A friend of mine and I had a conversation about money and wealth, why some people are wealthy, and why others are not. My friend asked why a small percentage of people in this world end up wealthy. The answer to that loaded question is that MOST people are not mentally prepared to do what it takes to become wealthy consistently. The same thing applies to trading.
Like most people who remain in the middle to low-class, economically speaking, most traders lose too. And the reasons are extremely similar. Excluding unfair variables such as being born with a severe mental or physical disability or being born in an economically deprived part of the world, you’d see that the main reasons most people fail at trading, business, and wealth creation are the same everywhere.
What do the Best 5% of Traders Do Diversely From You?
Stay In Trades Longer
I can guarantee you that the top 5% of traders stay in trades much longer than you do. I’ve written about this topic several times, but perhaps the key lesson for you to acknowledge is the fact that time is the single most overlooked trading component.
Don’t be eager to close trades too early. Use time to your benefit in the markets. Let them ride and allow yourself to catch a big move in the market that will reel in some considerable profits; this is partly how the top 5% of traders reached their current position. Analyze your markets in advance. Recognize potential market turns in advance. Set your trades and forget them. We call it the “set and forget and get a life” strategy. A strategy we live by. Nobody of us wants to replace one 9-5 job with another.
Place Your Stops Appropriately and Intelligently (Not Greedily)
One of the key factors that can develop you into the top 5% of traders is properly placing your stop losses. These top 5% have certainly mastered the art and skill of stop loss placement, and you will have to as well. On this matter, I would advise you to use a wider stop loss than what you think you should. Often, traders have the right idea of market direction or pick a good entry signal. But then, their stop is too tight, and it hits from the natural daily price fluctuations that happen. The secret is to place your stop outside these supply and demand imbalances and away from big institutional orders.
Trade markets with high quality supply and demand zones
To examine the most detailed market view, you’d need to focus on clean high quality supply and demand zones. Regular profitable traders know this. They focus on higher time frame charts, mainly the daily and weekly time frame, and primarily use supply and demand zones to plan their trading decisions. You’d be astonished to find any successful long-term trader who exclusively studies the short time frames and scalp. Scalping or day trading is a bad idea which makes the whole procedure extremely difficult, time-consuming, and stressful for you and lowers your odds of long-term consistent trading success.
Utilize a Clear Arsenal of Trading Strategies
Professional traders know what they want in the markets. They have a definite set of setups, trading strategies and wait patiently for things to line up perfectly for their entry signal to take shape. To succeed, you must have a CLEAR arsenal of trading strategies; you cannot just “wing it” and think you’ll “figure it out.” You will end up “figuring out” that you were wrong and you lost money.
Make a trading plan that includes printouts of the best setups you seek. So, if you choose to trade a supply and demand trading strategy, you need to understand the difference between higher timeframe and lower timeframe zones, the impact of level on top of levels, the difference of freshness and originality, just to name a few. You should have a checklist of sorts that you go through every day before studying the charts and taking a trade.
Apply Sound Risk / Reward per Trade
The top 5% of traders reached that position because they mastered risk/reward. They get the mathematics behind risk reward and make it work by properly placing their stops and targets.
Part of risk/reward is realizing the risk/reward. You’d do that by letting the trades play out without continually hindering them, just like the bottom 95% do. Once you learn to set and forget your trades, your trading performance will improve slowly but surely.
Look For Confluence
Whenever you have numerous factors of confluence in a trade, it includes “weight” or “authority” to that trade setup, meaning that it should have at least a somewhat higher chance of it being of your benefit. Professional traders know that they need to shift the odds in their favor. They do this by knowing what pieces of “evidence” on the charts constitute “confluence” and then wait for those things to incorporate to form a high-probability entry. Essentially, find enough technical chart evidence to support the trade.
Thinking and Acting Properly in the Market
The two predominant things that determine whether you will make money over the long run are how you think and act properly in the market.
You shouldn’t become excessively emotional about your trades or allow yourself to become overly affected by your most current trades’ results – recency bias. Staying calm and confident even when faced with the incessant temptation and difficulties of trading consists of thinking and acting appropriately in the market. For so long, the best 5% of traders have thought and acted properly in the markets that they have built somewhat of a “sixth sense” towards “gut feel” and trading instinct in the market; which results from years of thinking and acting properly about and within the markets.
Compose a Daily / Weekly Market Summary or Journal Their Trades
When it comes to how to become a trader or one of the best 5% traders, you should get “in tune” with the markets to familiarize yourself with what happened, what is happening, and what may happen later. I describe this as “reading the market like a book.” The charts will start making much more sense to you once you start writing a daily summary of your favorite charts, and you will follow the footprint of money. To comprehend how to do this, you can apply at our trading academy. We have dedicated classes only for this topic. Beginning this daily journaling/commentary of the markets will take your trading to a completely new level.
Treat Trading Like a Business
Professional traders treat their trading careers like a business. It consists of costs/expenses (losses, computer equipment, internet data, etc.) and revenues (winning trades). You EARN when your revenue is larger than your expenses, just like any business. Regrettably, the expenses of the bottom 95% of traders get far too large because they lose an exorbitant amount of money from risking too much, trading too often, and not knowing what they’re doing.
Start treating trading like a business by doing everything discussed in this lesson and act “as though” you are already an outrageously successful trader. Remember, you can trade like a hedge fund manager, notwithstanding that you are not yet one.
Get Defeated and Get Back Up (Confidence and Resilience)
I recommend you watch the Rocky movies and use them as an inspiration if you wish to become a successful trader. The way Rocky got beaten up and, irrespective, kept getting up and returning to fight some more is exactly what you should do in the markets.
You will have losses. You will have winners that will be massive winners if you let them run longer. You will have trades that barely miss your target and turn around and stop you out, and you will also have a lot of “near misses” and “losses” as a trader, that if you let those upset you and you get emotional about them, you are doomed. You should be able to try again and stay unruffled. If you feel like you cannot do that, then take a break from the charts until you are calmed down. You can’t get afraid, upset, or livid because you lost a trade. You must be able to get knocked down and get right back up, mentally unharmed and ready to go.
The top 5% of traders recognize that self-discipline is the path to mastering the markets. Oddly enough, the market is not something anyone can master. First, master yourself, then you will start seeing your trading improve.
How do you “master yourself,” you ask? You’d need to start by accepting that you are not perfect like everyone else in this world. Those flaws make you human, and humans do several tremendously silly things in the market because of how we are wired. However, you can have a real chance at rising from the bottom 95% of traders into the desirable 5% group through ongoing trading education, being open-minded, and not accepting failure as an option. Remember, there isn’t any “Holy-Grail” to trading success. Just master yourself, stick to the plan and goal, and do whatever it takes to achieve it, and you will be on your way to trading success.
Author Bio- Bernd Skorupinski teaches the undiluted truth about trading at the best online trading academy and takes you through what it takes to be a consistently successful forex trader. His favorite moment as an expert in the online trading campus who teaches trading is the way peoples’ eyes light up with excitement and confidence when they understand how Supply and Demand trading strategy works and how it can help win in the trading arena.