The Three M's of Successful Trading

Extracted from the book: Come Into My Trading Room, Alexander Elder


To succeed in trading, you need several innate traits without which you shouldn't even start. They include discipline, risk tolerance, and facility with numbers. In additional, successful trading requires 3M's - Mind, Method and Money. 

- Mind means developing psychological rules that will keep you calm amidst the noise of the markets. 
- Method is a system of analyzing prices and developing a decision-making tree. 
- Money refers to money money management, which means risking only a small part if your trading capital on any trade.

Trading is a journey if self-discovery. If you enjoy learning, if you are not scared of risk, if the rewards appeal to you, if you are prepared to put in the work, you have a great project ahead of you. You will work hard and enjoy the discoveries you'll make along the way.


The first Steps
Trading lures us with its promise of freedom. If you know how to trade, you can live and work anywhere in the world, be independent from the routine, and not answer to anybody. Trading attracts people of above-average intelligence who enjoy games and aren't afraid of risks. Before you rush into this exciting venture, keep in mind that in addition to your enthusiasm you will need to bring a sober understanding of the realities of trading.


- Trading will stress your feelings. To survive and succeed, you will need to develop a sound trading psychology.


- Trading will challenge your mind. To gain an edge in the markets, you will need to master good analytic methods.

- Trading will demand good mathematical skills. A math illiterate who can't manage risk is guaranteed to bust out.


Trading psychology, technical analysis, money management - if you learn all three, you can make it in trading. The market are set to separate the maximum number of people from their money. Stealing is not permitted but markets are heavily slanted in favor of insiders and against outsiders. Markets keep changing, and flexibility is the name of the game. Market operate in an atmosphere of uncertainty. There is no certainty, only odds. Here you have two goals - to make money and to learn. Win or lose, you have to gain knowledge from a trade in order to be a better trader tomorrow. Scan your fundamental information, read technical signals, implement your rules of money management and risk control. Now you are ready to pull the trigger. Go!

Good traders keep good records. They keep them not just for their accountants but as tools of learning and discipline. If you do not have good records, how can you measure your performance, rate your progress, and learn from your mistakes? Those who do not learn from the past are doomed to repeat it.

Trading Formula

Extracted from the book: How to Trade in Stocks, Jesse Livermore

Market  Timing - When to enter and when to exit a market trade - "when to hold 'em when to fold 'em".

Money Management - Don't lose money - don't lose your stake, your line. A speculator without cash us like a store owner with no inventory. Cash is a speculator's inventory, his lifeline, his best friend - without it you're out of business. Don't lose your line.

Emotional Control - Before you can successfully play the market you must have a clear concise strategy and stick to it. Every speculator must design an intelligent battle plan, customized to suit their emotional makeup, before speculating in the stock market. The biggest thing a speculator has to control is his emotions. Remember, the stock is not driven by reason, logic or pure economics. It is driven by human nature which never changes. How can it change, it's our nature.

7 Habits Of A Highly Successful Trader (6 of 7)

6) View Trading as a Score in Points and Not In Money:

Really what I am saying is "follow your time tested rules which you have complete belief in and forget about everything else" 

How can you do that when it's money we are trading with? Use some imagination. Pretend it's not money but simply a game your playing and your account represents points scored. Stop counting dollars every time the market moves and start concentrating on following your rules flawlessly. When you can operate on this level not only do your profits soar over the long run but it takes away all the stress of trading. 

Think about it. No more are you watching the quotes intra-day thinking "wow! I have just made enough to buy a new car," or "uhhh.. I've just lost my holiday money" This kind of trading is emotionally draining. No-one can succeed like this. This was me in my early days.I would be so down when I checked my quotes during the day only to find I had lost $500. And the next day when I found I was up by $500 I was the life and sole of the party. Even if I could have made a success by trading this way I wouldn't have enjoyed it and I would have given up.

Nowadays with my low risk/ high reward trading system I check the charts at the end of day in 5 minutes and that's it. I simply ask my-self: " Should I buy, sell or hold according to my rules?" I give my-self ten seconds to answer and do what has to be done. I am not a trader any more but a rule follower. That's how I feel. ( why do you think I have so much time to write?) 

Reading Market Wizards I and II it was a prominent feature I noticed with all top traders. They never saw the markets as a cash box but simply as a way of operating a business. the name of the business was to follow their rules and score the points. It's not possible to become a top trader if you view every tick in the market as money lost and gained. 

If making and losing money leads to emotional distress and joy and emotions are one of the most potent destroyers of successful trading then common sense dictates that in order to be a Highly Successful Trader you must eliminate all emotion from trading. How is this done? Easy, follow the rules. How do you follow your rules? Make it THE most important element in your trading. Forget about the money that will take care of it-self it's all about those rules and how well you can follow them. 

If you ever just read one book on the stock market then please let it be: " How I Made $2 million" by Nicolas Darvas 

I love this book so much because when you have read it as many times as I have (50+) you begin to realize how well this guy turned his trading around from an emotional losing trader into a robotice, disciplined, money, generating, machine. What made his success possible? Apart from the usual accepting complete responsibility, developing a system that fitted him, planning his trades and lots of initial groundwork. The real reason he made so much money was because he never counted the money in the general sense. He had a set of rules and when it flashed a buy he placed on a percentage of his capital. It made no difference whether it was $5,000 or $500,000, it was all the same to him. He stopped counting money and flawlessly followed his rules. 

If I could just describe a section that had profound effect on my trading. In one trade Darvas bought $350,000 of a share at $53 1/2. The share then climbed to over $100 and his broker telegrammed him with the message: "profits now $250,000" Darvas now realized that whilst he had been so busy concentrating on folowing his rules he has forgotten all about the paper profits building up. When he received the telegramme he now knew if he sold out he would be rich for life ( this was the 1950's) Every fiber in his body was saying "sell. abandon your rules and take the profit." 

So he walked around Paris trying to work out what to do. Questions and thoughts such as will the share fall back? Should I sell and take the sure profit? Shall I just break my rules this one time? Kept repeating them-selves time and time again. 

Finally he decided not to sell and to stick with his rules. It was anything but easy to do. But he was proved right. In the weeks ahead the share continued to rise and making that decision to stick to his rules he was able to hold on and make much more profit. 

Had he have constantly been calculating his trades on a day to day basis in money terms I doubt he would have had the nerve to stay in so long. Amazing story and one definitely worth reading. 

You see how theory is all very well. Every trader worth his salt knows the Wall Street sayings : 

"cut your losses" 

"let your profits run" 

"trade with the trend" blah,blah,blah 

But it is another ball game to do this in the heat of battle. 

Time and time again when I enter a trade I want to bend the rules, "just this one time." But I have gathered enough experience to realize I can NEVER break my rules. Not one trade can be the exception. I have learned to do this by counting in terms of points scored and not money.

What separates the winners from the losers? It's certainly not knowledge? I believe what really separates winners from losers is the ability to follow your rules without exception, regardless of the circumstances. Very few traders have the discipline to do this.

7 Habits Of A Highly Successful Trader (5 of 7)

5. Positive Self- Belief:

" All truly wise thoughts have been thought already thousands of times; but to truly make them ours we must think them over again honestly, till they take root in our personal experience." - Goethe

Iron clad belief not only in the system you are trading but also in your discipline to execute both entry and exits flawlessly are essential to your success in trading.

The top traders know it is the discipline displayed in following their rules that is the important thing in trading and the money rewards are secondary. For if you can not execute your signals, on both entry and exit, without question it takes just one mistake to give all those hard earned profits back to the market.

Positive self-belief is built from repetition after repetition of following your rules. Extensive back-testing of your system and constant self analysis.

You'll never be able to follow a system if you have a doubt in your mind. That's why so many people who buy other peoples systems fail. When that system goes through a losing period the person who purchased it will throw it away and search for the next system. Yet the trader who has rock solid belief will be aware that the system does display periods of losses. He's seen it all before and sits it out waiting for the conditions to become more favorable. When they do he gets back in and makes a ton more cash. The person who purchased the system in the meanwhile is now losing more money with the new system because that too has just come into a losing streak.

7 Habits Of A Highly Successful Trader (4 of 7)

4. Work Hard at Learning How to Trade Properly and Keep Working:

This is no different from any other trade. Would you expect to become a brain surgeon after attending a week-end seminar and reading a few books? Yet, why do so many people expect to become a Market Wizard within such a short period of time?

If you ever have the privilege to ask questions to a successful trader you'll realize just how much effort, time, determination and lost money it took until they arrived at where they are. Being a consistent stock market winner is no different from being a top lawyer, Doctor or businessman.

First you must decide that you really do want to trade. Ask your-self is trading the stock market something I am genuinely interested in or are you lured by the potential money it has to offer you? I always remember reading a book called " Grow Rich With Peace of Mind" Napolean Hill. Whilst interviewing the top people in a number of professions he came to the conclusion that these people loved their chosen fields. They would have done it for no money. Trading is the same. If your number one goal in trading the markets is simply to make as much money as possible then I doubt you'll make it into the super trader status. If you are simply chasing the money it can be a motivation as long as you are motivated to learn and work at what really works in the market and NOT keep chasing the latest hot new trading idea that exploits peoples love of money to make them act.