The Most Profitable Traders

The Most Profitable Traders and my take on it as a profitable trader.

They are experienced- Experience is a great teacher but charges exorbitant fees. I have had people say to me, “I couldn’t sit there and watch a screen for 6,8,12 or whatever hours a day. To this I say, how is that any different than an office job. You sit, I sit. You make money, I make money. The more I watch a screen the more I learn. Such as, when are the best times to trade volume wise. When is the market at an extreme point and due for a turn. Is the direction the market is currently in, impulsive or corrective. Etc.

They know the damage they are capable of- It has been said that professional traders evaluate trading opportunities by their risk and not their reward, i.e. what do I stand to lose if the trade goes against me. Personally I have lost a lot of money in days of old by not having a stop in place, by overleveraging, by not scaling in to a position, by putting it all on one trade. The fastest way to get to a 50K account is start with a 100K account and no plan.

They trade to make money, not to be right- I must take a moment to commend you, NewstraderFX, for your public acknowledgement that what has worked for you well in the past has not worked of late. It is this flexibility that breeds longevity in the FX world. Quite simply for me the longer I take to admit that I was wrong, the more it costs me. There is a saying among traders, “I am right or I am out.” Tight stops at extreme areas of the market rarely disappoint. They either stop out for a small loss or they pay off nicely.

They have an edge and know how to use it – There was a study on the FX market done at Yale and a portion of that study said this,

“Quantitative models, whether technical or not……………..work better when few people use them. It is critical to develop your own proprietary trading strategies and keep them secret.

Maybe I missed something but the more simplicity I incorporate in an approach, the more pips I put in my account. FX Guru’s have to overcomplicate the issue to add perceived value to their programs. Indicator free trading on support and resistance areas and price action around the areas will be THE edge for your successful trading. Why? Because banks do it. When they see the market going strong in a particular direction they place an order against it. Guess where they put it? MACD crossing zero? 5EMA crossing the 13EMA? Price closing above or below the 62 EMA? No, no and ah no. They place it right under your nose in a key support and resistance area.

They have a game plan, and follow it explicitly – Oh yes. To the letter. I think you already have insight into mine.

They manage risk – One of the best risk management tools is scaling in. I once had a trader tell me he takes his best guess on buy or sell and sets it for 30 pips profit and if the trade goes against him he duplicates the original order 50 pips away and every 50 pips until it all closes out in profit. Now maybe if you have 10Million in your account and each position was <1% of your account that would work. But no thank you. What I do is develop a risk model that gives me 1000 pips of margin. I then divide the total lots available by 3 or 5 if I want to do more trades and scale in at S/R levels. I find I am usually right but not always on the exact level. SO a level fails and I add on at the next level. When you are good at S/R analysis (which comes with time) this very rarely works against me. Should there come a time when that is no longer true I will change how I do it. Now this may sound like adding to a loser. No that was the first example. The second example is exploiting an edge.

They work obsessively – Guilty. Trading during key market hours, planning other times, sleep optional.

They only access the best information – The best information is your neighbor. When he complains about the price of gas, buy oil. Broker filtered news feeds? Turn them off. Bloomberg is good. I know traders who subscribe to Reuter’s products. The best thing is to find others like yourself and trade in a group. Iron sharpens iron! And when one guy in the group wants $100 a month to mentor you, find another group, because you will never learn to fish in that environment. The franchise model has never produced a great thinker though it has made a select few very wealthy.

They think about the trade, not the money behind it – If I have said it once, well you know. It is the pips. I know several brokers who have platforms that default to the dollar amount and not the pips in the P&L when you trade. This is a psychological attack to make you close trades early. 10 pips I can hold out, $100 bucks? Maybe not. If you can make 10 pips consistently on a 1K account, you can do it on a 100K account, as long as you get your emotions in check. Pips is a good way of doing that. One of the things I did when I started trading was I sat down and did my monthly budget in pips. At X $ per pip I need X pips per month. So now 10 pips pays my power bill.

They are constantly learning – Yep, show me a profession where continued education is not to your benefit. Swapping ideas with other traders and studying charts will pay huge dividends.

They are active – Note that no where in here did I say, find a successful trader swimming up stream and jump on his back until you both drown. There is no free lunch and no matter how many accounts you margined out to date, it is not someone else’s responsibility to make you solvent. What I like is you teach someone a strategy and then they come back and say something like, “SO what do you see for the Euro tonight?” My response? “Based on what I taught you, what do you see for the Euro tonight?”

They have patience – Go ahead and try to be successful without it. Remember, exorbitant fees. I will tell you this. I haven’t found a better way to lose money in FX than the buy and sell stop orders. (A buy above the market and a sell below the market) You will be at the mercy of every spike of the market. A great cure for the lack of patience is the beloved limit order. A sell above the market and a buy below the market.) 100% spike resistant. So there you have it. All you will ever need to know to be a successful trader.