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In today’s episode, you’ll discover the top 5 things that 5% of winning traders do.
So listen to it now…
Resources
The Best Trading Books of All Time
Forex Risk Management and Position Sizing (The Complete Guide)
Transcript
Hey, hey, what’s up a friend? In today’s episode, I want to share with you 5 things that only 5% of winning traders do. This means that what I’m about to share with you are the things that 95% of traders simply don’t want to do. So let me share with you what they are.
1. Always be a student of the markets
Trading is not like your degree where you study for two or three years, and you graduate then it’s the end. No, trading is for life. As long as you’re in this endeavour, it’s going to be for life.
Take me as an example. I started trading being pretty much into price action trading. I studied stuff like candlestick patterns, support resistance, trendlines, multiple timeframe analysis and stuff like that.
And once I have gotten a firm foundation in price action trading, I started wondering to myself what were all the institutional traders doing? How were hedge funds trading? Do they also adopt a price action trading approach?
Then the more I studied the more I realised that they didn’t adopt a price action trading approach, which I then asked myself, “What exactly were they doing?”
This is where I came across the world of trend following, where there was this multi-billion dollar hedge fund applying a trend following approach in the futures market. So that’s where I learned about trend following.
The beauty of trend following is that you can adopt it in a discretionary approach and a systematic approach. The book that I encountered was a systematic approach to trend following.
I learned all about it and then asked myself, “Systematic approach seems like an interesting way to trade the markets, I wonder what other such trading strategies are out there that can be traded in a systematic method?”
That’s where I got into systems trading. I studied mean reversion trading systems, I studied momentum trading in the stock markets and up to this date, I am still continuously studying and learning more about trading.
And the more I learned, the more I kind of earn because I can use my money and trade multiple, uncorrelated trading strategies as what we have discussed in the previous episode.
That helps me with my trading psychology and that helps smoothen my returns over time, and there’s are also other benefits to that.
And it’s all because I’m always a student of the markets. I’ve been trading for more than 10 years now, but I know that there are a lot out there that I still do not know.
For example, now my emphasis is on systems trading but who knows, I might go back into other forms of trading, maybe learn more about statistical trading seasonal tendencies and stuff like that.
There’s a lot of stuff that I do not know and I want to learn more about them. So that’s the first thing – always be a student of the markets.
2. Practice proper risk management
I dare say that up till today, I have never blown up a trading account. It is because of proper risk management. This is a lesson I learned early in my trading career.
Now, that’s not to say that I’ve never lost money in the markets. I have lost money in the markets. That’s not to say that I have never had an investment gone to zero because I have investments that went to zero. But those are outside of trading, nothing to do with my trading.
And the reason why I’ve never blown up a trading account is because of risk management, proper position sizing. All these are simple stuff. It’s all just math.
You just apply the mathematical formula, you will know how much to risk, how much to buy, how much to sell, and that’s it – risk management.
If you asked me what’s one of the key things that a new trader should learn early in their trading career is to understand and practice risk management because once you’ve mastered that, you’ll never blow up another trading account.
Next…
3. Ignore opinions
With the rise of technology and social media, there’s too much news. There are so many opinions and noise in the market.
If you just go to any Facebook group or telegram channel, you can see people posting their analysis, their charts, their timeframe, their signals, or whatsoever.
Here’s the thing, as a professional, independent trader, you want to ignore all the noise, all the opinions, all the news and everything. Because your trading is very likely different from the guy who’s sharing his analysis.
Someone might post a chart on let’s say the EUR/USD on the 5-minute timeframe, saying there’s a potential breakout. But how does that concern you? Because you might be a trader who’s on a daily timeframe, with a different trading strategy.
If you were to follow someone on a different timeframe, with a different strategy and different goal, then what’s going to happen is that you will be inconsistent with your actions and that leads to inconsistent results.
So really, ignore all the opinions, ignore the analysis, ignore the news out there. It doesn’t matter. What matters is you, your goals, your trading plan, your trading system. That’s all that matters, and you must follow them. That’s it. Everything else is noise.
4. Leverage the work of others before you
Because here’s the thing, I know it can be sexy to think you’ll be the one to find the holy grail in trading, to find the magic formula, the hero who spits up money consistently over time. I’ve tried that and didn’t find success with it.
I found it much easier to leverage the work of other traders before me instead. So go and study proven traders’ work out there. You can read their books, blog posts, watch their videos, study webinars, go to SSRN (I think it’s like a hub which stores all the academic research papers).
They’ll provide you with trading strategies that come with backtested results that you can leverage for your trading.
You can take the system and tweak it a little bit to make it yours, test it and verify it to see whether it still works or not, and how much different your results are compared to the ones that have been shared in the books, in the videos, etc.
So leverage the work of other traders before you to shortcut your learning curve. Because it kind of gives you a template, a skeleton for you. And all you need to do is just add the meat and the muscle and the skin and some hair.
You’ll pretty much have a human framework, a structure, a proven and tradable structure that you can use.
5. Be able to think independently
As a trader, even as a human being, you must be able to think independently, you must be able to stand away from the crowd, because the intelligence of the crowd can be wrong and you could be right.
Here’s the thing in trading, no one will be there to spoon-feed, to do the backtesting and forward testing for you. It’s all on you. No one else will do it for you. Yes, you can pay people to do it, but ultimately, it’s all on you.
One of the things that I see among traders is that they are not willing to do the hard work. They asked me questions like, “Hey Rayner, which is the best moving average out there?”
When I see such questions, it immediately tells me that this person doesn’t want to think independently, they do not want to ask himself why Rayner is using the 20-period moving average. All they want to know is, which moving average is the best.
When you ask yourself such questions, it kind of just ends the chain of learning. You don’t get to learn anymore because the questions that you ask are too superficial.
I want you to think independently, I want you to think deeper. What you can do is to ask yourself why? Why is Rayner using the 20? period moving average? Don’t ask what, but instead, ask why.
When you ask why you will find answers to your question. Rayner is using the 20-period moving average possibly because that market is in a strong uptrend and the 20-period moving average serves as an area of value. That’s why.
Or why is Rayner setting his stop loss 1 ATR above resistance? Well, that could be because there’s a good chance that price would spike above resistance, and then collapse lower. So if your stop loss is just above resistance, you might get stopped out.
Ask yourself why, focus on the concept. For example, for trading strategy, ask why this trading strategy work, don’t just ask what the best settings for this trading strategy are because that again just ends your learning curve there and then.
Ask yourself why. Be independent, think independently. Really, your life will just look entirely different. You can be sure that you are the rare minority out there who can think on your own two feet and you don’t have to be spoon-fed and that’s powerful.
Here’s a quick recap…
Recap
- Always be a student of the markets – your learning never ends
- Practice proper risk management
- Ignore opinions, ignore the news, ignore all the noise out there
- Leverage the work of other traders to reduce your learning curve
- Think independently – focus on the why, focus on the concept
With that said, I’ve come to the end of today’s episode and I will talk to you soon.