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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

Swing Trading Strategies and More on the Art of Intraday Weakness

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I was watching Jim Cramer’s Mad Money the other night. I’ve been a Cramer fan since the days before the radio show (What? You don’t remember the radio show?), and I’d gotten out of the habit of watching him.

Cramer had on the CEO of Jardin. After watching the interview, I decided to take a look at the chart of Jardin. How would this company’s stock have looked to a high probability swing trader in the days leading up to the CEO’s appearance on Cramer’s show? What I found was an excellent example of how buying after a pullback – “buying the selling” as Larry Connors calls it – continues to be a winning trading strategy for short term traders.

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One of the easiest ways to spot an extremely oversold stock – a stock which, according to our research, has made significant gains in the short term – is to look for a 2-period RSI of less than 2. If that stock with the 2-period RSI of less than 2 is also trading above its 200-day moving average, then you’ve got a stock worth paying attention to.

Here’s what makes “buying the selling” so powerful as a short term trading strategy. Not only do we wait for a stock to reach extremely oversold conditions, but also we want the stock to pull back even more on an intraday basis.

How much more do we want the stock to pull back? That is up to the individual trader, with intraday pullbacks as modest as 2% and as great as 7%, both working well in our simulated testing going back to the mid-1990s. In the example of Jardin, I used a 3% intraday pullback based on the close with the 2-period RSI below 2. That means that with a close of 27.58, my theoretical limit order would be at 26.75.

That trade would have been filled two days later on November 27th. And two days after that, based on exit strategies you will learn about as a student of the ChartPoppers Newsletter, this trade would be exited for a short term gain of 4.89%.

This is what high probability trading is all about: waiting for pullbacks, entering on intraday weakness at oversold extremes, and exiting on strength. And from this core concept, a wide variety of short term trading strategies have been developed using not just stocks, but also exchange-traded funds (ETFs), options, and e-mini index futures.

Keep in mind this is one strategy out of many, many different strategies! We deal with stocks from the NYSE to the OTCBB, and ever thing in the middle! They all have their own unique strategies depending on the situation, which you will learn!

These strategies and many more are taught to our SUBSCRIBERS ONLY in our eMail Newsletter. And not just trading strategies, but professional applications from hedging and risk management to portfolio building and how to develop a trading “business”.

2010 is right around the corner. Why not make a plan for the coming year to be your greatest trading year ever?

Sign-up using any of the boxes provided throughout the site to get started. You will receive Tips, Tricks, Strategies, Stock Picks and much, much more!!

Dec

15

2009

Buffett’s Berkshire Profit Triples on Stock, Bond Derivatives

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Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. said third-quarter profit tripled on gains in derivatives tied to stocks and bonds.

Net income surged to $3.24 billion, or $2,087 a share, from $1.06 billion, or $682, in the same period a year earlier, the Omaha, Nebraska-based company said yesterday in a regulatory filing. Operating earnings, which exclude some investments and derivative results, were $1,325 a share, beating the $1,267 average estimate of three analysts surveyed by Bloomberg.

Buffett, buoyed by six months of increased profit, targeted Burlington Northern Santa Fe Corp. this week for the largest takeover in his four decades as Berkshire’s chairman. The biggest two-quarter rally in the Standard & Poor’s 500 Index since 1975 lifted Berkshire’s stock portfolio, raised the value of derivative bets and boosted investments he made last year in companies including Goldman Sachs Group Inc.

“You’re seeing the kind of gains that are built into the portfolio decisions Warren has made,” said Tom Russo, a partner at Gardner Russo & Gardner, which holds Berkshire shares. The third quarter “is the ultimate recognition in the results of so many of the investments he made in the sharp market downturn.”

The jump in the price of stocks in the portfolio helped increase book value to $126.1 billion, a 10 percent advance since June 30. Buffett typically highlights book value, the measure of assets minus liabilities, in the first sentence of his annual letter to shareholders.

Derivatives Improve

Berkshire reported $1.73 billion in profit on derivatives, compared with a loss of $1.26 billion a year earlier. Contracts tied to stock markets gained $220 million, compared with an $880 million loss. Credit-default swap contracts, in which Berkshire protects clients from bond losses, posted a $1.44 billion profit compared with a loss of $342 million.

Buffett’s firm was required to post about $50 million in collateral to trading partners on derivatives as of Sept. 30, compared with $650 million three months earlier. The company said it may have to post as much as $1.1 billion more if its ratings are cut, “depending on the degree of the downgrade.” The filing wasn’t more specific.

Standard & Poor’s and Fitch Ratings said this week they may cut Berkshire because of lower liquidity after the Burlington deal. Berkshire will curtail insurance sales to guard capital, the company said in the filing.

Berkshire, which owns National Indemnity Co., General Re Corp. and Geico Corp., said profit from underwriting insurance policies more than quadrupled to $363 million on lower catastrophe costs.

No Significant Losses

The reinsurance unit had “no significant catastrophe losses,” a year after $350 million in costs tied to Hurricanes Gustav and Ike, Berkshire said.

Read the rest of this page »

Nov

09

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

How Stocks Trade

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Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. You’ve probably seen pictures of a trading floor, in which traders are wildly throwing their arms up, waving, yelling, and signaling to each other. The other type of exchange is virtual, composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risks of investing. Just imagine how difficult it would be to sell shares if you had to call around the neighborhood trying to find a buyer. Really, a stock market is nothing more than a super-sophisticated farmers’ market linking buyers and sellers.

Before we go on, we should distinguish between the primary market and the secondary market. The primary market is where securities are created (by means of an IPO) while, in the secondary market, investors trade previously-issued securities without the involvement of the issuing-companies. The secondary market is what people are referring to when they talk about the stock market. It is important to understand that the trading of a company’s stock does not directly involve that company.

The New York Stock Exchange
The most prestigious exchange in the world is the New York Stock Exchange (NYSE). The “Big Board” was founded over 200 years ago in 1792 with the signing of the Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the NYSE, with stocks like General Electric, McDonald’s, Citigroup, Coca-Cola, Gillette and Wal-mart, is the market of choice for the largest companies in America.

The NYSE is the first type of exchange (as we referred to above), where much of the trading is done face-to-face on a trading floor. This is also referred to as a listed exchange. Orders come in through brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buyers and sellers. Prices are determined using an auction method: the current price is the highest amount any buyer is willing to pay and the lowest price at which someone is willing to sell. Once a trade has been made, the details are sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is human contact in this process, don’t think that the NYSE is still in the stone age: computers play a huge role in the process.

The Nasdaq
The second type of exchange is the virtual sort called an over-the-counter (OTC) market, of which the Nasdaq is the most popular. These markets have no central location or floor brokers whatsoever. Trading is done through a computer and telecommunications network of dealers. It used to be that the largest companies were listed only on the NYSE while all other second tier stocks traded on the other exchanges. The tech boom of the late ’90s changed all this; now the Nasdaq is home to several big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. This has resulted in the Nasdaq becoming a serious competitor to the NYSE.

On the Nasdaq brokerages act as market makers for various stocks. A market maker provides continuous bid and ask prices within a prescribed percentage spread for shares for which they are designated to make a market. They may match up buyers and sellers directly but usually they will maintain an inventory of shares to meet demands of investors.

Other Exchanges
The third largest exchange in the U.S. is the American Stock Exchange (AMEX). The AMEX used to be an alternative to the NYSE, but that role has since been filled by the Nasdaq. In fact, the National Association of Securities Dealers (NASD), which is the parent of Nasdaq, bought the AMEX in 1998. Almost all trading now on the AMEX is in small-cap stocks and derivatives.

There are many stock exchanges located in just about every country around the world. American markets are undoubtedly the largest, but they still represent only a fraction of total investment around the globe. The two other main financial hubs are London, home of the London Stock Exchange, and Hong Kong, home of the Hong Kong Stock Exchange. The last place worth mentioning is the over-the-counter bulletin board (OTCBB). The Nasdaq is an over-the-counter market, but the term commonly refers to small public companies that don’t meet the listing requirements of any of the regulated markets, including the Nasdaq. The OTCBB is home to penny stocks because there is little to no regulation. This makes investing in an OTCBB stock very risky.

Oct

28

2009

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