What Makes Successful Trader

WHAT MAKES A SUCCESSFUL TRADER?

The key elements to making money are this: Successful traders interpret correctly and act swiftly! Successful traders have the courage to act and act promptly. I often ask what are the differences between successful traders and not so successful traders are. I get all kinds of relatively good answers of why traders fail, mainly due to the fact that folks share their own bad experiences with me. The reason I give for success is very simple: Generally, a successful trader does not make a habit of consistently buying the high of a given time period and riding the loss out until it “turns around.” Inversely, successful traders do not make a habit of consistently selling the low of a session and riding that loser out. Successful traders have a plan; they follow the market and go with the flow. After all, that is where the saying, “The trend is your friend,” came from. So we need to determine the trend. That is where charts come in handy.

As Figure 2.1 shows, there are but three states the market is in: (1) bullish, or uptrend; (2) bearish, or downtrend; and (3) neutral, sideways, or what is known as a consolidation phase.

 We can see the current trend or conditional state that the market is in. What we can’t see is when and by how much that condition will change. That is one reason why many traders lose they anticipate or guess which direction the market will go; they trade without a plan or set of rules to enter a trade. If you do believe that the markets are an effective mechanism for reflecting the perceived value on a given product at a given time, then you need to learn how to follow the flow of the market. A chart shows the market in its current condition. Until that condition changes, you need to go with the flow. So what signals should you look for when conditions change? When the market is in an uptrend, a simple signal is once the market ceases to increase its assigned value by establishing not only higher highs and higher lows but, most important, when a market stops making higher closing highs.

As for a market that is in a downtrend, when different events occur such as lower highs, lower lows, or, more important, lower closing lows then it is starting to change conditions. If a bearish market or a bullish market changes conditions, it will most likely go into what is called a consolidation or congestion phase. Figure 2.2 shows the market moving from an uptrend to a congestion phase, or sideways pattern. What we need to do then is, first, learn how to anticipate or discover what forecasting tool would help us determine what the potential top of that uptrend would be and, second, understand what clues to look for once it establishes the top to help signal us that the trend may resume or that a reversal of the trend will occur.