you lose all of your trading capital! This naturally allows you to increase the chances that you’ll become a winning trader that doesn’t have too much psychological pressure associated with the obligation to be successful.
9. Professional traders are organized, disciplined and realistic
The trading plan and trading diary are both essential in order to be organized and disciplined. Traders who think that they don’t need to be organized or disciplined usually behave this way by arrogance. It is this same arrogance that will eventually lead them along the path of defeat. The trading plan and diary need to be used on a regular basis and prior to trading in order to be truly effective.
You cannot become a professional trader if you are not realistic. For example, you cannot make a living with a 20,000 or 30,000 in trading account. Each trader must take into account his or her available trading capital in order to decide the amount of money he or she is emotionally prepared to lose on each trade, and then adjust the position size accordingly. A realistic and disciplined trader minimizes risks and does not search for quick profits.
10. They only trade with capital that is available
What is available capital? Basically, a trader has money that is not necessary for his or her day to day life. He or she therefore trades with capital that is actually available, and will not become overly emotionally attached to each trade. The best way to start trading with a positive state of mind is to only use capital that’s available and not borrow money to trade.