August 25, 2010

7 Habits Of A Highly Successful Trader (2 of 7)

2) Have a System That fits You:

Every successful trader, investor,money manager,etc.. has a system that fits them. Some are long term, some mechanical, some intuitive, day traders, scalpers, arbitrage, value, momentum.The system its self is not the important factor. What is? Is that the system fits their unique personality. 

The system does not matter. I've heard of value investors (Warren Buffet) who make untold millions from the stock market. I've heard of day traders taking home over $2 million per annum in profits. I've heard of a dancer making $2,5 million from Momentum trading. What do they have in common? As you can see it's not the system but they operate a style of trading that they are both happy with and excel at. They wouldn't dream of trading any other way. No-one told them to trade this way it just happened this way.

Too many traders try to copy the latest hot fad in trading. Right now that would be day trading. But that style of trading will not suite every-one. To be a successful day trader you have to love the short term up and downs of the market during the day. Being in contact with quotes for hours at a time. Yes, there are a number of traders making very good incomes from day trading, but there’s many more who lose their shirts within a couple of months and don't even find out whether day trading is suited to their temperament. 

For some traders buying a stock and holding on to it for a year as it doubles in price would be torture. Although long term investing can offer fantastic rewards with very little work unless you have the patience and discipline to ride your profits all the way to the top then you'll never succeed with this method.

It's a little like choosing a career. I remember reading a book some time ago about the world's best managers. And one characteristic the author emphasized with all these top achievers was their LOVE for their chosen careers. Most of them said they couldn't believe they were getting paid to do something they loved so much. It's no different in trading. You will only be a top trader if you trade a system which you simply love to trade. You wouldn't swap that way of trading for anything. And the profits you make, well that's just icing on the cake.

How do you find a system you are happy with? You have to work backwards. First work out your objectives!

Ask these questions:

* What annual rate of return do I want?
* Do I want to trade full time, part time, hardly any time?
* Can I handle the stress of day trading and short term trading?
* Do I have the patience for long term trading?
* What kind of personality am I? Do I need lots of action, Do I need to make decisions all the time?
* What trading books have i read and which top traders do I most admire and why? Could you easily copy their style of trading?

What-ever you do don't read about a hot shot day trader and then try to emulate him if day trading is not for you. Strive to find a way of trading you will be comfortable with and aim to become the world's best at this style of trading.

For me I like the thought of buying a share at $30 and selling it 9 months later for $130. Sure it doesn't happen all the time. But it only takes one or two of these moves per year to make it a fantastic return. I am very patient. Not only whilst in a trade but I see absolutely nothing wrong with sitting on the side-lines for months. If the conditions aren't right for me than I will not trade. I love the idea of spending just a few minutes per day checking the charts and the rest of the time is mine to study and write, etc.. For me the big money is in the big moves, not the individual fluctuations.

This style of trading will not suite every-one, but the point is after many years of trial and error I have found a system that fits me and I aim to become THE world's best trader with this system. You must do the same. If you are trading a system that does not fit your personality you can never gain the confidence nor the results to truly make the big profits. If you are a new trader or an unsuccessful one then I suggest you start by asking your-self "What kind of trading suites my personality?" Spend lots of time getting this correct as this is you foundation. Build a strong foundation and your trading system will be strong and stand the test of time. Build a weak foundation and your trading system will crumble along with your money.

This is where the majority of traders go wrong. They have no idea which style of trading suites them. They keep buying into the latest software, or listening to the new guru, hoping this will change their trading results. Most never get to know what successful trading is all about as the average trader lasts SIX months. I believe any trader who can last over TWO years in the market will probably go on to become one of those rare breeds: A Stock Market Winner. Why? Because after two years they start to develop a set of rules that fits them. They start trading a way they are comfortable with. Unfortunately, in their haste to make a ton of money, most traders will never get two years experience before they lose their money and/or their interest.

Say it today.

"I will find a system that fits me and I will become THE world's best trader at this ONE style of trading"

Go and get to work. There's a lot of soul searching to be done.

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