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The Ultimate Factor Underlying Successful Trading

While there are many things a trader can do wrong in the markets, there are only a few things he or she can do right. We are all well aware of how important risk management, discipline and a good trading system are, but without a doubt, they are all useless in the hands of a trader who is psychologically inept or self-destructive. It is unfortunate that traders still believe in the myth that a better system will make them better traders.

The ultimate factors in achieving trading success are primarily psychological or behavioral. My experiences have taught me that the following factors comprise perhaps 90% of the formula for achieving and maintaining market success:

1. Detachment
Many years ago I learned that in order to trade successfully you have to "not care" -- you need to be detached from your work as a trader. This is a lesson I learned early in my previous career as a clinical psychologist. While at first blush this may seem like a cold and unhuman way of being, it actually has many virtues under the proper circumstances.

Being human at times gets in the way of success by throwing emotional roadblocks in your path. Emotional roadblocks cloud judgment and inhibit success. Just as a surgeon must not become emotionally involved with a patient, a trader must not become emotionally involved with his or her trades, or, for that matter, with the idea of success. Keep yourself from caring too much and you'll have facilitated success.

2. Persistence
Clearly, the trader who is a quitter will never succeed since he or she will not be in the markets when the big moves occur. A truly great trader is willing to come back fighting after a loss or after a string of losses. A truly great trader will not take one failure, or for that matter a string of failures as a sign that it's time to give up, failure will, rather, inspire more effort and, ultimately more success. For those who have a copy of my book Market Masters, I suggest reading the Larry Williams chapter for a classical example of persistence and its resulting success.

3. Realistic Attitude
Finally, traders must maintain a realistic attitude in order to succeed in the game of high expectations. All too often traders have grossly unrealistic expectations about what they can achieve in the markets. Dreams of striking it rich, of finding the holy grail trading system, of being in on that one trade that makes you fabulously wealthy are self-destructive and divert your attention from the reality of your goal.

Those who promote the importance of having a positive attitude might take issue with my statement, yet I think that there's a distinct difference between having a positive attitude and having absurdly unrealistic expectations. One motivates, the other frustrates.

Many a trader has had dreams such as buying gold at $250 and selling it at $680. It's a great dream but it won't likely happen in this lifetime because there are few traders who can hold on to positions for such a long time. The fact of the matter is that you are far, far better off trading smaller moves which have a higher degree of accuracy than you are trading large moves which are not likely to occur and which, should they occur, will take so long to develop that you'll have at least 100 opportunities to make mistakes.

Should such moves interest you, trade them using the stock market or mutual funds as opposed to the futures markets, UNLESS you have totally mastered self discipline.

In Conclusion,
I feel that I have given you a thumbnail sketch of what I feel are the quintessential elements for success in the futures markets. While there are many offshoots of these simple but effective rules, the fact is that if you can grasp the general concepts and apply them consistently, you will fare well in the markets. When you eliminate all of the systems' sales hype, all of the glory, all of the frills, all of the technical jargon, all of the pretentious attitudes, all of the boasting and all of the idle promises - these facts remain:

  • Futures trading is a solitary endeavor -- one which each individual must attempt in isolation and which will likely work best when practiced with only minimal interferences from the outside world;

  • Futures trading is perhaps the single most difficult undertaking any individual can attempt;

  • Futures trading will be a challenge to anyone who attempts it, regardless of how successful they have been in other professions;

  • Futures trading requires more brains than brawn but more psychology than methodology. In other words, futures trading is more of a mind game than it is a game of technique; and, last but by no means least;

  • Success in futures trading rests upon only a handful of time tested, well validated methods which are not difficult to learn, not costly to obtain but extremely difficult to implement due to limitations inherent in the human psyche.

Go to part 3:
A Trader's Guide to Orders and
Their Effective Use

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Revision date: 03/22/11