Everyone who trades has heard the theory that only 20% of those who trade make money and the rest lose money.
Anyone who trades tries to be one of the 20 per cent, but keeps trading in the same mindset as the other 80 per cent, with predictable results.
Plant a thought, reap an action;
Plant a behavior, harvest a habit;
Plant a habit, harvest a destiny.
So if you want to make money, you have to change your mindset. How do you develop a winning mindset?
In his famous book, The Psychology of Trading, Mark Douglas argues that technical analysis is not the ultimate way to be a long-term winner. It’s the mindset that makes the difference.
This sentence actually contains two meanings: (1) The master has no choice, only rely on technical analysis can not achieve long-term profit.
Good trading mentality is very important, learn more technology, a bad mentality is useless.
While the winners are different in their own way, on closer inspection, these successful traders all have similar shining points.
Before we start, we need to define what the long-term winners are.
01 What are the long-term winners?
First, the word “long-term” implies steady profits, and long-term winners are not usually sprinters.
A “winner” usually consists of three characteristics: a good trading mindset, a consistent trading strategy, and a strong psychology/mentality honed by the experience of battle — long-term winners are good at losing because of their control of risk;
At the same time, the money curve tends to show a healthy trend.
According to Jesse Livermore, the Wall Street Bear, “My trading principles are based on the contrarian premise that, contrary to human nature, the market fools the majority of the people most of the time.
How to be a minority winner?
We need to start with the mindset of developing long-term winners.
The purpose of trading is to make money, not to have fun or show off.
According to Jesse Livermore, “Wall Street Bear,” my trading principles are based on the premise of contrarian thinking. Contrary to human nature, the market fools the majority of the people most of the time.
How to be a minority winner?
Start by developing the mindset of a long-term winner.
#1 Think in terms of probability Accept all potential risks Experienced traders understand that trading is a game of probability and that random events in a sufficient sample can produce consistent results.
In the face of all the risks that may arise, train yourself to think from the perspective of probability and accept the risks in the heart without resistance and conflict.
When a stop-loss comes in, don’t blame yourself but get something from it, focus on the process rather than the outcome, and continue to execute the trading philosophy.
#2 Build a base mindset by following five basic facts: (1) Anything can happen;
(2) You don’t have to know what’s going to happen next in order to make money;
(3) Any set of variables defined as advantages that are random between the generation of profits and losses;
(4) Advantage: the probability of one thing happening is higher than that of another;
(5) Markets are unique at all times.
Have a belief that you are a long-term winner because: 1) I objectively recognize my strengths;
2) Before each transaction, I measure the potential risks;
3) I fully accept the risk of the deal, or I’m willing to walk away from the deal;
4) I have no reservations or hesitations when trading to my advantage;
5) I make the market work for me;
6) I monitor my chances of making mistakes;
7) I understand the need for these principles to be consistently profitable, and I would never violate them.
A winner’s mindset must be anchored in good money management.
In addition to knowing which currencies to trade and knowing how to recognize entry and exit signals, successful traders must manage their intelligence and apply money management to their trading plans.
There are many money-management strategies, many of which rely on a calculation of core capital — your starting balance minus the amount of money it takes to open a position.
Core Capital and Limit Risk. Try to limit your risk to 1% to 3%.
This means that if you trade a standard forex hand of $100,000 you should limit your risk to $1,000 to $3,000 by placing a stop loss order of 100 points (1 point = $10) above or below your entry point finish.
Adjust the amount of risk you take as your core capital increases or decreases.
Using the balance of $10,000 and opening a position, your core capital is $9,000.
If you want to add a second trade, your core capital will be reduced to $8,000 and you should limit your risk to $900.
The risk in the third transaction should be limited to $800.
In addition, trading in the foreign exchange margin market should not be “rushed”, without a correct and sound strategy and in-depth understanding of the currency’s personality and risk control, it is like gambling.
Risk = net hands in the vault * Market spread * Currency/point value. In the risk factor, the only thing a trader can really control is to calculate the size of the advance over time, plus the number of safe hands controlling the trade.
Orion wrote in his diary that a good trader usually has the following four thoughts: ¢Ù Probability awareness + Risk management A good trader’s first thought should be risk, while the average trader’s first thought is profit.
There is an element of greed in human nature, and most people are probably not very satisfied with the amount they earn.
But as a good trader, no matter how great your past, once you relax your sense of risk, open positions carelessly or get too overweight without a stop loss, the market has a chance to teach you a lesson that can be so costly that it can ruin your life.
There are plenty of big names and celebrities who have made a lot of money, but many of them have burned out or exited the market.
American securities history famous senior analyst Cafero, has set a record of 22 consecutive months of profit without loss;
Bertolstein once made a record $1 billion on Wall Street;
Mikehouse was the richest man on Wall Street for seven years.
But their endings were similar — Cafero died with only five dollars on him;
Beto Stein gained notoriety after spending ten years in prison accused of fraud by hundreds of clients who had made big losses on his advice;
It was even worse for Mike House, who committed suicide at the age of forty-five.
In fact, the root cause is that the past victory made them a little proud, think that they can ride the market, relaxed their guard against risk.
The long-term winners are the ones who clear their mind before they make a trade, knowing that each trade has nothing to do with the last one or the next one.
In this regard, Zifeng uses EXCEL random survival probability as a good example.
Fifty random tests in a row, with a 50% success rate, a lot of people assume that two or three positive tests in a row will be followed by a negative.
However, as shown in the figure below, the experiment found that 7 consecutive positive and 5 consecutive negative are possible.
If you do not understand the probability is random distribution, many people will enter impulsively after several consecutive profits, because the list is in the trend of the big market on the heavy position or frequently add positions, which is very dangerous.
¢Ú Wait and find the market more than 80% of the time, the market is doing irregular shock.
On an annual basis, there are only a few big trends.
There’s a famous saying in the stock market: You can make as much profit as you can wait.
But if we can catch these waves, we have a lot to gain.
A good trader uses small orders to test the direction of the market. When he feels that the market is volatile or the trend is not clear, he can choose to leave with small profits or small losses, or simply do not make orders. He can relax his mind by reading, traveling or working.
This is because in a long time in the tangle of the market for a long time to stare at the disc, will disturb a person’s mind, over time will change the original right way of thinking.
In the uncertain market, you can not go to the plate, good wine needs a long time to brew, the big market needs to wait patiently.
When the opportunity is ripe, good traders will make full use of it: for example, gold after the non-agricultural market every month, crude oil after the OPEC meeting, the euro after the European Central Bank meeting. At this time, the market will often be boosted by the fundamentals, driven by funds out of a clear trend, traders will have a high probability of profit by following this trend.
There is a famous saying on Wall Street: “A good analyst does not make a good trader. The market does not need analysis. It just needs to see and do.”
Of course, there are also successful market veterans who tell us, “no roots float empty joy, do not know the true person.”
Major forums, chat rooms filled with a variety of views, immersed in a long time, in the end who should believe?
A good trader must have the ability to think independently. Your trading logic does not have to be approved by other traders, bosses or analysts. The result is not up to them, but to the market.
Whenever a variety of products in the market suddenly active, then all kinds of so-called veterans and analysts will come out, some sing long, some sing short, make everyone confused, don’t know what to do.
The ancient idiom “Handan learning to walk” tells the story of a man from the State of Yan who went to Handan, the capital of the state of Zhao. When he saw the people there walking beautifully, he followed suit. Instead of learning, he forgot the way he had walked before and had to crawl back home.
Therefore, if you want to become a good trader, you must have a basic judgment of the market and have your own set of trading methods before trading.
You can draw on some objective data and then put your entry, liquidation and stop losses into place.
Let the objective market to fairly determine the direction of the market.
Dare to deny yourself no matter the day or the trend of the market, you are likely to do a single after the quilt, and the longer the time the greater the variable.
There are no more than two situations at this time, or the market will go to their forecast direction, but the time has not arrived;
Or the market has been in the trend, do the list will inevitably be swept.
In the former case, the price is more time to wait;
In the latter case, traders need to analyze whether there has been a major shift in fundamentals, and if the fundamentals or major news are in line, the market is already moving in the opposite direction.
In this case, traders do not have illusions, should dare to abandon their previous trading strategy at the first time, with the fastest speed to cut positions, and then reverse direction to chase orders.
It’s important to be prepared before making a deal so that you don’t get caught up in the sea of trading.
To sum up, a good trader must put risk control, capital and position management in the first place, have their own trading methods and steel-like execution discipline, and always have a set of emergency plans.
Can in the trend of unknown market to do patience, once sold, can make a pot full of pot full.
Make the right orders at the right time, keep your interest, energy and keen judgment in the fierce trade like a battlefield, don’t care about the noise of the noise, the mountain moves and the earth moves but I do not move, keep the clouds open and the moon is bright, and reap steady profits in the passing time.
