10 Common Elements of Trading Success

All traders can make money in the markets, there’s no doubt about that – even with different trading concepts, different systems and methodologies, and some taking the opposite sides of the same trades…BUT only when they all use trading methods and systems with 10 Common Characteristics.  In other words, whichever trading method(s) you ultimately use in your trading, they must possess ALL of the 10 characteristics outlined below:

 

  1. Your trading methodology must have a tested, positive expectancy that has proved to make money for the markets for which it was designed to trade.
  2. Your trading methodology must fit you and your beliefs.  You must understand that you will only make money with your method(s) because your trading methods fit you.
  3. You must totally understand the trading principles you are trading and how those trading concepts generate relatively low-risk trades.
  4. You must completely understand that when you get into a trade, you must have exact rules as to when to exit the trade.
  5. You must evaluate the ratio of reward-to-risk in each trade that you take.  For more mechanical traders, this is part of their trading system.  For discretionary traders, this is part of their evaluation before they take the trade.

Here are five more qualities that are just as important, and in some cases more important than the ones just listed.

  1.  You must have a Business Plan to help guide your trading.  Many companies have a plan to raise money; similarly, you need a business plan to help you treat your trading like a business.
  2. You must use a Position Sizing method.  You must have clear (profit) objectives written out, something that most traders/investors do NOT have.  You must understand that position sizing strategies are the key to meeting those objectives… and you must have worked out a position sizing method to meet those objectives.
  3. You must understand that your overall trading performance is a direct function of your personal psychology, and you must spend a lot of time working on yourself.  You must learn to become efficient, rather than inefficient, decision maker when it comes to your trading…or you will not make it as a trader.
  4. You must take total responsibility for the results you get.  You can NOT blame someone else or something else.  You can’t justify your results.  Also, you shouldn’t feel guilty or ashamed about your trading results either.  You ultimately have to understand that YOU created your own results and that you can create better trading results by eliminating your mistakes.
  5. You must understand that by not following your trading methodology and business plan rules is a huge mistake.  The average trading mistake can quite easily equate into costing you a lot of money.  So, even if you make only one trading mistake a month, you can turn a profitable trading methodology into a losing one for the month…because of that one simple mistakes.

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