“You have to take what the system delivers to you and not decide how you are going to trade the market. Many traders decide, “I am a day trader, or I only trade Dow futures etc. when they may have a perfectly good system in front of them and it would only take a small change in their behavior to accept it, but we repeatedly observe a refusal on the part of traders to make that change- In other words, traders form beliefs that prevent them from seeing or doing what they need to be to be successful-“

It never ceases to amaze me how traders that subscribe to our services categorize what kind of a trader they are and what specific markets they trade without a review of any kinds of facts. Perhaps they read a book that had a leaning towards a particular style of trading or a friend that has told them they had done well trading on a certain time frame or in a particular market. The point is, traders do make choices about how they trade. Often traders are not even aware of the implications of the choices they have made, or in many cases, they are not even aware they have even made a choice from a range of possible choices. One makes choices based on their goals or interests. For this reason, it is very important that you decide what you are in the game for, right out of the gate.

Here are some choices traders make in this regard:

To make money
For fun and excitement
To fulfill a secret desire to lose or fail (that is not a joke)

Trading is a very difficult game. You must know what you are doing to succeed. This is true because more often than not, you are losing if you are not winning. This makes it unlike most other businesses where you have a fixed cost, but do not generally lose if you do not have business in the moment.

What kind of trader you are ties directly to your goals. For example, if you want to make money, you may be inclined to take winning more seriously than a trader who trades for fun. The person who trades for fun, may rationalize to himself, it is alright to lose. He may be inclined to not manage his risk so tightly. The trader who comes to the game to make money, will also be more willing to adapt his style to what works, rather than trying to force himself into a mold like, “I only trade Russell futures”, or, “I only day-trade.” For this reason, the trader who comes to the game wanting to make money has a psychological advantage in that he is more willing to alter his behavior in order to achieve success. This trader profile has another advantage. He still gets to have fun and to deal with the incredible challenge trading brings. Of the four types of traders above, this trader, whether he is aware of it, is a winner.

A trader, who trades for fun and excitement, is most likely a very short term player who thinks of himself as a scalper, or day trader. This is where all the action is. This market participant trades very frequently and at various points through the session. This trader’s paradigm for trading puts the excitement before the profitability and business concern for lowering costs and maximizing return. This choice, as we mentioned, may or may not be conscious. This trader may tend to have a smaller account, and a natural concern for trying to keep what he perceives as risk minimized. He may not be aware of other choices available to him. It is natural for this trader to need to think this way, since he is forced to by the structure of the market. This implicit “forced” choice may be a huge disadvantage for him, as he may be taken out of his positions by small stops on “would be” winners and may spend excessive amounts on commissions and slippage when compared to a longer term player.

This is not to say it is not possible to be successful as a short term player. In fact there are entire firms set up around this kind of activity. They are well capitalized. These firms have excellent execution capability, information and can execute at little or no cost. Firms doing this can be highly profitable. The small trader does not have this kind of information or capability. We believe less than 1% of day-traders or scalpers can outperform longer term players in the long run.

By having the need to get a rush out of trading, one is in a worse psychological position than the person who does not care so much, or is trading longer term. The trader in this profile has made choices that work to his disadvantage. When combined with the idea described above, where you tend to be losing when you would otherwise be winning, it makes for a losing proposition in most cases. This is why we suggest small accounts use options to control risk. It gives the rush potential of having huge percentage winners when they happen, without risking the whole account.

Some traders come to trading with a hidden desire to defeat themselves. They beat themselves down when they trade. They most often do not have a plan. Then, they have a. “see, I told you so” attitude when they lose. Always remember the saying, “be careful what you wish for, you just might get it.” This trader is actually extremely successful, because he gets exactly what he asks for. This occurs even when he has an amazing trading system to work from. We could praise him for it, but he would not think it was very funny. If you find yourself in this mode, simply reverse your thinking. You will be amazed what will happen.

All of these trader types need to be conscious of their choices. In fact all of us have each of these tendencies welling up from inside us. We need to be aware of the behaviors, and the paradigm behind them, so we can identify when we are going astray. We all want to trade, make money and have fun. Slight variations in these categories and the way we think about them can result in a huge difference in the result we get.

Ideally, the successful trader wants to make money as a number one goal. He wants, and needs to have fun doing it. He needs to be aware of behaviors that sabotage his efforts. He needs to be aware of choices that are available to him and their implications. He needs to manage his risk, his cost, and be capitalized properly to succeed, or trade using instruments that make all these things line up in his favor.