The Big D
Friday, 6 September 2013
When most people start trading, they never consider whether they are well prepared and have the necessary skills and attributes to be successful. This is likely to be one of the last things on their mind. Somewhere along the path of trading however, most people come to a realisation that trading is probably not as easy as they first thought.
With this humbling realisation comes a search and investigation into what makes a successful trader. They seek out what they need to do and learn about, in order to make all of this money they initially dreamed of. They attend courses, converse with other traders further along the path of trading than them and make a committed effort to learning this new craft.
Whilst all of the tools may be gathered together including the new piece of charting software, data provider, new broker account opened, magazine subscription started, successful trading still has it foundations deep within the individual themselves. It is probably only when people start trading with their own real money, that they begin to feel the emotional strains and pressures and then realise that they themselves may be a bigger part of the overall equation than initially thought.
OK, so we have reached this point in our trading lives. We have become very interested in trading, saved some money for our trading capital, gathered some tools together at our disposal, started to trade and then lost some money. Now we start working on ourselves; preparing ourselves to make all of this work so we can achieve our ultimate aim in trading – to make money! Isn’t that why most people start trading in the first place?
Now we widen our search – we need to now work out what we need to do differently in order to start making money. Rightly so, people then seek out the most important character attributes of successful traders. Great idea! What are the most important character attributes of successful traders?
In my trading time, I have heard numerous responses to this question. Not just one or two, but more than 10. It certainly seems daunting to new traders when they are exposed to all of these different responses.
What are some of the responses I have heard?
Perseverance was a common theme. As Calvin Coolidge, the 30th President of the United States said in one of my favourite quotes, “The slogan ‘Press On’ has solved and always will solve the problems of the human race.” Other similar terms include perseverance, commitment and determination. For traders, this provides us the ability to continue on in the toughest of times even when everything appears all too much. It is the edge that allows us to climb the walls that are obstacles when everyone else around us, turns away from the wall and does something else.
Another important attribute is humility. All traders enter trades that lose money – you cannot simply get every trade right. You will find the very best traders are very humble and they are the best losers. Successful traders never move stops and accept losing as part and parcel of trading. They are also not afraid to learn from others and admit they don’t know everything.
One attribute I do not hear a lot about is patience. You are not provided with great trading opportunities every day and the best traders are patient enough to wait long enough for high probability trades to come their way. Financial markets are here to stay – they underpin the corporate arena in every country around the world, so they are not going anywhere. Trading success is not going to happen overnight. For most people, this is a life long endeavour so does it really matter if it takes you a few years to start trading profitably.
Another attribute is responsibility. Successful traders make their own trading decisions based on their own analysis and trading plan but more importantly do not blame anyone or anything else when it doesn’t work out and they lose money in a trade. In a world nowadays where there is a clear trend of people looking for someone else to blame for their own actions, this is probably becoming less obvious. The key is to be an adult and take responsibility for your own actions – you are solely responsible for your own success.
Successful traders are also conservative and very defensive. Even though their primary motivation is to make money (as it is for all of us), they adopt a very defensive mindset and focus not so much on making money, but more so on protecting the money they have. This means they set and stick to stops and risk very little of their account on any individual trade.
With anything in life, confidence is important – trading is no exception. Confidence in yourself and the trading plan you develop. One thing that will help with your confidence is your own knowledge and understanding of the markets, the products you are trading and various tools you use in your decision making. Most importantly however, competence yields confidence. If you are not competent at something, it is highly unlikely that you will be confident doing it.
There are many other attributes that could also be listed here to include emotional control, stability, organizational skills and honesty. There is no doubt that all of these are correct and valuable to possess, however I think there is none more important than the big D – Discipline.
Discipline is the level of self-control you have. Trading boils down to decision making and often the decisions that need to be made are difficult. Let’s consider the options we have. For any individual decision, there are often two options available to us. The first option is the decision that will make us feel most comfortable and the one that we really want to take. The second option is the one that follows our trading plan. Most often these will be two very different outcomes.
There is one thing that assists us to take the second option and not the first – discipline. I believe a key separator between successful traders and the rest, is they will act first upon their trading plan and not what they feel like doing. Most traders make the decision that makes them feel the most comfortable whether this is letting a loss continue or to cut a profit short in order to realise some money.
When they feel very confident about a trade, successful traders do not allow greed to consume themselves and commit more money into the trade. They trade according to their trading plan – they adhere to the money management rules in their trading plan. “Discipline is the bridge between goals and accomplishments.” Jim Rohn – motivational speaker.
Here is what happens, we have our mind set on long term successful trading, however other things influence our actions/trading decisions like emotions, our short term needs and our present mood. These tend to overpower any long term goals we have, so we will often pursue short term pleasures and by doing so, avoid short term discomfort, at the expense of our longer term goals and rewards. It is human nature.
I was contacted recently by a colleague in Malaysia who had just watched a workshop DVD by psychiatrist Dr Ari Kiev on discipline and trading plans. He asked the audience the question “What is the most important quality to be a successful trader?”
As there were many professionals in the audience, some said discipline, other a plan, some risk management. Dr Kiev answered, “Yes, they are important but the most important thing is to tell the truth. With integrity and truth in the way you approach the market and follow it, and run your trading business, you will be successful.”
My colleague continued and asked me what I thought about Dr Kiev’s comments. Well, I can understand where Kiev is coming from with telling the truth, however I still believe that discipline is the most important. Can you have honesty/integrity without personal discipline? I would argue no. If you lack discipline, then you probably would not have what it takes to be truthful all the time. Take that another step further, can you have any of the attributes listed here without discipline? For example, can you be patient without a certain level of self-control?
Personally, I will be the first to admit that my time in the military starting way back at the Royal Military College, Duntroon has provided me some great skills and attributes to trade well – none more important than discipline. Discipline has helped me greatly with my trading as well as other areas in my life. It is discipline that makes me feel comfortable with deciding on what has to be done in accordance with my trading plan, as opposed to what I really want to do.
Whenever I talk about risk management in my workshops, I will always show a quote from Dr Van Tharp which says: “Most successful market professionals achieve success by controlling risk. Controlling risk goes against our natural tendencies. Risk control requires tremendous internal control.” For me, his ‘tremendous internal control’ equates to discipline. Therein lies the key, doesn’t it? If you want to achieve trading success, you need to manage your risk. However, the problem is that to manage your risk goes against all the things we naturally want to do as people. Often, we do not want to cut losses and we do want to commit a lot of money to a trade that we feel very confident about. In other words, to manage your money well, you need to be disciplined – this is how your mindset and money management are linked together.
By having your mind tuned into the trader’s mindset, you will be disciplined and committed to making all the right decisions. Be disciplined and make it happen – it is a key to profitable trading.