The Mindset of a Good Trader

The Mindset of a Good Trader

http://www.stopmarketrisk.com


by GoodTrader Founder of Stop Market Risk http://www.stopmarketrisk.com

Copyright © 2013 Stop Market Risk. All rights reserved.

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Dedicated to my daughter Judith. Your smile and happiness are my source of inspiration.

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Table of Contents Introduction, 5

Focus, 6 Passion for Trading, 8 Self-Confidence, 10 Feel Relaxed, 11 Be Smart and Efficient, 12 Think in Terms of Probabilities, 14 Keep Pushing, 16 Manage Risk, 17 Keep a Trading Journal, 19 Never Stop Learning, 20 Trading Wisdom, 21 Bonus, 24 About GoodTrader, 25

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Introduction Novice traders believe that being a trader is an easy path, however the reality is that trading the markets is one of the professions that require more effort in order to become profitable. The psychology of trading is simple but at the same time difficult to implement because it conflicts with the way we think. In our daily life we do not use the mentality that it takes to succeed in trading. This becomes a barrier that prevents us from moving towards our goal of being profitable traders. You can be a successful trader, but you have to be willing to change to get it. In this little book I outline some notes about the mindset that a trader must have to succeed in the stock market. I think that being able to acquire a proper mindset is that determines the success or failure of any attempt to become a successful trader. I hope you like it and find it useful to take a step forward to reach your goals as trader.

GoodTrader.

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Focus The good trader focuses on the process of trading, not on the outcome. · A doctor heals the injuries of a patient following a series of procedures that he learned before. · A child learns to talk by imitating the sounds made by his parents. · An athlete achieves good records perfecting his technique and practicing. To learn to be a trader, you must first learn the procedures used by other traders, put in practice and adapt it to your needs. There are people that are easily willing to implement the procedures necessary to trade successfully in the markets because they have learned from their environment to have a mindset closer to what is required in trading. Others need more time and practice to assimilate the changes necessary to adapt to the markets. But everyone can become a successful trader if it is willing to focus their efforts on learning and applying the necessary procedures to achieve their goals. To be a successful trader you should focus on the process of trading and establish rules to guide your trading. 6



You need rules that define your trading method. The rules must specify when to open a trade, when to close a trade and how much to risk in each trade. Rules are created to use in your own trading. After a series of trades and after reviewing successes and failures, the rules must be evaluated and improved. A good trader is one who has just successfully completed many cycles of evaluation and improvement of their trading procedures. There is no secret about it, the successful trader is as good as are their trading rules, therefore all efforts should be aimed at improving and refining these rules. Focus all your attention on the process of trading and stop dreaming on quickly achieve wealth by trading in the markets. Profits come when you apply the appropriate procedures in your trading, focus on them and the money will come.

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Passion for Trading The good trader has passion for trading and want to improve as a trader. Passion is an intense emotion that serves as motivation to keep going in an activity. Passion is what allows the trader progress on its path. It is the spark that sets the engine of the progress. Without passion for trading you can not become a successful trader. It's not enough to have a desire to make money in the markets, you must to have something that drives you forward. You need an internal energy that forces you to try to improve your trading regardless of the outcome of your past trades. You may feel frustrated because of a losing streak, but the passion for trading will help you to overcome and try to improve your methods. You will know if you have passion for trading if you spend hours studying any detail related to trading without realizing of time passing. You will know if you have passion for trading if someone tells you that your eyes sparkle when you talk about markets. If money is your only driving force is that you have no passion for 8



trading, money is a product of your passion for trading. Passion drives you to do something to improve. What can you do today to improve your trading? Use your passion for trading to do productive things. Read, study, research and advance toward your goal without looking back. Soon see results in your trading account.

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Self-Confidence The good trader has confidence in itself and in his potential as a trader. Believing in yourself is all about being sure that you are going to reach your goal even if there are obstacles against it. To be a good trader you must believe in your abilities as trader. No progress is possible without being convinced that you can achieve success. Without confidence, you will not be able to overcome the emotions of fear and greed involved in the trading activity. Be confident in yourself is the first step to success. Confidence does not appear by itself, requires taking the time to acquire it. To believe in yourself and your abilities as a trader first you have to learn and train yourself. The best way is to practice trading with as little risk as possible. After a certain number of trades, you will begin to gain experience and confidence, which will lead you to believe in your abilities as a trader. Nothing can disturb the mind of someone who believes in himself and is sure of what he does. The only thing that separates you from your trading goals is time. 10



Feel Relaxed The good trader feels relaxed when open or close his trades. He do not feel nervous or anxious, just follow his trading method. A trade is one of the hundreds or thousands of trades that you will do throughout your career as a trader. No point in being overly excited by a single trade. You must feel detached from the excitation of trading the markets. Trading in the markets is your business, you trade for profit, not for excitation. Search the excitement elsewhere. When you do not feel relaxed about a trade, you may need to consider reducing the position size in half. Keep in mind that trading with excess risk avoids entering into the calm state necessary to operate successfully in the markets. Open your trades being in stress is not good practice, it means you are not sure what you're doing. If you feel nervous, confused or tired the right action is do not trade. When you are charged emotionally are prone to make mistakes that in trading cost money. Thereby you must trade with the force of a quiet mind and having a clear view of the reasons of all your actions in the markets. Never forget that profits come from trading in a state of calm.

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Be Smart and Efficient The good trader operates with intelligence, using proven methods, without being influenced by fear and greed. The smart trader does most of the work when the market is closed. He studies the market situation and stocks in his watch list. It is also when he reviews the performance of his strategy and seek ways to improve it. When the market is closed, the trader can be more objective and is less influenced by emotions and excitement. You should get organized to do most of the work when the market is closed. Establishes a plan of action to follow when the market is open. Thus you will open your trades with less risk of falling under the influence of emotions that may disturb your objectivity. The smart trader will not spend all day in front of the screen following the markets. He tries to be efficient and do only what is necessary. Life is too short to waste time watching the ups and downs of the market continuously. No need for that. You can make money in the markets without burning your eyes following the prices of stocks to the minute. There are very few day traders who earn a living from their trading. 12



Most people who try to day trade end up losing their money and move away from trading, feeling frustrated and exhausted. For most people it is more appropriate adhere to a more relaxed trading style. Trades that may be open for several days or even weeks can offer big returns and require less effort. Avoid doing too much, focus on what is important and minimize work. There is a life to enjoy outside of the markets.

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Think in Terms of Probabilities The good trader knows that there are no certainties in markets, his work is manage uncertainty. He knows that the market can do anything and money is not earned making predictions. He seeks success by applying a method that offers an edge in the long run, forgetting the outcome of individual trades. This edge is obtained when the average profit from his trades is greater than average losses. The result of a single trade is of little relevance because is conditioned by the inherent randomness of the market. The important thing is that the rules that applies the trader provide a positive return after a sufficient number of trades. That is, the goal is to use a trading method that has a high probability of providing profits after making a statistically sufficient number of trades. Your strategy should focus on maximizing the probabilities of winning and minimize the chances of loss. You must search trading ideas in that the size of the loss is small relative to the potential gain. There are only two concepts to consider in any trading strategy: · The average gain must be larger than the average loss. · The number of winning trades with respect to total trades.

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Your job as a trader is to increase the edge of your trading strategy with the improvement of these two concepts. The next time that you evaluate your trading, do not look if the last trade was closed with gains, ask yourself what were the average results of the last 100 trades and think of ways to improve it.

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Keep Pushing The good trader continues pushing forward independently of the outcome. He is persistent and does not give up. The markets offer opportunities every day, just a matter of finding methods to capture these opportunities. The good trader avoids staying in his comfort zone, always tries to step forward and try something new that help him to increase his chances of success. A small change in the stock selection process, testing a new entry setup, investigate a new way of placing stops, any detail can be the precursor of an improvement in your trading results. Never give up your goal to improve your trading, push yourself forward and not get discouraged. You have the ability to improve and achieve success. Persistence is a characteristic common to people who have achieved their dreams and you must be persistent to reach your goal of success trading the markets. Do not hesitate to leave your comfort zone and push yourself toward success.

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Manage Risk The good trader manages properly the risks of open positions in the markets. He knows that risk is the only thing that is a constant in the markets, and therefore devotes much of its efforts on establishing a plan of action to keep risks under control. Note that risk can be minimized but can not be eliminated entirely. There are many risks that haunt the trader, but the most important is the risk of opening too large positions. This creates large swings in the account of the trader causing spikes of euphoria or fear in the mind of the trader. These emotional peaks prevent the trader to act properly in their trading decisions. You should avoid taking excessively large positions in your trades, risking too much into a single trade is the main cause of the downfall of many traders. Another big risk you have to prevent is to let losses get out of control. The average gain must be larger than the average loss, therefore the smaller the average loss, the greater your chances of success. As a general rule you should not let the loss of a single trade grow beyond a one or two percent of the amount in your trading account. 17



You can get it by limiting the size of the position and using stop loss orders. The combination of both become a powerful tool for limiting the risk of open trades. The next risk to consider is the portfolio heat, that is, the sum of the risk of all your open positions in the market simultaneously. If you risk a two percent of your capital on each trade and you have four open positions, your overall risk or portfolio heat is eight percent. There is a risk that all your open positions get closed in losses, which would cause a big loss in your account. You have to limit this loss delimiting the overall risk of your trading account. Do not underestimate this risk because markets tend to be highly correlated and all your positions can move in unison. Always keep in mind the following quote: "The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong." -Paul Tudor Jones

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Keep a Trading Journal The good trader keeps a detailed journal of all operations and market movements, also writes all the information that may be helpful to improve his trading in the coming times. "Show me a trader with good records, and I'll show you a good trader." - Alexander Elder Keep detailed records of your trading will help you to become a better trader, because you will notice your weaknesses as a trader and you can search solutions to apply for remedy it. You have to turn your weaknesses into strengths. The market does not exist for that the weak or the rookie make profits easily, it exist for that the astute and experienced trader take the money from those who know less than him. Keep a trading journal is the best way to improve quickly, to study your successes and failures and move towards your goal. On the markets there is no place for the lazy traders, as they tend to lose their money quickly. Therefore forget the laziness and keep good records of your trading. There is no better mirror of your trading than your trading journal.

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Never Stop Learning The good trader always is learning something new related to the markets. He knows that there is only one way to stay ahead, learn in depth the behavior of markets and apply this knowledge to their trading rules and procedures. The foundations of good trading are the same now that one hundred years ago, but the strategies and techniques evolve at the same rate as the rest of the world. There is always room to expand knowledge and improve: · You should read books written by other traders to form a good base of knowledge about trading. · You should experiment and practice in order to create your own style of trading. · You should interact with like-minded people to improve and accelerate your learning curve. To advance in your goal of being a successful trader don't forget to share what you know with others, the law of reciprocity will propel you ahead as person and as trader.

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Trading Wisdom "Risk comes from not knowing what you're doing." -Warren Buffet

"If youbusiness decide to trade forand a living, youit have treat -Mark it just like any other endeavor go into with atoplan." D. Cook "I don't trade for excitement; I trade to win." -Larry Hite "I learned that an opinion isn’t worth that much. It is more important to listen to the market." -Brian Gelber "At the end of the day, your job is to buy what goes up and to sell what goes down." -Paul Tudor Jones "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." -George Soros "I became a winning trader when I was able to say, To hell with my ego, making money is more important." -Martin Schwartz "You need discipline, patience, and courage. You must have a willingness to lose, but a strong desire to win." -Gary Bielfeldt "There is only one side of the market and it is not the bull side or the bear side, but the right side." -Jesse Livermore "The market does not know you exist. You can do nothing to influence it. You can only control your behavior." -Alexander Elder 21



"I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell." -Tom Basso "You have to cut your losses fast. The secret for winning in the stock market does not include being right all the time. The key is to lose the least amount possible when you are wrong." -William J. O'Neil "Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature." -Bruce Kovner "When in doubt, get out, and don't get in when in doubt." -W.D. Gann "I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities. The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you follow these three rules, you may have a chance." -Ed Seykota "Listen to what the market is saying about others, not what others are saying about the market." - Richard D Wyckoff "You should try to express your enthusiasm and ingenuity by doing research at night, not by overriding your system during the day." -William Eckhart "The realization that you are responsible for the results you get is 22



the key to successful investing. Winners know they are responsible for their results; losers think they are not." -Van K. Tharp "One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do…They just can’t sit there and wait for something new to develop." -Jim Rogers. "Limit your size in any position so that fear does not become the prevailing instinct guiding your judgment." -Joe Vidich "Whenever I focused on the setups and not the results, I did fine. But whenever I focused on the results and not the setups, I got killed." -John Carter "In the stock market, money flows from those who do not know how to trade to those who do." -Steve Burns "The right trading behaviors start as rules and evolve into habits." -Brett N. Steenbarger

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Bonus Download the "Good Trader / Bad Trader" Infographics for Free! Contains +54 tips to help you to become a successful trader.

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About GoodTrader GoodTrader is an Independent Trader and a passionate of the Stock Market. He founded http://www.stopmarketrisk.com with the goal of helping others improve their trading skills. He specializes in Momentum trading, with trades ranging from a few days to a few weeks of duration. An advocate of keeping things simple, teaches his trading methods with emphasis on risk management and keeping the appropriate mindset to trade successfully in the markets.

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The Mindset of a Good Trader

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