At times, making money in capital markets (stocks, commodities, etc) can be tough… very tough. What separates the winners from the losers? This is the million dollar question! There are many reasons why some investors/traders become successful beyond expectation while others fall short. This post will discuss some common factors that are crucial to finding success in the market. Please note that this article is not about selecting a trading system or developing a sound set of rules. It simply outlines how to identify and understand the common hurdles which hinder most, if not all, investors at some point in their career.
10 Hidden Treasures For Success In the Market:
1. Turn a Thought into a Tangible Goal:
Ed Seykota, a famous trader, once said, “Everyone gets what they want from the market. Some people want to win, and they win. Some people want to lose, and they lose, other people want to gamble (i.e. have fun) and they gamble.” Before you continue reading this post, list your wants (i.e. in life and the market) then write them down. Writing them down helps turn a thought into a tangible goal. This is a critical and often overlooked step. As often as possible (daily), review your list and adjust it when necessary to make sure your day to day actions are aligned with your “wants”. This is one very powerful secret to success!
2. Preserve Your Physical and Mental Capital:
There are two forms of capital: physical and mental. Make sure you are properly capitalized on both fronts before you make your first buy or sell decision. There are countless examples of people who are not successful simply because they are undercapitalized. There are also countless examples of people who “blow up” because they are overcapitalized (i.e. LTCM or Amaranth) and they do not respect risk. Successful investors/traders learn to preserve both their physical and mental capital.
3. Strong Work Ethic:
If you think that you are going to become a millionaire overnight just because you are buying or selling stocks, think again. One key ingredient for all successful investors is hard work. If you think a 60 hour work week is too hard, a normal 9-5 career is better suited for you.
Passion is very important to being successful in the market, and in life. If you are not inspired or have passion in what you are doing, find something else to do. Being successful in the market is a very difficult feat for most people, if not outright impossible due to their personal shortcomings. Therefore, having a genuine passion for the market will serve you well in the short, intermediate and long-term.
5. Understand Your Psychology:
How you “think” is everything! If you do not think you are entitled to be successful in the market, then most likely you will not be successful. It is imperative to constantly maintain an optimistic attitude because there will be times when it will seems like everyone is out to get you, when in reality, it is all in your head. Remember, the old adage, “You are your biggest enemy.” Address your psychology (strengths and weaknesses), otherwise it will haunt you. A great way to learn about yourself is by post-trade analysis. Keep a diary. Write down all the reasons why you made a particular buy or sell decision. Then, over time, you will begin to identify your strengths and weaknesses and learn from them.
6. Handle Your Losers & The Winners Will Handle Themselves:
Losing is inevitable. Therefore, it behooves each of us to plan for it. Most people get lost in the dream or hope that they will make millions overnight. That is one of the quickest (and most common) ways of “blowing up”. Since losses are inevitable, having a proven system to handle losses is one of the most important “secrets” to being successful in the market.
7. Trade and Invest, Do Not Gamble:
Most people do not understand the market. There are numerous strategies to make money in the market. Find one that works for you and run with it. Follow your systems rules, do not deviate and most importantly, do not gamble.
8. What is Your Edge?
Remember that you are competing with some of the most intelligent and wealthiest people in the world. What is your edge? What do you know that others do not? Are you acting before the crowd or jumping onto a moving train? Look for opportunities and only act when you can clearly identify your edge.
9. Tenacity & Failure:
Do you have the tenacity to persevere when you feel like everyone is against you? Are you prepared to fail? Are you going to give up when the going gets tough? Failure is almost a right of passage to success. Do you have the resolve and the self-discipline to make decisions for the right reasons? Remember, there are no guarantees of success. Oftentimes, the key difference between achieving success and falling short is your ability to recover and stay positive from a series of disasters. Get up, brush yourself off, and live to trade another day. The market will always be there – will you?
10. Respect Risk & Understand Probabilities:
No one knows what will happen tomorrow or where the stock market will be in a day or a year. However, people thrive on others’ opinions and guidance. Do not be intellectually lazy. Learn to think for yourself and make your own decisions. Since tomorrow is unknown it is not about being right or wrong. It’s about making money. Therefore, it doesn’t matter if you lose negative 2% on 7 out of 10 trades as long as you more than make up for it when you are right. Learn to objectively interpret market action, trade in the now, and do not predict. Furthermore, every time you make a decision to participate in the market, understand you are risking your capital. Most people try to be “cowboys” and end up losing everything! This can be avoided by simply respecting risk!