My observations and interactions with various traders, seminar attendees, and coaching students has led me to conclude that there definitely are certain characteristics shared by successful traders that are not shared by the unsuccessful, at least in their trading activities.

Successful traders almost always have a plan for their trade -- and they follow it. Those who fail generally have no specific plan, but tend to enter and exit on an almost whimsical basis or they enter and then don't exit until losses have become quite significant. In other words, the unsuccessful have no exit strategy, or if they do, they simply don't follow it. The old refrain "it'll come back" becomes their mantra.

Successful traders wait until the trade comes to them rather than trying to force the trade. They exercise discipline in their trading and generally are able to ignore that "little voice" in their heads that may suggest they let a loss run just a little more. The loss that runs just a little more often runs a whole lot more. The successful traders don't rush to cut profits while the unsuccessful frequently grab the profit as soon as it appears because the "little voice" suggests that the price could turn down. The successful trader employs some strategy that results in following the move up with an exit that is only activated when some pre-determined turn down (for a bullish play) occurs.

The unsuccessful traders are almost universally impatient. They may jump in without waiting for a good entry (such as one where there is a nearby exit in the event they are wrong on direction). They might pull the plug on the slightest adverse move, apparently failing to realize that is the natural action of the market for stocks to move up and down. If they buy a stock that is trending upward, for example, they may abandon ship on the first little downward move even though the stock price has remained comfortably above the uptrend line. Anyone who offers subscription services sees this impatience with great regularity. The service may have demonstrated 80% winners or more, but subscribers often quickly run the other way on the first loss only to use some other service. They then repeat the process, evidently failing to realize that some losses are a part of trading.

In that same vein, good traders don't keep their eyes glued to the money. They concentrate on making good trades, knowing that making good trades will ultimately result in success. By good trades, I mean trades in which the trader enters at an appropriate point, has an exit strategy in place before entering the trade, and follows his plan for both entry and exit. That trader knows that some trades will inevitably lose, but if he has set an appropriate exit strategy and followed that strategy, the losses will be cut and they will be cut at acceptable levels. Similarly, the successful trader will not exit prematurely. He will have a strategy that permits his gains to continue to accumulate until and unless the pre-determined exit strategy takes him out of the play. In that fashion, he will have let his profits run instead of cutting those profits as many of the unsuccessful so often seem to do.

Yet another difference between the successful and the not so successful is that the former take it seriously in the sense that they continue to add to their knowledge. They read, watch DVDs, study other successful traders, learn nuances, attend seminars, and utilize a coach or mentor. The successful are not the ones who say coaching or a seminar is too expensive because it may cost a couple of thousand dollars or more. They realize that they can recoup costs like that in a single trade. The unsuccessful seem to have just the opposite outlook. They shy away and criticize the cost of trading education. I frankly confess I started out just that way. Finally, I did take a seminar that cost $3,500 in 1999. I made that cost back by the Tuesday following the seminar and learned a valuable lesson that changed my whole life for the better.

In summary it should not come as a big surprise that a plan, discipline, patience, learning to make good trades, and education are all elements that can help us become better traders.

Good Trading!
Bill Kraft

August 1, 2009

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