r-leverage or over-extended their risk-gain strategy. * Mark Hanna – “This is not a tip; it’s a prescription. Trust me. If you don’t, you will fall out of balance. Glitch your differential and tip the f*ck over. Or worst yet. I’ve seen this happen: implode!” *Jordan Belfort: “No I don’t want to implode sir” *Mark Hanna: “No. No you don’t” (Wolf of Wall Street).
A few days ago, I read an article demonstrating what an author thought were 20 habits of wealthy traders. Some I totally concurred with – others I was in total disagreement with – the last section of points I could understand but wasn’t totally convinced. Get the best traders in the world into interview rooms and ask them the same set questions; you will usually get different answers. Although these answers will contradict one another; paradoxically none of these traders are wrong. It all depends on strategy. Your actions should only follow your strategy. The measurement of success is not in the result but in the process of following your trading rules systematically.
- Patient with winning trades and enormously impatient with losses
This is the main difference between most traders and long-term investors. Long term investors gladly invite losses to their portfolio if they are confident that stocks will realize their inherent value. Whereas most traders – whether short term or long term – will cut losses quickly to manage risk and limit overall account loss.
- Making money is more important than being right
As with anything in life, you will find that traders are either side of this question. Personally, I believe they are of equal worth if one is trading their own account. In terms of practising trading as an ‘art’, traders will find being right is more important. For those managing large sums of money on behalf of others; making money will be more important.
- View Technical Analysis (TA) as a picture where traders are lining up buy and sell
- They know where they will exit for either a profit or loss before they enter every trade
This depends on the strategy. Value investors constantly calculate the intrinsic value of companies which fluctuates constantly. Therefore, their exit points are subject to change during a trade. This needs to be taken under consideration by Value investors. The rigidity of Trend trading doesn’t allow for room to change loss stops and exits for profits. However, this does limit the Trend trader because price will change whilst a trade is being executed. A benefit of Trend trading is the ability to have medium-to-wide stop losses, which will allow an investment instrument to incur a loss till a certain point before stopping out. Therefore, if the Trend trader is worth his gold, he will be accurate or very close to where he thinks the investment’s price will go. And so, the loss will most likely reverse and correct its position into a winning trade.
- They approach trade number 5 with the same conviction as the previous for losing trades
- They use naked charts
Some do. Some don’t.
- They are comfortable with incomplete information
I concur. No-one is omniscient.
- Stopped trying to pick tops and bottoms a long time ago
True; however, Value investors have a specific target they desire to exit. Trend traders are the poster-boy for number 8. Rule
- Do not think of the market as expensive or cheap
I disagree. Most Value investors do because it is integral to their core trading systems. Trend traders can, but irrelevant to their trading systems.
- Are aggressive with size when they are doing well and modest when they are not
True; but so do average and bad traders. Most of them implode because they over