Do you want to be the best trader you can possibly be, and make consistent profits trading? Of course, you do.

Do you want to be and feel the best you can? Do you want to enjoy being alive as much as possible? Who doesn’t?

Stupid, questions? Maybe. But, maybe I am getting you warmed up for my next question…

Are you fit?

Being fit, or in good physical shape is on people’s minds this time of year (New Year’s resolutions) and for good reason. It is the way you maximize your enjoyment of being alive. After all, what good is money or success without being fit and healthy? The answer is, not much.

Similarly, being a “fit” trader is how you become the best trader you can be. How do you become a fit trader? It’s like how you become physically fit: doing the hard work, being dedicated, being patient and most of all, being motivated.

Guess what? Getting in good physical shape is going to knock you outside of your comfort zone. But, the long-term payoff is HUGE. Guess what? Getting in good trading shape is also going to knock you outside of your comfort zone, but the payoff here is also HUGE.

Do you want the good life as a trader? Do you want the good life in general? Then you got to get fit and stay fit, and to do that you must adapt, you must evolve in both trading and life. It’s not enough to just know a lot of things if you don’t take MASSIVE ACTION and CHANGE what you’re doing.

To survive you must evolve, to thrive you must optimize

The term “survival of the fittest” is commonly associated with Charles Darwin and evolution. However, the term was first used by Herbert Spencer – after reading Charles Darwin’s On the Origin of Species – in his Principles of Biology of 1864 in which he drew parallels between his economic theories and Darwin’s biological, evolutionary ones.

Our main interest in this term is how it can be applied to economics, finance and more specifically, trading.

If you want to survive as a trader, you’ve got to do many things right, consistently right. The weak-minded and those with an inability to stay dedicated, disciplined, consistent and motivated, simply do not make it. They lose. You don’t want to be them.

Just like someone who is in good physical shape is going to enjoy their life a lot more (even if they don’t have much money) than someone who is one meal away from a heart attack (even if they’re rich), a trader who is in good trading shape (even if they are trading a small account) is going to enjoy trading and the fruits that come with it much more than a trader who is in poor trading shape (even if they are trading a large account).

It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself. – Louisiana State University business professor, Leon C. Megginson – 1963

However, just surviving is not enough, after all, we want to thrive as traders, right? The first step is to learn to survive, to stop hemorrhaging money every year and start keeping your head above water, so to speak. To do this, you must change. You cannot keep doing what you’ve been doing if that hasn’t been working for you. Only those who learn to evolve and learn from their trading mistakes will be able to survive long enough to thrive as traders (make money).

So, how do you become the fittest trader you can be, so you can not just survive but thrive? You’ve got to optimize. (pretty good rhyme there)

How to be the “fittest” trader you can be (so you can more than just survive)

Preserve capital:

If you want to survive, preserve your capital. In the wild, an Australian saltwater crocodile is one of nature’s most finely-tuned and evolved predators. Another highly-evolved, and finely-tuned predator is the African lion. Both amazing predators display behavior that as traders, we can learn from. One such behavior is the way they conserve their energy for the easiest (weakest) prey. They may wait for days before finding an ideal prey, they certainly don’t go charging after everything they see, because they know that will result in starvation. Over time, they have adapted and evolved to learn that waiting (being patient) is the quickest way to get a good meal. They preserve their capital (their energy) so that when an ideal prey comes along they can hunt it and kill it with ease.

As a trader, if you go risking your money on every little intra-day pattern you see, you’re going to quickly run out of money (capital) and then when a good / easy trade (prey) comes along, you’re going to be crying on the sidelines, wishing you had been patient and conserved your capital better. Learn to trade like a crocodile.

Pick trades wisely:

In a similar vein to the point above – Just like predators choose their prey wisely, so you must choose your trades wisely. You cannot throw your capital after bad trades, you must stay disciplined and remain patient. Just like a lion isn’t going after the strongest prey, he is choosing the easy / obvious ones, because he knows his energy reserves are limited and if he continues to expend energy and get no prey, he will die.

Similarly, if you continue to over-trade and not follow an anticipatory trading plan of waiting for high-probability trade situations to set up, you are going to quickly lose money and your trading account will also die.

Like Warren Buffet said; trading is a no-called-strike game – you don’t have to swing at every pitch!

Understand that time will help you:

Evolution takes many, many years to act on a species, as organisms change and adapt to their environments. Over time, you will learn from yourself and others and become a better trader. The point here is, you can’t expect it to happen overnight. The earth is 4.54 billion years old and the human brain didn’t form until about 7 million years ago, evolving into its current manifestation mostly over the last 2 million years. The point is, for things to become efficient and perfect, it takes time, no matter what it is.

The sooner you accept that you aren’t going to get rich overnight in the market, the sooner you can start on the path to profitable trading. Think about trading like a freight train; it takes time to get up to speed, but once it does, it’s hard to stop. However, if you try to go too fast too soon, you’ll “de-rail” and lose any chance of really making it. Start small and slow, learn more until you really know what you’re doing, then over time you will know when to risk more.

Develop and use your trading intuition

As you grow and evolve as a trader, you will develop a trader’s gut feel or intuition. This is one of the last pieces of the puzzle that will come after you consistently do all the other things discussed in this lesson. The best traders, like the market wizards, can look at a chart and instantly have a high-probability gut feel about where it is going next. From there, they need only wait for an entry trigger, proper risk reward scenario and execute their trade. To someone new to trading, this might look easy, but they aren’t seeing the years of persistent dedication to the craft that led up to that point.

Evolve / adapt:

The most important piece of the puzzle of becoming one of the “fittest” traders, is accepting that to progress and profit you must evolve and adapt.

First off, in the beginning, you must study and learn how to trade properly and as time goes on you will continue to learn from the charts and from studying the price action on the charts. You then must begin the process of trial and error and of learning from your past mistakes and evolving from a beginner to an intermediate trader.

Next, understand that adapting and evolving also means you can adapt to changing market conditions. If you keep trying to trade a trending market as it transitions into a range-bound or consolidating market, you’re going to lose money. The ability to look at a price chart, interpret the price action story that’s being told on it and act accordingly, is how you know you’re on the right track.

You must learn from mistakes and from screen time. If you cannot use your mistakes to your advantage, to evolve, you’re not going to make it as a trader. So, don’t let mistakes get you down, look at each mistake as a chance to learn something and to improve.

Conclusion

If you don’t continuously learn, adapt and improve, you will not survive the trading game. Trading truly is survival of the fittest. Only the fittest chart technicians, price action analysts and those most passionate about their craft will survive. This means if you’re in this to try and make some ‘fast money’ you are not going to survive. Part of being a fit trader is truly loving trading, which will simultaneously influence you to trade in such a way that brings you more profits than losses.

My trading has evolved over 16+ years and I have passed the point of just surviving and moved onto thriving in the market. I’ve evolved. I feel it’s my duty to share what I’ve learned with you by helping you evolve into the fittest trader you can be, so that you can move from losing to surviving and ultimately to thriving as a trader.

What’s did you think of this lesson? Please share it with us in the comments below!

If you’re trying to win the Ironman Triathlon where contestants must first swim 3.86 kilometers, then bike 180.25 kilometers followed by a 42.20 kilometer run, here are some of the key ingredients you need: A long-term committed outlook, years of consistent and serious training, years of studying and observing other Ironman participants, a mentor, sound nutrition, physical & mental fitness and sleep. It should go without saying that if you start out sprinting as fast as you can you’re going to quickly burn out and even worse, you’re going to lose.

Just like an Ironman triathlete or marathon contestant must be well-prepared and pace themselves to win the race, you must do the same to win the trading ‘race’.

Simply put, without the proper knowledge, training, preperation and skills, you will never win at the game of trading. So, in today’s lesson, I am not just going to preach to you that you “can’t get rich quick” in trading (you really can’t), instead, I am going to give you sound, actionable insight into what you need to do to win the long-term trading game, which is the only game that matters.

Have you heard the fable of the Tortoise and the Hare?

Remember the old fable of the tortoise and the hare? That story is as applicable to trading as it is to anything else. The hare got over-confident, arrogant and lazy, essentially, he was thinking and acting emotionally rather than logically. Conversely, the tortoise, was slow but he was consistent and methodical, he wasn’t in a rush, he wasn’t burning up all his fuel right away and he wasn’t emotional or arrogant or lazy. We all know which one of them won the proverbial race, and if you don’t, read my article The Tortoise and the Hare trading metaphor.

In a trading ‘race’, the slowest guy tends to win. What I mean by that is, if you start off going too fast as most traders do, trying to make a lot of money fast by trading constantly and risking a lot per trade, you’re going to lose and eventually get passed by the guy taking his time and doing things right.

I know you may not want to hear it and I know if you’re a regular reader of mine, you’ve read this before, but if you want to be a successful trader over the long-term, you’ve got to go slow and be consistent. If you start trading too much and risking too much, you will burn all your money and be out of the race quicker than the hare. If you find you are so worried about your trades that you CANNOT STOP watching the charts after entering a live trade, you are trying to sprint and being arrogant (like the hare), and this will QUICKLY lead to your demise. You should be able to turn your charts off after entering a trade, walk away until tomorrow and be totally find whatever the outcome. Be like the tortoise, not the hare.

Pace yourself to win

What matters is your end of year trading results. Most traders don’t consider that when placing a trade. They get lost in the trees, so to speak, and can no longer see the ‘forest’ (the bigger picture).

One trade shouldn’t matter, so make sure you don’t make any one trade matter by risking too much money or by feeling desperate to win. Traders get themselves into trouble by making every trade too important. This is not how you pace yourself. Remember, it’s your results over a large sample size of trades that matters.

You pace yourself to win the long-distance trading race, by doing the following:

Learning

Identifying your edge

Sticking to the edge (not over-trading) – waiting for your edge.

Preserving risk capital

Having a plan and following it

How to become an expert on trading, or anything

It’s common knowledge that to become an expert on anything you must commit considerable time and energy. Trading included. But, can we break this down into more specific chunks so that you can better understand what it takes to become an expert trader? Yes, I think we can…

First off, you may have heard the “10,000 hours concept” which says it takes 10,000 hours of practice to become an expert at just about anything. This was propagated by a popular book some years back, but it’s since been rebutted by many scientists who have stated that whilst practice and time spent certainly matter, the exact number of hours to become an expert on something will vary from person to person depending on multiple variables that differ from one person to the next.

However, you would agree that consistent long-term study is a critical component to becoming an expert in any professional field, right? Think doctors, scientists, lawyers, college professors etc. for these people it’s a long-term commitment and the wealth starts when they finally get a career in their chosen field, not whilst they are still learning.

So, how do you become an “expert” trader? What do you need to do?

Be committed. You have to decide early-on if you’re in trading for the long-haul. It’s a proven fact that people who commit to something long-term have a much better chance of succeeding at it over those who are maybe just experimenting or unsure.

Learn what’s important. In trading, if you spend months learning all the minute details of all the different technical analysis indicators, not only are you wasting your time but you’re missing out on learning about what actually matters. Learn to read, interpret and trade based on simple price action strategies, learn to read a chart from left to right, learn trading psychology and money management, ignore everything else.

Train like you mean it. You will need to demo trade before going live. But if you just screw around on your demo account and don’t trade it like you are trading a live account, it’s not going to do much good. I suggest traders only demo trade for a month or three, to get the hang of the platform, then start live trading with small amounts of money. You’ll learn a lot more trading live with small amounts of money anyways.

Find a mentor. Quickest way to learn ANYTHING? Learn from a mentor. I can be your trading mentor; my course and members area are designed for this.

Get feedback. You need to know if you’re on the right track. If you are a member of my traders’ community, you can get help and feedback from other traders in the forum and you have access to me on the email support line. To master anything, you need good constructive and even critical feedback at times (to learn and improve).

A marathon winner trains and plans

If you think you can just open a trading account, waltz into the market and start pulling down cash like Gordon Gecko, you’re going to lose the race.

You must train (learn and demo trade) before running the real race. You must have a plan of how you will win the trading race. People who run the Ironman train for YEARS, they plan, they prepare, from everything to their clothes to what they will eat to how much sleep to get the night before.

The goal is to win long-term, not short-term

I’m not gonna lie. You can get lucky in this game and make some fast money. However, it won’t last if you aren’t doing everything else I’ve discussed here today. You will QUICKLY give your wins back to the market. In this vein, I am telling you that you need to have a long-term goal of winning each year and you work your way back from there. Break that goal down into smaller and smaller pieces you can act on every day. The more you prepare and plan and calculate how to reach your trading goal (or any goal) by breaking it into smaller actionable goals the more likely you are to achieve it. Trust me when I say 90% of traders lose on the long-term and 90% of traders are NOT doing what I just told you to do. Be one of the 10% of traders who win.

Here is a very small list of some of the many world-famous investors and traders who built their fortunes over the long-term, not quickly….

Warren Buffet – Everyone knows his story, greatest investor of all-time, slow, methodical, consistent.

George Soros – It might seem like he ‘got rich quick’, but Google his history and you’ll see he dedicated his life to finance and investing long before he “Broke the Bank of England”.

Check out my market wizards article for many more!

Conclusion

Over my 15+ years trading the markets, I’ve done and seen it all. Really. I’ve learned that you simply cannot get ahead in the trading world by deviating from what you know is the right thing to do. The people who can remain self-disciplined in the face of temptation are the ones who make great traders. You will be faced with constant temptation after you fund your trading account, it will just be you, the charts and your key board and mouse. No boss, no one watching you…will you have the integrity to do the right thing when no one is watching? Will you have the ability to pace yourself or will you try to ‘sprint’ to the finish line?

I can tell you without doubt, the teachings in my trading course and my trading strategy and approach, if applied how I teach it, will get you to the finish line a winner. It may not be the fastest route, but it’s the right one. You don’t want to lose all your trading money a week after you open your live account, trust me, it’s not fun. You need a mentor to show you what to do but perhaps more importantly, what not to do, to answer your questions and guide you. It’s up to you to make the next move and take the first step on the path of profitable trading.

What’s did you think of this lesson? Please share it with us in the comments below!

Today’s lesson is going to help you eliminate one of the biggest psychological handicaps that is standing in the way of your trading success. First, we will identify the issue and then help you cure it and prevent it from returning. Essentially, we are going to ‘vaccinate’ you against one of the worst trading ‘diseases’ that ‘kills’ many traders each year…

This trading ‘disease’ is something that often develops following your last trade. As that last trade’s results permeate your brain, depending on whether you are trading properly and (or) are mentally prepared to deal with your last trade’s results, you may be at serious risk to getting stricken with this trading ‘disease’. Read on to learn what it is and how to vaccinate yourself from it…

Why your last trade matters so much, or does it?

Your last trade will tell me a lot about you as a trader and as a person. For example, does your last trade look consistent with your other recent trades? If it was a loser and I see it was 5 times as big as your previous loss, you’re doing something seriously wrong; all your losers should be very close to the same amount and some maybe at breakeven. Winning trades will naturally vary a little more (some 1r, 2r, 3r or more), but if I see many  tiny winners less than 1R (1 times risk) and some super big ones, you are likely not on the right track either.

Your last trade can negatively influence your mindset and thus your next trade. Ideally, your last trade will have no effect on your next trade, but far too often for most traders it has a huge effect.

Your last trade only matters if you are trading wrong and thus allowing that last trade to take on too much importance. The fact is, your last trade should be totally irrelevant in the grand scheme of things, and so it should have ZERO impact on your mindset and your decision to take your next trade or not.

If you just lost, it has no bearing on the fact that your next trade might be a winner.

If you just won, it has no bearing on the fact that your next trade might be a loser.

If you stuck to your plan, whether it was a win or loss, you are on the right track. Re-read that last sentence again.

Recency bias explained in the context of trading

As I discuss in my article on the topic of recency bias in trading, a trader has recency bias when they focus too heavily on their most recent trading decisions / trades and lose perspective on the bigger picture. In other words, when a trader has recency bias, they can’t see the forest for the trees, so to speak.

“It is human tendency to estimate probabilities not on the basis of long-term experience but rather on a handful of the latest outcomes.” – Your Money and Your Brian, Jason Zweig

A trader can have both winning streak recency bias and losing streak recency bias.

Winning-streak recency bias:

Winning streak recency bias says that traders who are on a winning streak (or who just hit a huge winning trade) are too heavily influenced by that winning streak. The implications of this are, traders may increase risk size on their next trade above what they are comfortable with losing and (or) they may enter increasing number of trades that violate their trading plan / trading edge. The primary psychological error at play here is over-confidence. As a trader wins, it’s human nature to perceive less risk in the market and start inflating their sense of trading ability and how much they were responsible for that last winner, to the point where it becomes detrimental. This usually ends in a massive loss or series of losses that quickly voids all the gains made during the winning streak.

Losing-streak recency bias:

Losing-streak recency bias says that traders who are on a losing streak (or who just incurred a large loss) are also too heavily influenced by that losing streak. The implications of this are, traders may decrease risk size below their normal 1R risk amount and (or) they may enter decreasing number of trades due to fear of losing more. The primary psychological error at play here is fear. As a trader loses, it’s human nature to start perceiving more risk in the market than is really there and to start over-worrying about losses and this works to deflate one’s sense of trading ability and confidence. This usually ends up in missed opportunities and can result in a perpetual cycle of fear and losing until the trader ultimately gives up trading altogether, feeling jaded and even ‘scammed’ by the market.

How to cure recency bias in trading:

I wish there was a magic pill that I could send you in the mail that would cure your susceptibility to recency bias in trading, but sadly, there isn’t. So, you’re going to have to listen closely and do what I say if you want to avoid this mental trading plague.

Avoiding recency bias in trading begins with knowledge, with education. You must first understand that it’s simply human nature to become overly-affected by your last trade’s results. Once you understand this, you will start to become more self-aware and hopefully you’ll catch yourself in the middle of becoming too influenced by your last trade. This is your cue to take a break, step away from the market for a day, go read a book, play golf, do whatever, and come back tomorrow or the next week, after all, the market will be there tomorrow. Maybe not what you want to do or hear, but it works, trust me.

Next, you need to understand that one trade simply doesn’t matter. So, don’t make it matter! If you are managing risk properly on every trade and sticking to your trading plan, you should not be surprised or overly-emotional about the results of your last trade, win or lose. And, as we will get into next, you must remember that any one trade, looked at individually, is essentially a random event. Your trading edge that gives you a better than 50% chance of winning, is ONLY realized over a large enough series of trades. Thus, looking at the results of ONE trade within a chain of say 20 to 40 trades, is completely pointless.

The only thing you should be worried about regarding your last trade, is IF it was consistent with your trading plan or not. The results of your last trade mean nothing and should mean nothing, otherwise you’re doing something wrong. Drill that into your head if you want to permanently overcome recency bias.

You must train your brain to ‘behave’ properly after your last trade

As I touched on above, we are all basically pre-wired in such a way that allows our brains to naturally give too much significance and become overly-influenced by the results of our last trade. For most traders, their last trade impacts their next trading decision far too much, and the resulting emotional highs and lows in confidence can lead to trading account destruction very fast.

Note: I am not saying you should totally discount when you feel confident in your trading abilities or even when you feel fearful. Indeed, these feelings can be healthy and normal in the right amounts and they are part of a savvy trader’s gut feel for the market. But, they become dangerous when they are too frequent or intense and this is what we must prevent from happening.

Here are some tips on how you can train your brain to function properly after your last trade so that you do not become negatively affected by that trade’s outcome:

Trick your brain into not feeling any pain. By utilizing the power of positive thinking and using positive trading affirmations as well as meditation, you can basically distract your brain from obsessing over negative thoughts (like a losing trade, for example) and even physical pain as discussed in the article trick your brain into not feeling any pain.

Having a strategy to block out negative thoughts as well as to deal with them when they do arise will also go a long way in helping you eliminate the recency bias we discussed previously.

Make SURE you are sticking to your predefined risk on every trade. If you don’t, you will quickly become overly-emotional whether that trade wins or loses. If it wins you will be influenced by the winning recency bias and if it losses you will be influenced by the losing recency bias as discussed above.

Make SURE you are not over-trading by sticking to your trading plan criteria consistently no matter what. If you over-trade you’re going to become addicted to the feeling of trading, as I discuss in my recent article on anticipatory trading plans. Over-trading stems from giving too much weight to your last trade.

Remember that any given trade’s results are simply one instance of your edge in a large series, see next section for more on this!

Edge vs. Emotion

Your trading edge is the basically the entry trigger that, played out over a series of trades, provides you with a better than random chance of making money. The edge needs to playout undisturbed however, regardless of your emotions. However, your emotions can impact your ability to trade the edge, so this is the paradox of trading edges vs. emotions.

Thus, your last trade needs to be irrelevant to you, so that you can truly let your trading edge play out over the series of trades it needs to MAKE YOU MONEY.

As the late great Mark Douglas teaches, there is a random distribution of wins and losses for any given trading edge, and this is THEE reason why your last trade is and SHOULD BE irrelevant. You need to continuously remind yourself of the random distribution between wins and losses so that you remember why your last trade shouldn’t matter, and so that you don’t let it negatively influence your next trade.

What you feel is 100% irrelevant as it relates to what the market will do next. Yes, you can use your gut feel as a tool, but there is a very fine-line between savvy gut trading feel and over-use of it.

If you are trading with discipline and managing your risk properly on every trade as well as not taking stupid trades, this will go a long way to eliminating much of the negative feelings traders experience after a win or loss. After all, if you know you stuck to your plan, even if the trade was a loss, you have nothing to be ashamed of or mad it, you just chalk it up to a losing occurrence of your edge (one in large series of trades) and move on; let time go by and stick to your plan. Once you start trading as if every trade is independent of the next (because it is), you will naturally start to interact with the market in a way that leads to trading success.

Trade like a hedge fund…

Top-performing hedge fund managers know that to make money for their clients they must be calm, collected and calculating. They simply cannot afford to constantly be jumping in and out of the market, chasing every little thing they think might be an opportunity. They know if they did this, they would quickly have many very angry investors after them. Similarly, you cannot afford to constantly jump in and out of the market, transaction costs eating away at you aside, trading like a day trader is simply not conducive to the proper trading mindset.

If you want to trade like you are running a top-performing hedge-fund, you better get ready to do a lot more study and observation and a lot less actual trading. If you had $1 million under your management, would you feel any need to “Make money fast”? No! Because you know just ONE good trade a month or even every three months can make you a huge gain, and you know that the best way to maximize your long-term gains is simply to avoid stupid trades (over-trading).

Hedge fund managers know that less trades = better results, this is a proven statistic in fact. When you trade less it’s a more peaceful existence and provides you with a far better ability to obtain the neutral state of mind towards the market that you need to succeed (by that I mean, not letting your last trade matter, essentially). If you’re always trading, you’re feeling the highs and lows of those trades a lot more, or at east you’re a lot more likely to. The more often you put yourself in the way of the temptation to be overly-affected by your last trade’s results, the more likely you are to be affected by it. Similar to eating healthy in that the easiest way to do it is to simply not stock your house with unhealthy food, the easiest way to avoid allowing your previous trade to affect you negatively is to make sure you aren’t over-trading or over-leveraging for that matter.

Conclusion

Your last trade is a microcosm of your overall trading performance and mental trading state. If a trader is successful over the long-term, I could look at their last trade at any time of the year and it would make sense with his trading plan and it would reflect a disciplined, consistent approach, win or loss. This is because the professional traders know that the very things that lead to successful trading like, consistency, discipline and patience are the same things that help to ‘vaccinate’ them against the ‘plague’ of their last trade’s results infecting their minds to influence their next trading decision.

If I look at a snapshot of your last two or three trades, could I say the same? Could I say that it reflects someone who is not being influenced by their last trade? Or would it be glaringly obvious to me that you ARE letting that last trade dictate your next move in the market? To get to the point of being a calm, collected professional trader who is totally unaffected by the results of his or her last trade, you must start learning the proper techniques and strategies discussed both in this article and expanded upon in my professional trading course.

What did you think of this lesson? Please share it with us in the comments below!

There are numerous misconceptions and incorrect assumptions that surrounding trading. These myths are held both by aspiring traders as well as the public. Not only are they untrue, they are hurtful both to you as a trader and your chances off success but also to the reputation of trading in the minds of the public who know next to nothing about it.

In this article, we are going to dispel 11 of the most common myths of trading and explain to you why they are not true…

Hopefully, after finishing today’s lesson, you will have a better understanding of the reality of trading, what to expect and how to profit from it. Each trading myth will be followed by the truth and an explanation of both:

The Myths of Trading:

Myth: Trading is all about making that fast-cash man!

Truth: Trading is about not losing money, you must learn to do that if you want to make any…

Perhaps the biggest myth about trading in the general public’s mind, is that it’s all about making money fast. High risk, fast money, fast cars, etc. etc. The stereotypes that surround trading are so widespread that most beginning traders get into trading due to these stereotypes and so they start off with the complete wrong mindset and expectations. These expectations come to a crashing realization once they lose a few trades and reality sets in. As the great Warren Buffet so famously said:

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. – Warren Buffett

That’s right, trading is about not losing money much more than it is about making it. The reason is, if you want to make money in the markets, you must be a risk manager more than anything, a capital preservationist, if you will. If you want to take advantage of big moves in the market, you’ve got to learn to preserve your trading capital by bidding your time and being patient in the face of constant temptation.

You will be in battle not only against all other traders trading the markets you look at, but also against yourself, which is perhaps the hardest ‘opponent’ to defeat. Once you get to the point where you can preserve your trading capital and only use it on trading opportunities that meet your strict, pre-defined criteria laid out in your trading plan, then you will have conquered yourself and you will start taking money from other market participants rather than giving it to them.

Myth: You need to be an Ivy-League, Wall Street hotshot to make it as a trader

Truth: You don’t need to be super smart, trading is as much skill as it is math…

Guess what? You don’t need to be a college graduate to be a successful trader. Trading isn’t only for some super-genius math wiz who sits there coding algorithms all day. In fact, just like being overly-emotional can be bad for trading so can being overly-analytical. Those who are too analytical tend to over-think and think themselves right out of perfectly good trading opportunities.

Ideally, you want to have a good mix of gut feel and analytical trading abilities. Your gut feel will give you many trading ideas and the desire to take them but your analytical /forward thinking abilities will be the check that keeps your trading in balance. Only when a trade idea passes both your gut feel and your logical, objective analysis should you consider entering it.

The point of the matter is that college degrees, IQ’s and other ‘credentials’ are nothing but background noise to the market. Those who succeed at trading are masters of themselves. Master your own actions and behavior and ability to control them and you will succeed at trading. All the books and an IQ of 180 won’t do you any good if you over-trade or risk too much or cannot remain disciplined.

Myth: You must have perfect timing to make money in the markets to pick highs and lows exactly

Truth: Trading is not about picking the highs and lows, it’s about reading the charts from left to right…

You don’t have to pick exact market turning points to make money trading like many people think. You do have to read the chart, the story on the chart and understand what it’s trying to tell you. You then look for price action signals that ‘make sense’ with that chart’s story.

In this recent Gold chart, we can see that the story on the chart was this:

An uptrend was in place on the daily chart as seen below. Then, we drew in the key horizontal levels of support to look for signals at. Then, price pulled back to support and formed an obvious pin bar reversal signal there, indicating a long entry was appropriate. You can see what happened next. We are reading the chart and considering the context a potential trade entry forms within, not just trying to pick the exact high or low with no rhyme or reason.

Myth: You need a lot of money to stand any chance at making money in the market

Truth: You don’t have to have a lot of money to start, a good trader can make money regardless of account size…

Often, traders believe that to succeed at trading they need a big trading account. But, this is simply not true. IN fact, you can lose money on a big trading account just as fast as you can on a small trading account. It’s best to start with a smaller account even if you have a lot of money to trade with. Will a large trading capital reserve allow you to make more money faster? Sure. But, fi you don’t know what you’re doing you can also lose that money faster.

The strategies, skills and mental attitudes you need to succeed at trading will work on a small account the same as a big account. It’s always best to start on a small account and hone your skills, then when you’re ready you can deposit more money if you have it or just keep building that small account.

Don’t be in a rush! If you build a track record of successful trading on a live account, even a small one, you will be a successful trader. Building a successful live account track record over a period of a year or more is something that FEW people can do. If you do that, even on a small account, your success will start to snowball.

Myth: You have to know what is going to happen next in a market to make money.

Truth: You don’t have to be right or know what will happen next to make money, you must understand that you can never know for sure what will happen…

One huge myth about trading is that to make money you must know what will happen next. This couldn’t be further from the truth and in fact, it’s not even possible. Part of trading is that there is a random expectation for any one trade you take. Meaning, any individual trade, looked at in a vacuum, so to speak, has essentially a random outcome. This is because there are thousands, maybe even millions of variables affecting a market at any given day at any given time. As a result, a trade really can go either direction, even if you believe you are 100% right about it.

Where your trading strategy or trading edge comes in, is that over-time, given enough trades, if you follow your strategy with discipline, it will play out in your favor. Most trading edges or strategies are simply taking advantage of repetitive market patterns or price action patterns that form because of repetitive human interactions with the market. So, whilst your trading edge might have 60%-win rate, any singular trade has essentially a 50/50 chance of working out. So, don’t start convincing yourself “I’M RIGHT!” about your next trade because you’ll start risking too much and getting too emotionally attached to that trade, which is a recipe for disaster.

Instead, realize and understand that there is something called a random distribution of wins and losses, which essentially means what I described above. For any given trading edge or strategy, over time and over a large enough sample size of trades, that trading edge will show a randomly distributed pattern of wins and losses. So, whilst you do need confidence in your trading ability and chart reading skills, you cannot afford to becoming convinced you are ‘right’ about any one trade and you must always remember that ANY trade can be a loser. For more on this topic, checkout my article on trading legend Mark Douglas.

Myth: You need a high-percentage of your trades to be winners to make money

Truth: You don’t have to win a high-percentage of your trades, you must maximize your winners instead…

You’ve probably heard of risk reward ratios, but do you really understand their power? You don’t need to win all your trades to make a lot of money in the market, in fact, you don’t even need to win most of your trades! How is that possible you ask? By understanding and effectively utilizing risk reward ratios.

Let’s say you set a risk reward of 1:3 for every trade you take. That means, you risk 1R where R = dollars risk to make 3R or 3 times your dollars risked. At this risk reward ratio, you only need to win 25% of your trades to breakeven and about 27% of them to make a profit (after commissions / spreads).

Let’s take 100 trades. Say you lose 70% of them that would be 70 out of 100; you have lost 70R   which for examples sake we will say is $700 or $10 per trade ($10 = 1R). Now, if you have a 1:3 risk: reward, you are making $30 on all your winners, but you only had 30 winners, right? However, that is still $900 in profit! So, you lost $700 but made $900, profit of $200 even though you lost 70% of the time!

Risk reward ratios: You only need to win 27 – 30% of the time to make money if your winners are 1:3. With a 1:2 risk reward you only need to be right about 35% of the time. Traders get caught up in trying to win on every trade, but this is a fool’s game, very stressful / time consuming and simply not possible.

A 50%-win rate, which is totally possible if you’re a master of price action, can make you a very large sum of money each year by trading with a 1:2 or 1:3 risk reward. Most traders believe they must win at a very high percentage, but it’s simply not accurate and not conducive to a proper trading mindset.

Myth: Automated trading robots or indicators (systems) are the ticket!

Truth: Not if you want to succeed long-term or on any level of magnitude…

All you need to do is read some of the Market Wizards books and you will quickly realize that most of the world’s greatest traders are not buying Forex trading robots and simply loading them onto their computers and getting rich. This pipedream sold by computer programmers who know almost nothing about how to read the charts, is a huge trading myth.

Any fully mechanized trading system or algo-trading method is going to fail over time. Trading conditions change frequently and even rapidly. It takes an experienced, educated and skilled human mind to discern between good trading conditions and bad. If trading was as easy as installing some software on your computer and pushing the buy or sell button when the software tells you to, everyone would be a billionaire.

Think about the most famous traders and investors you know: Warren Buffet, George Soros, Paul Tudor Jones, any of the traders in the Market Wizards books; they are using their minds not trading robots. Don’t fall for the hype, learn to trade properly and then use your mind to make trading decisions.

Myth: You can only make money in trending markets or ‘easy’ market conditions.

Truth: If you know how to trade with price action, any market condition is game…

A skilled price action trader can make money in a trending market, in a market that is swinging widely and not in a perfect trend, in a range-bound / sideways market or even counter-trend. Obviously, there are times when a market is just too choppy to trade, but this is where your price action skills come in again; reading that chart from left to right and determining whether or not conditions are ripe for a trade. One of the beautiful things about price action is that it can give you good trades in trending or sideways markets. As we see below, a market that is confined to a trading range can provide many good trading opportunities for the savvy price action trader…

Myth: Day-trading is the fastest way to make money and get a Lamborghini.

Truth: Day-trading will probably cause you to lose money faster than a trip to the casino…

Shorter time frames give you more opportunities, to lose money maybe! – Shorter time frames contain more choppy, meaningless price movement and false-signals that will grind you down to a bloody pulp. TRUST ME – WAAY more lucrative and less stressful to focus on the daily charts and see a signal, enter it /set it up, then walk away for a week, as opposed to constantly obsessing on low time frame charts. You will save transaction fees, time, mental energy, and you will make more money trading by taking one or several high time-frame trades a month with minimal involvement by set and forget, than you will day trading.

Myth: I can’t use wide stops because I don’t have much money.

Truth: Money has nothing to do with your ability to place wide stops and wide stops are what you need most of the time…

Have you heard of position sizing??! Here it is – say you want to place a 150 pip stop loss because that is the best stop loss placement for the trade you want to take. But, you only have a $500 account – think that stop is too wide for you? Wrong.

All you need to do is lower your position size. If you want to risk about $30 per trade on that account, you would just need to adjust your position size to 0.20 mini lots on a that 150 pip stop, that is $30 on any XYZUSD currency pair.

If you don’t understand position sizing, you certainly need to make sure that you do before you start trading live. Again, you do not need a lot of money to take on wider stop losses! You simply need to reduce your position size! I am all about wider stops as they can keep you in good trading ideas and help you from getting stopped out prematurely like many traders do.

Myth: My relative or friend or told me trading is like gambling.

Truth: It can be, if you let it!

Finally, perhaps the biggest trading myth out there is that Forex trading or any type of speculating on financial markets is the same as gambling. This is a broad generalization / stereotype that the public who do not trade and know nothing about it, hold in their minds.

The reality is that if you want to gamble, you can do it in the markets. However, you can also treat trading like a high-class, upper-echelon profession that takes time and persistence to get good at. Unlike gambling at a casino, you can put the odds in your favor as a trader through proper trading education, learning from those more experienced from you and screen time. When you go to the slot machine at the Bellagio, your odds are always about the same; extremely slim. A skilled price action trader can make a full-time living trading the markets, easily winning 35% to 65% of their trades. You will never go to a casino and win even 20% of the time. So, trading can be gambling, if you allow it to be, as many traders do. But, if you want to succeed at it you have to focus and become skilled so that you make into a high-skill game of probability and mental fortitude, one that has nothing at all to do with luck.

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Obviously, you’re into trading to make money, the dream is always to earn money and live the lifestyle of our choosing and enjoy the freedom trading brings. I know those are some of the things that lured me to trading in the beginning of my career.

Almost 100% of people coming into trading are drawn in by the desire to make money and improve their lifestyle. Whether you want to admit it or not, that is probably why you are on my blog; because you think you can make a lot of money trading or you think trading can bring you an amazing lifestyle change. Hey, there’s nothing wrong with those kinds of thoughts and feelings because they ARE obtainable goals if you study hard, perfect your craft and manage to keep your bankroll intact long enough to live to trade another day and come out the other side profitable.

I’m certainly not hear to squash the dreams and ambitions of newbie traders (I was once one myself), but what I am here to do is help you achieve those dreams, and in order to do that we first must put these life-changing dreams and goals to one side and look at what’s actually going to get us there, we need to get smart, we need to be real and cut through the noise. You will only make money as a trader if you’re in this game for the right reasons and for most traders, at least in the beginning, they are not trading for the right reasons…

Do you love the money or the process?

Let me ask you this; do you REALLY LOVE THE PROCESS of learning about markets, studying and looking at charts and trading in general? Do you TRULY enjoy it? Or, are you just sort of slugging along because you think you can make fast money? For most traders, especially beginning traders, the honest answer is the latter.

In trading, as with any business endeavor and life in general, if you aren’t IN LOVE with the process you are VERY RARELY (if ever) going to achieve the goal. Read that last sentence 5 times before you continue.

How can you make an honest assessment of whether you are in love with money or the process of trading?

Here are some signs that prove you’re trading for the wrong reasons

You’re trading money you can’t afford to lose. If you’re doing this, it’ because you’re too focused on the money. People who risk money they really cannot afford to lose are doing so because they want to make money fast and they are only thinking about the prize, not the possibility of losing that money. Bottomline, don’t trade with money you really cannot afford to lose.

You’re thinking only of money, not enough about trading or your trading plan or strategy. Trading really shouldn’t be all about ‘money’ to you. The money is just a way to keep score in a game that tests your ability to remain disciplined and patient in a world of constant temptation. If you are trading properly and focused on the process and excited about the process, you will make money and that money is like the score, if you’re score is going up, you’re winning, if it’s going down you are losing. Ironically, when you focus too much on the score (money) you end up losing.

You’re already making plans of what you’ll do after you make XYZ money in the market, you only think about the rewards and not the risks. Like the last point, but a bit more specific; I know a lot of amateur traders who get super excited about the possibilities of what they will do with the money they make from trading. It’s great to have ambitions and goals, don’t get me wrong, but this cannot consume your thoughts. If you’re making plans of how you will spend money you haven’t made, your trading mindset is not right yet.

You trade for no good reason, even late at night before bed, pressing some buttons for the gamblers endorphin release, you need to be in a trade. If you end up trading all the time, entering one as another one closes out, you don’t want to trade anymore, you NEED it. This is trading addiction and I can promise you that it will very quickly drain your bank account.

You get enthralled by the next biggest trading thing (Like crypto currencies, which by the way, I think bitcoin and the like is basically a Ponzi-scheme and I encourage people to stay away). Stick to major markets, major Forex pairs and major stock indices and commodities, don’t trade every market under the sun, this will cause you to over-analyze and over-trade and lose money.

The right reasons to trade:

You should trade because you love trading, plain and simple. You must love the process of trading, not only the dream of the end-goal, or you will never achieve the end-goal

You’re becoming methodical and well-structured in your approach, making plans and keeping notes and spreadsheets, you’re taking this seriously. Once you start doing things like this you know you’re on the right track. Being methodical and having a trading plan and keeping a trading journal in spreadsheets of your trades is something traders do who truly enjoy the process. These things keep you accountable and help develop proper trading habits and routines.

You live and breathe markets, it’s what you do, it’s who you are, every precious moment of free time you’re reading a post on a blog like the one you’re reading now or you’re reading a classic trading book like The Market Wizards or Trading in the Zone or perhaps studying chapters in my price action courses, you’re studying charts religiously, even if you’re out and about.

Your family and friends don’t understand you any more, the conversations have turned into things people can’t relate to, you feel alone, isolated, and feel desperate to find others who think the same way.

You love self-improvement. Trading, more than anything else, is about self-improvement. Show me a successful trader and I will show you a person successful in other areas of his or her life. Intense discipline, focus, passion, patience – these are the ingredients of LIFE success not just of trading success.

You are competitive, you like the competition. The idea of competing with millions of other traders and putting yourself into the that top 10% who are making all the money – drives you more than anything – it’s inside of you – it’s NOT JUST about getting a lot of money it’s about the self-confidence and the feeling of knowing you are better than all those other traders and you out-competed them. It puts you in a very small group of upper-echelon individuals and is a true accomplishment, one you’re dying to achieve.

You simply love markets, you love charts, you love business and entrepreneurship, you love studying what drives the world economies and you find yourself watching CNBC even when you’re bored or (god bless you) the PBS nightly Business news.

Conclusion

If you want to get fit and healthy and achieve your optimal body composition, you must fall in love with the process of working out and eating healthy, because if you don’t fall in love with it all, you will never continue to do the little things day in and day out that lead to the type of body you want. Same thing in trading. To get the money and the cars and houses and the life you want, the life that IS possible from trading, you have to love the process, the little things, the details, otherwise you’ll never stay committed to the discipline that is required. As they say, the devil is in the details.

To succeed at trading you must let go of the need to control the outcome. You must trust the process. You must trust your intuition. You must trust yourself. You must fall in love with the process if you want to get the results you’re looking for.

Don’t worry if you’re not yet feeling this quite yet or doing the things I discussed above, just stick with the plethora of inspirational and educative lessons on my blog and then study the chapters in my professional trading courses as well as follow along with the daily market analysis I post for members. You will soon find yourself enjoying your trading and hungrier for knowledge day by day, momentum builds momentum, and you must turn your desires into habits. Habits are what makes someone successful and when you start by developing the proper trading routine and stick to it, it will turn into a habit that leads you down the path to trading success.

For those who can’t yet make sense of it all and feel overwhelmed, the cliché saying holds true here; When the student is ready, the teacher appears; you just need to turn your desires into passion and to do that you need knowledge and consistent stimulation. At Learn to Trade the Market, we live and breathe trading… so we have you covered.

What did you think of this lesson? Please share it with us in the comments below!

Today’s lesson is a virtual treasure trove of wisdom and insight from some of the best trading minds of all time. We are going to go on a journey of discovery and learn a little about some of the best traders ever and dissect some of their famous quotes to see what we can learn and how it applies to our own trading.

The way to learn anything is to learn from the greats, have mentors, teachers, study and read; you must make a concerted effort to absorb as much knowledge from the best in your field as possible, for that is truly the fastest way to success, be it in trading or any other field.

Below, you will find a brief introduction to 10 of the best traders of all time, followed by an inspiring quote from them and how I view that quote and apply it to my own trading principles. Hopefully, after reading today’s lesson you will be able to apply this wisdom to your own trading and start improving your market performance as a result…

George Soros

George Soros gained international notoriety when, in September of 1992, he invested $10 billion on a single currency trade when he shorted the British pound. He turned out to be right, and in a single day the trade generated a profit of $1 billion – ultimately, it was reported that his profit on the transaction almost reached $2 billion. As a result, he is famously known as the “the man who broke the Bank of England.”

Soros went off on his own in 1973, founding the hedge fund company of Soros Fund Management, which eventually evolved into the well-known and respected Quantum Fund. For almost two decades, he ran this aggressive and successful hedge fund, reportedly racking up returns in excess of 30% per year and, on two occasions, posting annual returns of more than 100%.

Here is a famous quote from Mr. Soros:

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.”

The above quote is a big reason why I love George Soros. Indeed, what he is saying describes the way I think about the markets and even some of my price action strategies. My fakey pattern and even a false break strategy in general, are both setups that reflect a way we can use price action to “discount the obvious and bet on the unexpected” as Soros said. Typically, most market players become fixated on one view, one bias of the market, forgetting that markets can switch direction and bias on a dime. You must be ready for everything and be an adaptable trader if you want to be able to make money over the long-run. Certainly, for Soros, betting against the British pound when the whole world was long, paid off; it’s a good example of how not following the herd and not being over-committed to a view can pay off.

In the chart below, we actually see that an obvious bearish fakey (sell signal) had formed the day before the GBPUSD crashed in 1992, leading to George Soro’s most famous trade…

Jesse Livermore

Livermore, who is the author of “How to Trade in Stocks”(1940), was one of the greatest traders of all time. At his peak in 1929, Jesse Livermore was worth $100 million, which in today’s dollars roughly equates to $1.5-13 billion, depending on the index used. He is most famous, perhaps, for selling short U.S. stocks before they crashed in 1929, swelling his bank account to $100 million.

Here is a famous quote from Jesse Livermore:

“Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market, for emotional as well as economic reasons.”

The above quote by Jesse Livermore is one of my favorites. I am all about keeping a low-frequency trading approach and trading like a sniper not a machine gunner which is also what Livermore is saying here. Playing the market when all factors are you in favor means, as with other quotes in this lesson (seeing a theme here?) trading with confluence. He says you should be out of the market at times for emotional as well as economic reasons. Meaning, for your trading account’s sake and your mindset’s sake, you should not be in the market all the time. In fact, most of the time you should be out of the market, which is a cornerstone of my trading philosophy.

Ed Seykota

Trading as a trend follower, Ed Seykota turned $5,000 into $15,000,000 over a 12-year time period in his model account – an actual client account. In the early 1970s, Seykota was hired as an analyst by a major brokerage firm. He conceived and developed the first commercial computerized trading system for managing clients’ money in the futures markets

Here is quote from Ed Seykota from The Market Wizards by Jack D. Schwager:

“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in a very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.”

What Ed is saying in the above quote is very important because it really is something I agree with and it reflects some of the concepts I teach in my courses. I am also primarily a trend-follower who uses gut feel as an assistant, and as I’ve written about before, a trader’s gut feel is something they must develop over education and screen time. Ed also talks about chart patterns, which to me means price action patterns, which obviously you know I am a huge proponent of.

Picking a good spot to buy or sell is what I describe as trading with confluence. It takes a keen knowledge of price action and staying in tune with the story on the charts to identify good spots to buy or sell. Lastly, what Ed says about fundamental analysis is pretty much spot-on with my trading outlook; I put little stock in fundamentals because the market has typically discounted them in the price. In other words, the price action reflects all market variables, more or less. Certainly, the price action gives you enough to analyze a market and find high-probability entry and exit scenarios, so don’t over-complicate it by trying to analyze every market variable under the sun.

John Paulson

Paulson became world-famous in 2007 by shorting the US housing market, as he foresaw the subprime mortgage crisis and bet against mortgage backed securities by investing in credit default swaps. Sometimes referred to as the greatest trade in history, Paulson’s firm made a fortune and he earned over $4 billion personally on this trade alone.

Here is a great quote from John Paulson:

“Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy.”

What he means here, is that most investors and traders will tend to buy when a market is high, typically because that’s when it looks and feels good to buy. However, when a market has already moved up a lot, it’s typically ready to pullback, which is why I like to trade on market pull backs in most cases. The inverse is true for shorting; when a market has sold-off big time, you usually don’t want to sell, or you’ll end up selling the bottom, so to speak. You want to wait for a bounce in price, back to a resistance or value area, then watch for a price action sell signal there to rejoin the trend after a pull back.

Paul Tudor Jones

Paul Tudor Jones shorting of Black Monday was one of the most famous trades ever. Paul Tudor Jones correctly predicted on his documentary in 1986 based on chart patterns that the market was on the path to a crash of epic proportions. He profited handsomely from the Black Monday crash in the fall of 1987, the largest single-day U.S. stock market decline (by percentage) ever. Jones reportedly tripled his money by shorting futures, making as much as $100 million on that trade as the Dow Jones Industrial Average plunged 22 percent. An amazing trade to walk away from with a fortune when so many others were ruined in the aftermath. He played it to perfection. His funds had great consistent returns for decades.

Here is a favorite quote of mine from Paul Tudor Jones featured in the Market Wizards:

“That was when I first decided I had to learn discipline and money management. It was a cathartic experience for me, in the sense that I went to the edge, questioned my very ability as a trader, and decided that I was not going to quit. I was determined to come back and fight. I decided that I was going to become very disciplined and businesslike about my trading.”

What Jones is saying here, is that there will be a time when every trader makes a huge mistake regarding money management, and they must take a cold, hard look at themselves and decide what to do next. Will you continue to bleed money from your account by continuing to make poor money management decisions? Or, will you finally get disciplined and “businesslike” in your trading? In trading, money management is literally what determines your fate, so you need to focus on it early-on if you want to have any chance of success.

Richard Dennis

Richard J. Dennis, a commodities speculator once known as the “Prince of the Pit,” was born in Chicago, in January, 1949. In the early 1970s, he borrowed $1,600 and reportedly made $200 million in about ten years. Dennis and his friend William Eckhardt, are most famous for starting the Turtle Traders, which was a group of 21 average people to whom they taught their rules to and proved that anyone, given the right training, could trade successfully.

Here is a good quote from Richard Dennis:

“I’ve certainly done it – that is, made counter-trend initiations. However, as a rule of thumb, I don’t think you should do it.”

Richard Dennis was famously a very successful trend trader and in the above quote he is stating his feelings on trading counter trend. Interestingly, this is pretty much how I feel about trading counter-trend; sometimes it’s warranted, but most of the time it’s not, and it takes a skilled trader to be able to trade counter-trend successfully. I teach my students to master trading with the trend first and foremast and to make that the most important piece of their technical analysis.

Stanley Druckenmiller

Stanley Druckenmiller is an American investor, hedge fund manager and philanthropist.

In 1988, he was hired by George Soros to replace Victor Niederhoffer at Quantum Fund. He and Soros famously “broke the Bank of England” when they shorted British pound sterling in 1992, reputedly making more than $1 billion in profits. They calculated that the Bank of England did not have enough foreign currency reserves with which to buy enough sterling to prop up the currency and that raising interest rates would be politically unsustainable.

“I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

The above quote is reference to George Soros who mentored Druckenmiller for a while. This quote fits perfectly with an article I wrote recently about how you don’t have to be right to make money trading. Most traders get far too concerned about the number of winners they have compared to losers when really, they should totally forget about that number and instead focus on their overall risk / reward. In other words, how much money are they making for every dollar they have risked.

Jim Rogers

James Beeland “Jim” Rogers, Jr. is a Singapore based business magnate of American origin. Regarded by the business world as a brilliant investor, Rogers is also an author and financial commentator. He co-founded the global investment partnership, Quantum Fund, along with George Soros, another equally brilliant businessman.

Here’s one of my all-time favorite trading and investing quotes, courtesy of Mr. Rogers:

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something.”

I really like the part above where Jim Rogers says “I just wait until there is money lying in the corner…” because that really sums up what I try to teach my students as well as my own personal trading style. Rogers is dead-on with the above quotes; most traders do WAY too much…there is nothing wrong with doing nothing if there isn’t anything to do! In other words, don’t force a trade if an obvious one isn’t there, it’s better to save your capital for a solid opportunity that’s just around the corner.

Ray Dalio

Raymond Dalio is an American billionaire investor, hedge fund manager, and philanthropist. Dalio is the founder of investment firm Bridgewater Associates, one of the world’s largest hedge funds. As of January 2018, he is one of the world’s 100 wealthiest people, according to Bloomberg.

Here is a pretty deep quote by Ray Dalio:

“I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are.”

This quote by Mr. Dalio is deep, for a few reasons. One, having a sensitive ego is very bad in trading, because the fact is, you’re going to have losing trades, probably more than you want. So, if you become overly-affected / emotional by every loser, it’s going to catapult you into a huge string of trading mistakes, as I wrote about more in-depth in my article on the top trading mistakes people make.

Next, being right or wrong is and should be 100% irrelevant in trading. As the late, great Mark Douglas teaches, you can be wrong on average and still make money, and your trading success or failure doesn’t depend on whether you’re right on your next trade, read my article on the secret to trading success for more on this. Finally, you must determine what your strengths and weaknesses are as a person before you can find trading success. We all drag our personal baggage into the markets and it influences our trading, for better or worse.

Warren Buffet

Known as the “Oracle of Omaha,” Warren Buffett is one of the most successful investors of all time. He runs Berkshire Hathaway, which owns more than 60 companies, including insurer Geico, battery maker Duracell and restaurant chain Dairy Queen. He has committed to giving more than 99% of his fortune to charity. So far, he has given nearly $32 billion.

Here is perhaps a lesser-known quote from Warren but one that I like nonetheless:

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”

To me, this quote is saying that high-probability trade signals happen infrequently, which is something I teach as any of you know who have followed me for any length of time. Thus, when you do get a nice and obvious / confluent trade signal (there’s that confluent word again) you need to maximize your gains, not take a quick / easy profit. This fits nicely in my teachings about the power of risk reward and how to catch big moves in the market. I am all about waiting patiently, with discipline, for days, weeks or even months and then pouncing on that one super-obvious setup that will net me a large 1:3, 1:4, 1:5 or even greater winner. This is the basis behind my approach that proves you don’t need to win a lot to make money trading.

Conclusion

Personally, if you’re a beginning or struggling trader, I think the most important thing to takeaway from all the wisdom in today’s lesson is to first get YOURSELF straight; get your money straight, get your patience and discipline straight, know what your trading edge is and how to properly trade it BEFORE you start risking real money in the markets. If you do this, you will largely be trading in-line with the insight and advice that the above trading greats have provided you with.

What did you think of this lesson? Please share it with us in the comments below!

Imagine if you could insert a plug into the back of your head and upload a piece of software code into your brain that would allow you to trade like some of the all-time best traders? Well, unfortunately we do not have the capability to upload software and upgrade our brains instantly like Neo could in The Matrix. But, there is a very profound lesson here that I want to teach you today, about how you must think and act if you want to make money as a trader.

What the best traders in the world know, whether instinctually or through trial and error (experience), is that your brain can trick you, so well in fact, that you won’t even be aware it is happening. Essentially, what you need to do since you cannot upload a new program like Neo and become part robot, is train yourself to use your more advanced and more highly-evolved thinking abilities so that the more primal brain processes do not take over and ruin your trading.

First, you must understand these two brain systems:

Our brains are composed of different pieces that serve different purposes. Some of the pieces serve our more primal needs, like telling us we need food, love and other rewarding activities. Those are the oldest pieces of our brain, and they also are the ones that get first crack at most decisions, which is not always good for trading purposes. Most traders tend to let these older brain pieces run the show, even if they are unaware of what’s happening. For example, have you ever experienced the feeling of looking at a chart that’s running in one direction really aggressively, and your heart starts beating faster because you want to enter a trade in that direction? That is an example of your primal brain areas taking over.

Our brains basically serve two purposes; primitive ones like fight or flight, rewards / urges and more modern ones like planning, math, thinking, etc. As traders, it’s critical that we learn how to use both brain functions in conjunction to achieve optimal outcomes.

Reflexive brain

Paraphrasing Jason Zweig in his book, Your Money & Your Brain – How the New Science of Neuroeconomics Can Help Make You Rich: The Reflexive brain system are the older pieces of the brain I was referring to above. The reflexive system works so fast that you often finish responding before the conscious part of your brain realizes that there was anything to respond to! An example of this is swerving to avoid a hazard on the highway before you could even identify what it was. The reflexive system gets first crack at making most judgements and decisions, which as I said above, for a trader this is usually what leads to disaster.

So, the reflexive system is all about emotion and intuition. Which, I am not saying is ALL bad, indeed, I’ve written articles on using a trader’s intuition. And as we will see later, one of the keys to trading success is learning how and when to use your reflexive trading intuition, and when not to.

Reflective brain

The Reflective brain systems are like the counterweight to the reflexive system. This function largely resides in the prefrontal cortex; which lies behind your forehead and is the most advanced and recently evolved portion of your brain. Here, neurons that are intricately connected with the rest of the brain draw general conclusions from scarps of information, organize your past experiences into recognizable categories, form theories about the causes of change around you, and plan for the future.

The reflective system is used mainly to tackle and solve more complex problems like “Is my investment portfolio sufficiently well-diversified?” or “What should I get my wife for our anniversary?”, according to Zweig.

Too much of anything is bad for you

As the saying goes, too much of anything is bad for you. When it comes to your brain and trading, using the reflexive side too much OR the reflective side too much can lead you down a path of consistent losses.

We all are familiar with what happens when we use the reflexive brain systems too much; you become emotional, heart rate increases, you do stupid things like trade too much, risk too much, etc. etc. Basically, when acting on your first impulse, as most traders do, you are using your reflexive brain system – and if you only rely on your reflexive brain, you’re essentially gambling, not trading.

When it comes to the reflective brain system, you might think that too much of it couldn’t be bad, right? Wrong. You CAN (and probably often do) think too much. You can over-analyze the market, I’ve written an article about analysis paralysis in trading and how traders often ‘freeze up’ in the moment when they see a good trade, they think themselves right out of it! Another reason why reflecting too much is dangerous is because you can convince yourself you are right about a trade, to the point where you want to bet your whole account, which obviously is extremely dangerous and leads to disaster.

As Jason Zweig states in his previously mentioned book:

“Although doctors get a bad rap as investors, in my experience engineers are worse. That may be because they are trained to calculate and measure every possible variable. I’ve met engineers who spend two or three hours a day analyzing stocks. They are often convinced that they’ve discovered a unique statistical secret that will enable them to beat the market. Because they have squelched their intuition, their analysis fails to alert them to the most obvious fact of all: There’s always something to measure on Wall Street, which spews out a torrent of statistics on everything under the sun. Unfortunately, at least 100 million other investors can view the same data, taking away most of its value – while, at any moment, an unforeseen event can blindside the market, rendering anyone’s technical analysis at least temporarily useless. “

How to trade like you’re half man, half machine:

To succeed in trading, you need to be half man, half machine, so to speak. Robots are cold, emotionless, binary, objective – more like the reflective system in our brains. Humans are full of feelings, ideas and emotions; which stems from our reflexive system.

So, the trick becomes utilizing our brains the best way possible, and not letting one aspect of our brain over-power another.

Take exercising for example: You may FEEL emotional about getting into better shape – you want to do it, you want the result that the hard work brings. However, the act of doing the work, the sweating, the discomfort, even pain, is too much for many people to consistently handle, so they give up the long-term prize to temporarily feel better. However, the worst part is, if you just push through that early discomfort and continue to be consistent, you will eventually start to enjoy the pain, so to speak. Once you get yourself to this point, you are using both brain systems together. The reflexive part of your brain is being rewarding not from inactivity, potato chips and TV, but instead from endorphins, strength, fitness and overall better health – this was something you planned and used discipline and commitment to follow through with, which stemmed from your reflective brain systems.

Here’s the main trading take-away:

STOP giving into the short-term temptations of ‘fast-money’ by over-trading and over-leveraging your account and not sticking to your trading plan – you are using the reflexive system too much! STOP entering a trade or what you think is a trade straight away without double checking your trading plan.

START using your reflective brain to plan things out, understand that consistently and discipline now will pay off LATER and that you won’t get rich fast or at all by always acting solely on your first impulse in the market. START using a trading checklist to double check any trade you spot against your trading plan. Take a deep breath and think through what you’re about to do before you push the buy or sell button (just don’t think TOO much ;)). After a trade ends, take a day off, step away from the computer screen. Pre-plan this and write it out and force yourself to follow it every day. Do use your trading gut feel, just make sure you combine it with your reflective brain system, so it doesn’t run rampant.

Conclusion

In the Matrix, Neo knew something was wrong in the beginning; he figured out he was stuck in the matrix that was causing his brain to be flooded with feel-good computer simulations that over-stimulated his reflexive brain system, which was keeping everyone obedient to the architects of the matrix. Neo wanted more though, he wanted the truth, and when he finally woke up from the matrix he was then using his reflective brain system in addition to his reflexive system, and that is when he really flourished.

You must be like Neo in the markets, with your trading. You must realize that if you are not proactive about it, you will naturally end up using your reflexive brain systems too much, and this is indeed what most traders do and why they lose money.

You must ‘unplug’ from the ‘Matrix’ that is acting on your first impulse and just following your urges and what ‘feels good’ in the market. You cannot make money trading this way. It’s hard to over come at first, but just like exercise, it gets easier and more rewarding over time, it becomes reinforcing. To learn more about this and to get started with a plan of attack that will get you on the right path, check out my advanced trading course for more in-depth training and information.

What did you think of this lesson? Please share it with us in the comments below!

George Soros: The man, the myth, the legend. If you haven’t heard of him and you’re a trader, you are missing out on a lot of very valuable insight and wisdom. In today’s lesson, we are going to discuss Mr. Soros, learn a little about why he is one of the greatest traders ever and most importantly, discover what he can teach us that will improve our own trading.

George Soros is famously known as “The Man Who Broke the Bank of England.” He earned this title in 1992, when he made more than a billion dollars shorting (selling) the pound sterling. He is the co-founder and manager of the Quantum Endowment Fund, an international hedge fund with more than $27 billion in assets under management.

Soros began his life under the toughest of conditions; living as a young Jewish boy in Nazi-occupied Hungary in 1944. He then immigrated to England to attend the London School of Economics and moved to the US in 1956 to work as a stock broker. Today, Soros is a passionate investor, philanthropist, and democratic idealist who could teach us a lot about investing, trading and philosophy.

So, what can we learn from this master trader that we can directly apply to our own trading? Let’s discuss…

Soros’s trading philosophy

George Soros is mainly a short-term speculator. He makes massive, highly-leveraged bets on the direction of the financial markets. His famous hedge fund is known for its global macro strategy, a philosophy centered around making massive, one-way bets on the movements of currency rates, commodity prices, stocks, bonds, derivatives and other assets based on macroeconomic analysis.

Whilst this is slightly different from my own personal trading approach which relies more heavily on technical analysis and more specifically, price action analysis, there are still many parallels between George Soros’s trading philosophy and mine…

What can we learn from George Soros?

It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right, and how much you lose when you’re wrong.

This first quote from Mr. Soros really drives-home a point I made in my article on why winning percentage doesn’t matter. That point basically is that you can make money trading even if you don’t win the majority of your trades. How? Through proper risk reward. It really is as simple as that.

If you don’t know how to set your trades up so that you are making about 2 times your risk or more on your winners, you’re going to have a very, very hard time being profitable over the course of a year. I have discussed in multiple articles how you can make money trading even if you only win 40% of your trades, so, that means you’re losing 60% of the time! If you don’t understand this, then read my article on a case study of random entry and risk reward. But, basically what you need to understand it that as your reward per trade increases, the number of wins you need to be profitable decreases. The key lies in knowing how to pick the right trades and not over-trading, which is easier said than done, especially if you don’t have the right training.

Most of the time we are punished if we go against the trend. Only at inflection points are we rewarded.

This quote gels nicely with my overall technical analysis approach. I am primarily a trend-trader and I use price action to find high-probability entries into trades. But, trends end, and they ebb and flow and it’s at key chart levels or major inflection points that trends can reverse dramatically. So, I also look to trade from these major chart levels either by watching for clean price action signals or by getting in at the level on a blind entry.

The whole thrust of my approach is that the course of events is indeterminate.

In agreement with the teachings of the late-great Mark Douglas, Soros is saying in the above quote that we can never really know for sure what is going to happen in the market. We must trade in-line with this fact, otherwise we will get too emotional about our trades and we will start thinking that we have some special gift for predicting the market.

The truth is, by reading price action and knowing how to trade from it, you can develop an effective trading strategy that can get you very high-probability signals to both enter and exit the market. But, there are so many variables that affect a market’s price each day that there truly is an element of randomness to any given trade, that we cannot control. Thus, we must control what we can: our entry price, our risk, our stop loss and target placement and the money we are using to trade with, as well as our own behavior and thinking. Anything outside of these things is totally out of our hands in the market, and the more you try to control the market the more you will lose.

Being so critical, I am often considered a contrarian. But I am very cautious about going against the herd; I am liable to be trampled on… Most of the time I am a trend follower, but all the time I am aware that I am a member of the herd and I am on the lookout for inflection points.

This is similar to a previous point above, but the key point here is the word contrarian. I have always considered myself a contrarian and I’ve even written an article on the contrarian trading strategy. However, first and foremost, I am a chart-reader, so I always understand what the dominant trend is, as well as the overall story on the chart. As Soros, said, I am liable to get trampled on if I fight a strong trend. So, being contrarian doesn’t always mean trading against the trend, it means you think differently than the herd. I wait for pull backs within the trend, rather than entering when the trend is extended and about to pull back (as most traders do). Being contrarian to me, means I am following the price action and thinking like a professional, always trying to do the opposite of what the amateur is doing.

The market is a mathematical hypothesis. The best solutions to it are the elegant and the simple.

OK, anyone following me for any length of time knows that the above quote is my “jam”. The best solutions to just about anything in life are simple, trading included. I’ve written many articles on simplicity in trading, but if you haven’t read my Keep It Simple Stupid article, check it out first.

Therefore, I love price action so much and why I fell in love with it to begin with; it’s simple, yet effective. Tired of all the confusing trading indicators? Well, guess what? You don’t need them, AND they are hurting you. Don’t ask me how I know this, but let’s just say I’ve been at this for 16 years and the early days were filled with indicators and over-thinking, over-complicating and losing money.

Risk taking is painful. Either you are willing to bear the pain yourself or you try to pass it on to others. Anyone who is in a risk-taking business but cannot face the consequences is no good. There is nothing like danger to focus the mind, and I do need the excitement connected with taking risks to think clearly. It is an essential part of my thinking ability. Risk taking is, to me, an essential ingredient in thinking clearly.

I love this quote. To me, he is saying that if you don’t enjoy taking risks, specifically financial risks, you aren’t going to survive as a trader. Risk helps focus the mind he says, I am the same way; I feel like I am more keen and aware of the market when I have money at risk. But, there is a fine-line between being focused and being over-involved and over-trading. Risk can make you focused, but you don’t want to spend all your time watching the charts, this can lead to trading addiction.

The key point is, you must really love this ‘game’ to thrive at it. Some people just are not mentally cut out to take financial risks and be able to operate effectively in the market with their money on the line. That’s OK, this isn’t for everyone, but me personally? I love it. You probably do too, that’s why you’re reading this ;).

If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.

Trading how you should trade to make money is relatively routine and predicable. Meaning, there shouldn’t be huge ups and downs and changes in your trading routine. You should be going through a predictable plan of action each day as you analyze the charts and there shouldn’t be a huge variance in your trading behavior each day.

If you are over-trading and risking too much (gambling) you are experiencing high-highs and low-lows, emotionally speaking (and financially). This can be fun and even thrilling, but you’re going to end up broke. You don’t want to end up broke so try to make your trading as ‘boring’ as possible. By ‘boring’ it doesn’t have to actually be boring – it just must be non-emotionally-charged. Learn to love the ‘pain’ of routine and that routine will turn into profitable trading habits. Someone much wiser than me once said, “Suffer the pain of discipline or suffer the pain of regret”, let that permeate through your mind for a while.

Short term volatility is greatest at turning points and diminishes as a trend becomes established. By the time all the participants have adjusted, the rules of the game will change again.

What Soros is saying here is that volatility is greatest when investors without conviction cannot hold their position as the trend begins to change. The early adopters of a trend are the most knowledgeable and have the greatest time horizon, so they can hold through the normal ups and downs that occur in the markets. As the trend gets older, the latecomers (newbies), who are simply chasing the past performance (they FEEL good now that the trend seems cemented), have little conviction in the trend and can be easily shaken out when the original investors begin to take profits and move on. In short, the weaker hands in the market get scared at the slightest move against their position and most of these people naturally tend to enter when the trends are very old and concomitantly about to change course.

That high level of volatility is indeed a telltale sign of turning points (both up and down) in the markets. For a price action trader, volatility is our friend and if you know how to read it properly it can be very profitable.

I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.

Finally, just like Soros, I too have survived this long in the market by recognizing my mistakes, admitting I was wrong and fixing the problem. It also means that I recognize when a trade I entered is not right and get out.

Trading is not for the person who cannot admit they are not perfect or when they’re wrong. You are going to be wrong a lot in trading, especially in your early / learning days, so get used to it, embrace it and LEARN FROM IT or pay the price.

Conclusion

George Soros made his initial fortune by taking a contrarian position; he bet that the British Pound would sell-off when it was high and seemed strong and most people were long. Soros was able to do this by being an astute student of the markets and charts. In my article on the false break trading strategy I even include a chart that shows there was an obvious bearish daily fakey sell signal in the GBPUSD the day before it collapsed. I’m willing to bet Soros saw that reversal signal as the ‘final straw’ for him to short. Either way, he was a contrarian at heart and therefore I feel such a strong connection with his approach.

When you learn to read and trade from the natural price action on the charts, you inevitably start thinking more like a contrarian and less like a herd-follower. You stop being afraid because the chart starts making more sense to you. Fear comes from lack of knowledge, from not understanding that which we are afraid of, and you certainly cannot be good at something if you fear it. You can eliminate your trading fear by gaining more knowledge and learning to trade price action. If there is one thing we can say to summarize George Soros’s trading success, it’s that he developed his trading abilities so acutely that he had no-fear of taking any trade, and we can see the pay-off of such an ability in his famous billion-dollar win shorting the British pound.

What did you think of this lesson? Please share it with us in the comments below!

Set and forget trading is a phrase that I coined several years back in an article I wrote on the topic. It’s a trading approach that works if you follow it, to put it simply. For this reason, I write about it often, and those of you who have been following me for some time no doubt understand the main benefits of the set and forget trading approach.

However, in today’s lesson, I want to focus on the psychological aspects and benefits of the set and forget approach and why it will help your trading performance, based on my personal experiences.

We get many members who email us regularly with success stories after they have adopted the set and forget approach. Hopefully, more of you will start trialing this concept because there is nothing that makes me happier than hearing my students’ success stories.

As you may already know from some of my other articles on this topic, set and forget trading works partially because of the way it helps you to systemize the entry, stop and target of your trades. By allowing the edge to play out uninterrupted, without you fiddling with it for arbitrary reasons, your long-term trading performance will improve simply as a ‘side-effect’.

However, there are also some very important mental benefits of set and forget trading which I don’t often discuss.

In this lesson, I want to focus on the psychological benefits of set and forget trading to help more of you make the mental transition to this style of trading. By committing to the trade completely before you even place it, it means you’re identifying the trade, placing the orders and walking away with very little monitoring. It also means being at peace and avoiding the emotional ups and downs that come with watching your trades as they are live. It means walking away and letting the market ‘do the work’ whilst you go do something more productive or fun. It means removing yourself from the temptations of chart-watching and getting influenced by chart whipsaws from news releases, short-term volatility and so on. In short, it means setting and forgetting!

By understanding the mental advantages of set and forget trading, perhaps you will gain a deeper understanding of its power and begin trading this way sooner.

Mental advantages…

1. Significantly Reduce Stress & Emotional Ups & Downs

Trading can be as stressful or as stress-free as you want it to be, it all depends on what you do. If you sit there staring at the charts all night when you should be asleep, you are doing to drive-up your body’s stress response and your cortisol (stress hormone) levels will sky-rocket both from the lack of sleep and from over-thinking about your trades.

Now, as if the stress wasn’t bad enough, it’s going to get worse. You’re also going to hurt your trading performance by doing what I described above, this will work to further increase your stress levels. Eventually, you will be tired, angry, frustrated, on the verge of tears and left with an empty trading account.

By employing my set and forget trading approach, you can eliminate all this stress, worry and losing! Show me a set and forget trader and I will show you a stress-free trader who is on the path to trading success. There have been studies done on investors / traders and their trading performance in relation to their trading frequency, and they always show that less-involved traders do better over the long-run. Similarly, even though trading is a male-dominated arena, when women do step into it they tend to do much better on average than men. Why? Simple; they do not over-trade as much and they do not risk too much like many men do. The reason has to do with men having higher testosterone levels (a hormone that makes men take more risks and feel over-confident, things that can hurt you in trading). I have an article in which I discuss this female vs. male trading phenomena more in-depth, check it out: What is The Weakest Link in Your Trading? Suffice it to say, us men are not always right, and we can and should learn from women sometimes and trading seems to be one area where we can benefit from their seemingly innate ability to set and forget their trades.

2. Help Cure Your Obsessive Chart-Watching

Have you ever heard of positive reinforcement? It’s when you get a reward from doing the right thing, this will then reinforce whatever the ‘right thing’ was that you did so that hopefully you keep doing it. It works on kids and it can work on adults too, especially in trading.

When you watch charts all the time, you are probably going to lose money, so the chart-watching is a negative behavior. The tricky part here is that the act of chart-watching can feel very good while you’re doing it (dopamine – the chemical in your brain that gives you the rush you get from the ‘hope’ of making money), so you are essentially getting a mental reward from committing a negative behavior and you are reinforcing a negative behavior by continuing to do this. Therefore, traders get stuck in an addictive cycle of watching charts, making the same mistakes over and over and losing money.

But, YOU CAN STOP THIS and YOU CAN REVERSE IT! By utilizing set and forget trading you can literally begin to reinforce positive behavior rather than negative. This will work like a positive feedback loop in which the improved performance you see from behaving properly in the markets works to make you want to continue that positive behavior. It’s no different than someone who sticks to a regime of exercise over a period of months; soon enough the endorphins and improved strength and energy-levels begin to reinforce the behavior of working out consistently. Yes, in the beginning it may seem like a ‘boring’ chore you don’t want to do and it may even hurt a little, but rest assured, that pain is good for you.

Setting and forgetting your trades is truly the key to eliminating almost every negative trading behavior that traders have. You need to implement this sooner than later.

A man smarter than me once said; “Suffer the pain of discipline or suffer the pain of regret”. That means, pay your dues, be disciplined now and it will pay off later, or you can continue to act lazy and undisciplined and you will suffer the pain of regret later.

3. Sleep at Night – Know What You Stand to Lose or Make

Sleep is critical to all physical and mental process in the human body. There are thousands of studies on this. I can tell you for a 100% iron-clad fact that IF you are losing sleep from watching charts and worrying about losing too much or not winning enough, you are hurting your trading performance and you are starting down the road to reinforcing negative trading habits as we discussed in point 2.

When you are using set and forget trading, your stop loss and profit targets are pre-defined, so you know what you stand to lose and what you stand to win on any given trade. I can tell you from experience, this makes it a lot easier to get and stay asleep at night so don’t under-estimate this benefit!

This brings up another point: When you know what you stand to lose or win on a trade it goes a long way towards eliminating greedy behavior. Greed is a huge reason traders fail. It causes them to hold trades too long whether the trade is moving in their favor or against them. How many times have you been in a big winning trade and you didn’t take the profit because you had no profit target or because you moved your profit target from its initial setting? This is greed. Being greedy inevitably causes traders to end up with no money.

Bulls make money, bears make money, Pigs? Pigs get slaughtered! That is one of the oldest Wall Street sayings and it rings louder than perhaps any other, still to this day.

When you set a profit target and stick to it, you aren’t being greedy, so over-time you should end up making money. When you set a stop loss and stick to it, you can pre-define your risk to a dollar amount you’re mentally OK with (potentially) losing. When you adjust your risk properly and you know what you can lose, you should have no problem setting your trade and walking away.

Disclaimer: There is never a 100% certain outcome for any trade and losses can sometimes exceed stop losses due to slippage.

4. Exercise the Mental Muscles of Routine & Discipline

When you make the commitment to start set and forget trading, you are kicking off a process that is self-reinforcing and will continue to strengthen the longer you use it. The power of routine and discipline, of repeating an effective system or process and staying accountable to THAT, will help you accelerate your development of the proper trading habits.

Once you have the proper trading habits in place you will see improved trading performance which gives rise to a huge surge of trading confidence in both yourself and what you’re doing. This reinforces the routine you started with and it all stems from committing to the set and forget trading approach.

Here is what this looks like in a diagram. Notice that set and forget is in the center, because it really all starts with that idea – once you commit you will quickly figure out the proper trading routine from the help of my articles and trading courses, then it really starts to almost ‘take care of itself’ as long as you stay disciplined and stick to the set and forget plan.

The set and forget ‘wheel’ of trading success:

5. Confidence Through Achieving Better Trading Results

Confidence in business, trading or even in your personal life is something that truly is so important that it has no dollar value; it is invaluable. Confidence breeds more confidence and it works to reinforce those positive trading habits we discussed earlier. By trading properly not only are you reinforcing positive trading habits but you’re breeding confidence in yourself and your ability to stick to a plan, this confidence helps you stick to what was working. It’s all a positive feedback loop as I said before.

Confidence is spawned by the momentum of winning trades or at the very least, having better trading experiences and having more control over the capital in your account; the strategic planning that set and forget allows, that results in improved results. It’s not going to happen all at once, but over time, when you master this style of trading, you will start to feel more in control because you’re controlling the things you can and not trying to control the things you can’t (the market’s movement is uncontrollable).

Being more confident will spawn more motivation to continue mastering the act of finding the trade and placing the trade. It’s just like the earlier example I gave of exercise; when you get over the initial ‘pain’ of it or the initial ‘I don’t want to do this feeling’ and you start seeing positive results, it’s going to inject you with a whole boat-load of motivation and confidence that will work to fuel your on-going progress and quest for being the best. This will give you the willpower and discipline you need to make it as a trader.

Conclusion

I focus on the set and forget approach and 95% of the time I will resign to the fact I’m about to lose XYZ or make XYZ on a trade; this works to eliminate the potential of making emotional mistakes. The expectancy of my trading method combined with the set and forget money management approach has helped me, as well as many of my students improve their trading. It’s not an exact science, and of course there will be times trades are adjusted and there are times that no amount of mechanical money management can override the natural human emotion of trading, but we are not after perfection, we are after training and exercising the mind to be able to let go of the need to control the outcomes and control the market, after all the market is going to do what it’s going to do with or without us watching it or trading it. All we can do is control ourselves and our own behaviors in the market and that is what set and forget trading is all about.

What did you think of this lesson? Please share it with us in the comments below!

A curious fact of trading is that you can take two different traders and give them the exact same chart and even the same trading pattern, and you will end up with very different results. With everything else being equal like knowledge, trading experience and access to information, why do two different traders behave so differently when they are looking at the exact same market data?

I started thinking about this when my friend and I had been discussing a chart of a market we both had open trades on. At that time the market was moving against both of us quite severely and it struck me as odd that we had very different views even though we had the same trade on and the same thing was happening. I had concluded it was probably due to the fact one of us had a much larger position than the other, and one of us was clearly far less attached to the trade/chart because they had much less to lose and less skin in the game.

This is of course just one of the possible reasons we saw this trade and the chart of this market very differently; in fact, there is a plethora of reasons we could have both reached different conclusions and I wanted to write a lesson and bring these factors into the spotlight. You may read these points and start nodding your head and have one of those “aha” moments, and hopefully this gets you thinking more about the fact that multiple perspectives can exist at the same time in the market, i.e., yours and your opponents (those on the other side of your trade). Thinking about these different perspectives and WHY they might exist will only work to make you a better trader.

Over-committed position

It is my belief that the more money a trader risks on a trade relative to their overall net worth, the more emotionally invested in that trade they will be. It seems like commonsense perhaps, but the implications of this are quite profound…

When you become over-committed to a trade or to an investment, you are FAR more likely to make a mistake. For this reason, two traders can literally be in the exact same trade, but if one has risked a much higher percentage of their net worth, they are most likely going to see the chart much differently and react to it much differently, than the trader who has risked a ‘safer’ amount.

The take-away point of this, is that the more money you have at risk, the more emotionally-charged you will be at every up and down tick of that chart. When you are very emotional about a position (usually due to being over-committed, money-wise) you are more likely to see a short-term reversal in that position as an impending market correct that may go well past your entry point, causing you to lose money. So, what do you do? Inevitably, when faced with this powerful emotion of FEAR, you will exit that trade for probably either a very small gain relative to what you had (since you’re exiting as the market is coming back towards your entry) or you will exit near breakeven. Granted, this is still much better than a loss, but it can be very painful and mess with your trading mindset, leading to more mistakes.

To the trader who wasn’t over-committed, that same correction may have been viewed differently; as a simple market correction. That trader may have held the trade and now is well into the money as the chart turned around just as the previous trader bailed.

This is really just one of many examples of how risking too much or being over-committed to a position can cause you to panic and self-sabotage your trades.

To reiterate my point; two traders, one has risked way too much, the other has risked a much smaller amount, the one who risks too much will almost always panic and mess up the trade, the one who didn’t risk too much is more likely to have a favorable trading result.

Bias of no position or position

Simply by being in a position, by having ‘skin in the game’ so to speak, you may view the chart differently than a trader who has not taken a position in that market. Even if you are staying within your per-trade risk parameters and following your trading plan to the T, you are going to be at least slightly influenced by the fact that you have your hard-earned money on the line and could potentially lose it. This is essentially why trading is not easy and it’s not for the weak minded or easily shaken personality.

It’s a curious fact that when you are demo-trading with paper-money, you are probably going to get better results than when you trade live. The reason is, it’s paper-money, not real money. The key to trading success truly is trying to forget about the money and trading the markets as if it’s all a game and the money is just a way of keeping score, a tally of points, so to speak. The only way to effectively do this is to NOT be over-committed. You have to basically try to see the chart as if you have no position in the market, even if you do.

Recency bias based on trade outcomes

Two traders, trading the same setup on the same chart may see that chart differently due to something called recency bias. Recency bias means you have a bias or an opinion / feeling about something due to an experience you had recently with that same or similar thing. So, trader A may have seen this ‘same’ scenario before and had a trade on and lost money, whereas trader B may have made money on market conditions similar to what they’re seeing now.

As stated in an article in USnews & World Report titled 7 Behavioral Biases that May Hurt Your Investments:

It’s no secret that retail investors tend to chase investment performance, often piling into an asset class just as it is peaking and about to reverse lower. Because the investment has been climbing higher recently, investors believe that will remain the case.

As humans, we are all influenced by recent events more heavily than past ones, it’s just part of being human. This can be good and bad in trading. Market conditions that are trending strongly lend to recency bias being beneficial; because if you keep getting in the trend on pullbacks you’ll likely keep making money. However, when the trend changes and the market starts moving sideways, you are likely going to get chopped up if you don’t quickly read the price action and figure out the conditions are changing.

Interestingly, there are many different personality biases that can affect how any individual sees the market.

Too attached to the market or to the initial view

People can become emotionally attached to charts / certain markets or just to their initial view on a chart for a variety of reasons, not only from being over-committed financially.

Take a trader who has researched a certain market extensively and studied the chart a lot, they are probably going to become very attached to a view once they take one. They will feel their time spent studying XYZ market has to have been worth something and they can’t bear to think the market isn’t doing what they want. This causes them to look for news articles and web stories that support their view on the chart (after all, you can find any opinion on anything online). This is essentially letting arrogance and ego dictate your trading behavior. You can become over-attached to a chart simply because you don’t want to believe you are wrong or that all your research has been for naught.

This is essentially what is called the over-confidence bias. This is caused by spending too much time studying a market and ‘convincing’ yourself you are right about what will happen next. Traders also get over-confident after a winning trade because they tend to become overly-optimistic about their recent decision and attribute too much of the win to something they did rather than just a statistical occurrence of their edge playing out.

To learn more about different behavior biases, check out this article from internationalbanker.com: Why Biases Lead to Irrational Investment Decisions, and How to Fight Back

Another trader who maybe doesn’t have this mental hurdle because they haven’t done the research and the study is arguably at an advantage to the trader above. When you spend less time on something you are naturally more neutral and less committed to it. This gives a fresh perspective and more importantly, a more objective one.

In trading, objectivity is key and this is why I am generally against trading the news or paying too close attention to fundamental data. Beyond learning to trade price action and understanding basic trading terminology, there is no real advantage to increasing amounts of market research, in fact, it may actually hurt you because of what we have just discussed.

Indicators vs. clean charts

One obvious reason two traders will view the same chart differently is indicators. Some traders like to plaster their charts in technical analysis indicators that literally make the charts look like a piece of modern abstract art.

The trader who uses clean, simple price action charts without indicators plastered all over them, will inevitably have a different perspective on the same market; a clearer and more accurate one.

Trend follower vs contrarian

Similar to the above point, there is truth that two traders who have historically made money trading the markets different ways, are going to see the same chart differently. For example…

Trader A may see a chart going up, but because he is a natural contrarian (wants to trade opposite to near-term momentum) he wants to short into the strength, ideally at a key level, because he has made money doing this before (recency bias). He hates trading with the herd.

Trader B may see that same chart going up and he is looking to go long! Because he too has made money doing this. He has traded trends and made good money. He can’t ever seem to go against the herd.

Neither approach is necessarily right or wrong; there are multiple ways to skin a fish, so to speak. Whilst it is more dangerous to trade against near-term trends, some traders just have a knack at fading the market, or picking the places the market will reverse (contrarians). However, for most traders, sticking with the trend is the best bet.

The point is that each person is going to see the exact same chart, setup or pattern in the market a little bit differently and for a variety of reasons discussed above, react differently to the same market movement.

Conclusion

Two traders can indeed see the same chart differently and more often than not they will get different results from the exact same trading setup on the exact same chart. The common unifier in trading is the price action on the chart, it really is the great equalizer. The price action takes into account ALL variables affecting a market and that have affected it in the past and displays it to you in a relatively easy to read clue-packed ‘portrait’. Learning to read the price action is how you can eliminate or greatly reduce most of the variables in the markets that confuse and complicate the trading process for most.

Most of the reason two traders see the same chart differently is due to lack of discipline. Some traders chronically risk too much per trade, which obviously greatly influences their perception of what a market is doing and what it might do next. Whilst I can teach you the importance of discipline and explain to you why you need it, I cannot force you to actually get and stay disciplined in your day-to-day trading routine. I can show you the door to trading success via my trading courses and I can lead you to the proper path, but I cannot make the journey for you, that is up to you. So, what you have to decide next is how are you going to view the same charts everyone else is looking at? Will you view them through emotionally-charged eyes and indicator-riddled screens, or will you view them through calm, collected eyes with smooth, clean charts? That is also up to you…

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