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The Seven Secrets of the Highly Successful Trader

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1. TAKE COMPLETE RESPONSIBILITY

The successful trader knows that every action he takes is his/her action. You will never meet a successful trader who is looking to blame someone or something else for his or her losses.

This is a critical step in understand how to become a successful trader because until you take complete responsibility for all of your trades, you will never feel comfortable with your system and you will never reap the rewards.

Additionally, when something goes wrong with a trade or an investment endeavor, the traders who take complete responsibility for their actions will look at those “failures” as learning experiences.

The trader who takes responsibility will try and determine what went wrong and what needs to be done in order to avoid similar mistakes in the future. The trader who does not take complete responsibility will simply say “the market wasn’t right” or “my broker is an idiot”.

That trader will likely make the same mistakes again and will never understand why he/she cannot win in the stock market. This step is critical.

Before all else, you must accept everything that you do as your responsibility. The game can only be won out of luck if you don’t follow this first step.

2. HAVE A SYSTEM THAT FITS YOU

Every successful trader, investor, money manager, etc. has a system that perfectly fits his or her ideals and personality as an investor. The system really doesn’t matter, it’s secondary.

Value investors like Warren Buffet have made millions with their value approach. Day traders have made millions with their system.

I have colleagues who have made millions with momentum investing. So it can’t be the system per se. Instead, it’s the fact that those winning traders have discovered and developed the system that fits them best.

If you are a very worrisome person who absolutely cannot take losses without getting ulcers then I would not suggest day trading as part of your system. On the other hand, some investors would go crazy if they had to buy a stock and hold on to it for a year or two.

So how do you find a system that works for you? You have to work backwards by discovering what your objectives are.

What annual rate of return are you looking for?

Do you want to trade full time or just leisurely?

Would you get stressed with daily gains and daily losses?

Are you extremely patient with your investments?

Do you need to make lots of decisions?

Which trading systems do you know and feel comfortable with?

How much research have you done?

There are so many questions to ask yourself because it is absolutely vital that you choose a system that really works for you.

If you are not comfortable with your system then you will always be tempted to break your rules. Your health will likely suffer as much as your portfolio.

3. PLAN A TRADE AND TRADE A PLAN

The point of this rule is that you must develop a system that is right for you and then stick to it no matter what. As a result, your plan must be able to cater for every eventuality.

Once you put your money down then you no longer can control what happens. You won’t know what the prices will do so you can’t worry about anything except following your plan.

What will your entry be?

What will your exit be?

What happens if there is a merger?

What happens if the price gets close to your stop order?

Do you see what I’m getting at? You don’t want to have to answer these questions AFTER you put your money down! You want everything to be automatic by that point.

So make sure that your system plans for everything. Then you just need to follow your rules and you won’t have to think (or stress) at all.

4. WORK HARD AT LEARNING HOW TO TRADE PROPERLY AND KEEP WORKING

In other words, once you have put the time and energy into determining your system, your work is not done. You have to constantly evaluate and assess your system via education.

Now, I’m not saying that you have to worry about your plan every time you make a trade. That would contradict Secret number 3!

What I’m saying is that if you were a brain surgeon would you stop learning new techniques and new technology after you finished your internship? I certainly hope not!

Hopefully, you’ll keep educating yourself so that, at minimum, you can keep up with the changing times. At maximum, you keep improving until you become one of the best.

Keep learning … even when you think you know everything there is to know about investing.

5. POSITIVE SELF-BELIEF

The top traders know that it is the discipline displayed in following their rules that make all the difference. If you do not believe in yourself and your system then you are going to have difficulty following your rules.

Following your rules is the most important aspect of successful trading. But even if you do follow all your rules, if you are constantly doubting yourself then you aren’t going to have any fun at all, plain and simple. You will be miserable.

Although this step is important, it should come naturally if you follow the other rules because positive self-belief can be obtained through repetition and success.

If you follow your rules and continue to strive towards developing and sticking to your system then the success of your plan will likely improve your belief in yourself and your system.

If you are not believing in yourself then there may be a problem with your system … it may not be suited for you.

6. VIEW TRADING AS A SCORE IN POINTS AND NOT MONEY

Simply put, forget about the money. Follow your rules and pretend you are playing with chips. Be happy that you stuck to your rules and are winning the game.

But if you think too much about the money then the losses will eat you up. You have to look at the big picture and the best way to do that is to forget about the money.

In action terms, it means to stop looking at the newspaper every morning to see if your stock has gone up or down.

If it hasn’t triggered one of your actions (like exit or another entry) then don’t worry about it because it doesn’t concern you until action is required.

If you stick to your rules then you really shouldn’t even need to know anything about your stocks or your money until action is required (and even then you can automate most of those processes).

The top traders never saw their trading as a cash box. They were either running a business or playing a game.

It just is not possible to become a top trader if you view every single tick in the market as money lost or money gained.

7. KEEP TRADING AS PART OF A BALANCED LIFE

This is an extension of Secret #6. Trading is stressful no matter who you talk to. Money is stress. So do everything you can think of to eliminate this stress. You will be happier and you’ll be more successful.

I have met hundreds of successful traders and one thing they all have in common is their lack of stress. They all have hobbies, families, friends, sports, and leisure activities that allow them to follow their rules without stressing about every move. It’s amazing!

I explain the stories in my book but I can tell you right here that my trading results went through the roof once I took a break from trading to pursue other activities.

For years I thought I needed to spend every waking hour thinking about and developing my trading career. I became so stressed when the results were poor and so happy when the results were good.

It was a roller coaster of emotions and stresses. I needed a break so I took a sabbatical for several months (but I left my rules intact and on auto-pilot with my broker).

I returned to the best results of my career. I realized that my constant presence was only hurting my chances.

From that point on I realized that I needed to make trading only one (of many) facets of my life.

Mar

10

2010

Sun Tzu – The Art of War

The Oldest Military Treatise in the World!

The Principles of Warfare:

Calculations!
Sun-tzu said:

Warfare is a great matter to a nation; it is the ground of death and of life; it is the way of survival and of destruction, and must be examined.

Therefore, go through it by means of five factors; compare them by means of calculation, and determine their statuses:

One, Way, two, Heaven, three, Ground, four, General, five, Law.

The Way is what causes the people to have the same thinking as their superiors; they may be given death, or they may be given life, but there is no fear of danger and betrayal.

Heaven is dark and light, cold and hot, and the seasonal constraints.

Ground is high and low, far and near, obstructed and easy, wide and narrow, and dangerous and safe.

General is wisdom, credibility, benevolence, courage, and discipline.

Law is organization, the chain of command, logistics, and the control of expenses.

All these five no general has not heard;
one who knows them is victorious,
one who does not know them is not victorious.

Therefore, compare them by means of calculation, and determine their statuses.

Ask:

Which ruler has the Way.

Which general has the ability.

Which has gained Heaven and Ground.

Which carried out Law and commands.

Which army is strong.

Which officers and soldiers are trained.

Which reward and punish clearly, by means of these, I know victory and defeat!

A general who listens to my calculations, and uses them, will surely be victorious, keep him.

A general who does not listen to my calculations, and does not use them, will surely be defeated, remove him.

Calculate advantages by means of what was heard, then create force in order to assist outside missions.

Force is the control of the balance of power, in accordance with advantages.

Warfare Is the Way of Deception:

Therefore, if able, appear unable, if active, appear not active, if near, appear far, if far, appear near.

If they have advantage, entice them;
if they are confused, take them,
if they are substantial, prepare for them,
if they are strong, avoid them,
if they are angry, disturb them,
if they are humble, make them haughty,
if they are relaxed, toil them,
if they are united, separate them.

Attack where they are not prepared, go out to where they do not expect.

This specialized warfare leads to victory, and may not be transmitted beforehand.

Before doing battle, in the temple one calculates and will win, because many calculations were made.

Before doing battle, in the temple one calculates and will not win, because few calculations were made.

Many calculations, victory, few calculations, no victory, then how much less so when no calculations?

By means of these, I can observe them, beholding victory or defeat!

*** If you think that war has casualties then …

What do you think about day trading in stocks?

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Mar

05

2010

Citi, Wells Fargo to Repay $45 Billion in Bailout Funds

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Citigroup [C 3.70 -0.25 (-6.33%) ] and Wells Fargo [WFC 25.49 0.08 (+0.31%) ] said they were paying back funds to the U.S. government, in transactions that will end taxpayers’ capital support of the biggest U.S. banks much sooner than had been expected.

Uncle Sam and money

With regulators signing off on the plans, the U.S. government is signaling that it is comfortable removing some of the support it has provided to banks since the failure of Lehman Brothers created pandemonium in financial markets in the fall of 2008.

The banks are hoping to escape some of the added regulatory scrutiny that came with U.S. support. The Obama administration’s pay czar, Kenneth Feinberg, had to sign off on pay for Citigroup’s top 100 employees after the bank received more than $45 billion of capital over three bailouts.

Wells Fargo received only one government capital injection of $25 billion and was subject to fewer restrictions.

Both banks faced pressure to repay the United States after Bank of America[BAC 15.63 --- UNCH (0) ] announced plans to sell more than $18 billion of equity to help repay the $45 billion it received from the government under the Troubled Asset Relief Program, analysts said.

Citi and Wells Fargo became the last big banks to leave TARP.

But the government and the banks that have left TARP are taking a risk. If the economy weakens considerably next year, more bailouts could be necesssary.

Citigroup Chief Executive Vikram Pandit is giving up a government guarantee the bank had against excessive losses on $250 billion of assets. The bank has yet to consistently post real profits from its banking operations.

Banks are evidently concerned about the economy, and have been reducing their loan books and boosting their investments in risk-free securities.

President Barack Obama told top U.S. bankers on Monday that they had to open up the credit spigot for small businesses and start lending again.

Still, many investors now believe the worst is behind the U.S. economy, in part because of extreme efforts by the government and the Federal Reserve to rescue the financial system.

The United States is more optimistic about the outlook for the banking sector as well. The Obama administration’s projected cost to taxpayers for TARP was cut by about $200 billion last week.

Citigroup said it plans to issue $17 billion of common shares and $3.5 billion of securities that convert into shares in three years to help repay $20 billion of capital it received late last year from TARP.

Citigroup’s share offering is expected to be sold on Wednesday.

The government, which owns about 7.7 billion of the bank’s shares worth about $28.5 billion, plans to sell up to $5 billion of Citi shares alongside the bank’s offering.

Wells Fargo plans to sell $10.4 billion of shares, and also raise up to $1.5 billion of equity through asset sales.

Both Citigroup and Wells Fargo are offloading stock to their employees, with Wells selling $1.35 billion to benefit plans instead of contributing cash to them, and Citigroup selling $1.7 billion of common stock to staff pending shareholder approval.

Beyond Wells Fargo’s share sales and asset sales, the bank did not specify how it would fund the rest of its payment to the government.

PAYING THE PRICE TO EXIT

Both banks will enjoy some benefits from exiting TARP. Citigroup will save about $2 billion of interest expense annually by exiting TARP, while Wells Fargo will reduce annual dividend expense by $1.25 billion.

Citigroup will also reduce the government’s say over the bank’s compensation packages beginning in 2010, although the bank cannot pay employees more for 2010 to make up for 2009 pay cuts mandated by Feinberg, a Treasury official said.

But both deals are also bruising for the banks. Citigroup is taking an $8 billion pre-tax loss on the trust preferred purchase, because the securities were recorded on the bank’s books at less than their face amount.

Canceling securities linked to the government’s asset guarantee will result in another $2.1 billion of pre-tax losses for Citigroup. Those losses eat into the benefit of raising capital.

Wells Fargo’s hit to common shareholders will be $2 billion in the fourth quarter.

Both banks are also diluting shareholders, something Wells Fargo executives had said they wished to minimize or avoid.

To avoid extra dilution, Wells Fargo said it was buying out Prudential Financial Inc’s [PRU 49.45 0.56 (+1.15%) ] stake in a brokerage joint venture for cash instead of its prior plans to use cash and stock. Prudential said last week that deal, which closes in January, will boost its investable funds by about $4 billion.

For Citigroup, the dilution to shareholders from its deal is about 15 percent. That is much higher than the dilution to Bank of America Corp’s shareholders when the bank repaid the government earlier this month.

Citigroup received $45 billion last year under TARP. This year, the government agreed to convert $25 billion of those funds into Citigroup common stock, leaving the United States with a stake of roughly 34 percent in the bank.

Dec

14

2009

Did You Read Our Last 8 Posts? (Here’s a Recap)

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Let’s recap what we’ve learned in the last 8 Post here at ChartPoppers.com:

* Stock means ownership. As an owner, you have a claim on the assets and earnings of a company as well as voting rights with your shares.
* Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and have a higher claim than shareholders. This is generally why stocks are considered riskier investments and require a higher rate of return.
* You can lose all of your investment with stocks. The flip-side of this is you can make a lot of money if you invest in the right company.
* The two main types of stock are common and preferred. It is also possible for a company to create different classes of stock.
* Stock markets are places where buyers and sellers of stock meet to trade. The NYSE and the Nasdaq are the most important exchanges in the United States.
* Stock prices change according to supply and demand. There are many factors influencing prices, the most important of which is earnings.
* There is no consensus as to why stock prices move the way they do.
* To buy stocks you can either use a brokerage or a dividend reinvestment plan (DRIP).
* Stock tables/quotes actually aren’t that hard to read once you know what everything stands for!
* Bulls make money, bears make money, but pigs get slaughtered!

Oct

30

2009

The Bulls, The Bears, and The Farm

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On Wall Street, the bulls and bears are in a constant struggle. If you haven’t heard of these terms already, you undoubtedly will as you begin to invest.

The Bulls
A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a “bull” and is said to have a “bullish outlook”.

The Bears
A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a “bear” and said to have a “bearish outlook”.

The Other Animals on the Farm – Chickens and Pigs
Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it’s true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk,

Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it’s often from their losses that the bulls and bears reap their profits.

What Type of Investor Will You Be?
There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, they can both make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in this picture is the pig.

Make sure you don’t get into the market before you are ready. Be conservative and never invest in anything you do not understand. Before you jump in without the right knowledge, think about this old stock market saying:

“Bulls make money, bears make money, but pigs just get slaughtered!”

Oct

30

2009

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