“Understand that learning the market can take years. Immerse yourself in the world of trading and give up everything else. Get as close to other successful traders as you can. Consider working for one for free.” – Linda Raschke, Market Wizard
Within each of us is a top trader waiting to be unleashed.
The challenges is they are buried under a weight of beliefs that have built up over a life-time. Transcendence of these beliefs comes in two steps:
The first step in awakening the trader with-in is awareness. You need to realize the beliefs you have, that they a product of your personal history, and that perhaps there are better beliefs more suited to successful Forex Trading that you can choose to have.
Like Neo is the 1999 sci-fi film the Matrix, everything changes once you realize that your beliefs are simply a construct, a prison within the mind. You can then rise above your beliefs and make your own rules for the game.
“There is no spoon” – Boy to Neo
The second step in awakening the trader within comes with knowledge. In the Matrix Neo had a guide, Morpheus, played by Lawrence Fishburne. Morpheus taught Neo a new set of beliefs that tore down his restraints. It took time for Neo to believe, but when he did, he became free of limitation, and was able to defy the laws of the world that had previously held him captive.
Here you are like Neo, the student. After lesson #1 you know your existing beliefs, you have awareness. In this lesson you learn the new rules of the game, you gain knowledge.
It’s time to take the red pill, and like Neo, journey down the rabbit hole and see how far into wonderland you are willing to go.
Findings from a master’s thesis in leadership
In 2009 I (Sam) completed a master’s thesis in Leadership. My thesis subject was:
TOP LEADERS AND TOP TRADERS: AN EXPLORATION INTO WHY THEY SUCCEED
The crux of this study was that:
“Top leaders and traders share some common traits. In particular they have a high degree of emotional intelligence and are engaged in self-study. They are able to formulate a plan that was right for them or their organization and stick to it with rigid discipline and confidence. Furthermore, when facts change and the plan needs adjusting they are able to recognize this and adapt”
Before we move into more specific beliefs it’s instructive to explore two of the key findings from this study.
Emotional intelligence is more important than raw intelligence
The perception can be that top traders are number wizzes. But that is far from the truth. While it is important to understand some basic maths (trading is ultimately a statistical game) the more important skill is emotional intelligence (EQ).
From the study:
“Emotional intelligence includes factors such as self-awareness, self-discipline, empathy, and individual differences in the processing and regulation of emotions”.
Basically the better you are at controlling your emotions in the market the more successful you will be. If you are here for the thrill of it then you are unlikely to remain consistent over the long-term.
Confidence breeds discipline
A second finding from the study is that you need to learn to trust yourself. You need to be confident in your approach to the markets.
When you are confident and trust in your Forex trading system, then you won’t have any trouble remaining disciplined in following your plan.
Here is an excerpt from the study with Marty Schwartz, Market Wizard and author of Pitbull: Lessons from Wall Street’s Champion Day Trader discussing the role of confidence in his trading.
“Marty Schwartz was adamant that “CONFIDENCE IS ESSENTIAL TO A SUCCESSFUL TRADER” When dealing with a losing streak Schwartz would trade a smaller size to make little profits: “It’s all psychological. I felt sick and I wanted to make myself feel good again. I wanted to regain my confidence…” During the losing streak his fear of losing was slowing down his reaction time making him take more risk. He outlined: “what happens is that as your fear of losing rises, your emotions start to short circuit your intellect and you no longer have confidence in what you are doing”. Once he regained his equilibrium he was able to get the profits flowing again.”
If you can regulate your emotions, and remain confident while practicing the beliefs of top traders, you will be more than just a successful trader you will have awakened the Forex trading giant within.
The beliefs of top Traders
I knew I wanted it more than anybody else. There was no way I was not going to make it. I always had that competitive drive, whether it was getting into a top college, or competing in college sports. – Jimmy Balodimas, Market Wizard
And…we are here!
Listed below are the beliefs of top traders that we teach on this course.
This is not meant to be a comprehensive list. Individually top traders will have plenty of beliefs that are not on this list.
But from our studies what we have noticed is that these several of these beliefs are common across top traders, and some beliefs (like taking responsibility) are common to all top traders.
More importantly, perhaps, is that if you model the majority of these beliefs you will develop a powerful Forex trading mindset that will last you a lifetime. You will become capable of enhanced and enlightened decision-making when it comes to your Forex trading.
And it’s like riding a bike. Once you learn these skills you won’t lose them. You may fall off the bike every once in a while, but you will get right back on. You will be free from “conventional wisdom” forever.
For some of you, the beliefs below might seem unclear at first. For some of you they will be readily apparent. Either way it is OK.
Note that this is not an exhaustive list of beliefs, rather these are ones that we cover on this course and form a good starting place for your development as a trader. Through-out the rest of this course, you will learn about each belief in detail, and you will learn the requisite skills that you need to execute and take action practically in your Forex trading account.
Top traders believe they are responsible for their own results
The cornerstone of a effective approach to trading is responsibility. By taking responsibility for your own profits and losses, you gain control over your financial destiny.
It is easy to look for others to blame, be it your money manager, Forex broker or even the market itself. By accepting it is you who is the ultimate determining factor in your success, you gain the ability to work on yourself and improve the way you trade.
Top traders believe in having in-depth objectives
They have clearly defined goals.
You should know the reason why you are trading. Perhaps you are looking for an early retirement on the beach (nice!) or would like to help a loved one live a better life (nicer!). These powerful motivations keep you from straying “off the beaten track” and help you trade with discipline.
Once you have uncovered your greater purpose, you can then define a returns goal/s (i.e. 10% a month) and a risk goal (i.e. I don’t want my account to be down more than 5%). Once you have these objectives, you then can develop a position-sizing model to help you meet them. More on that later.
Top traders believe that trading is a statistical game and understand positive expectancy
Good traders know that it is not the outcome of any one trade than matters. Rather they seek to have a positive expectation of profits over a series of trades.
It is important to develop an appreciation for basic statistics and probability to successfully trade Forex.
Top traders believe in appropriately taking risks in order to achieve their goals
Acceptance of risk is a challenge for many traders. They would (or course!) prefer that they could make money without ever having to lose any.
But losses are a fact of life in the markets. And accepting this is a positive thing. It frees you to create an trading plan that lets you move towards your goals.
I recently saw the power of this concept in action, at a nine-day training course with world-renowned trading psychologist and Market Wizard Van K. Tharp.
Tharp had recently shifted his tolerance for risk in his company retirement account. Previously his goal had never been to have a losing year. He then established a new rule that allowed him to risk the chance of a 25% drawdown on the account, but only if the trading opportunity was A-grade.
By doing this, he was able to heavily purchase a silver stock that was trading for below the amount of cash it had in the bank, let alone the value of the silver it had in the ground. The stock quickly rose from $3 to $11 while he was invested, giving him the best year he had ever had.
If he had not accepted the risk of a 25% drawdown on his account, he would have never been able to capitalise on the opportunity like he did (This is not an avocation to take such a big risk on a trade – it’s the mindset that matters).
Top traders believe that they should trade differently in different market types
Would you trade the same way in a bull market as a bear market? Or in a bull market compared to a quiet sideways market.
Successful traders don’t. One of their core habits is market type identification.
They know what the current market type is and adjust their strategy appropriately. Furthermore, they are aware that the market type could change at any time and are well prepared for the shift.
Top traders believe that they achieve their goals through position sizing (money management) not through their entries
Position sizing is knowing exactly how much you are risking on each trade so that you can achieve your objectives. It is based off the historical performance of your trading system for the current market type.
Successful traders know their goals and their expected performance, and decide how much to trade based on this understanding.
Top traders believe they have an edge over the markets
An edge is an advantage that over time will provide you with healthy profits from the market. All successful traders have established an edge over the markets.
Examples of edges that successful traders have include:
- Technical analysis methods
- Fundamental analysis
- Getting trading advice from someone with an edge.
Top traders believe in having a simple entry strategy
Take a successful trader and an amateur trader.
One is complex.
The other is simple.
But perhaps not in the way you might think.
The successful trader has a subtle, insightful and in-depth trading plan, but they have rules for entering the market that allow them to act decisively to implement their ideas. They know that the entry is not as important to their results as how much they trade or how they manage the trade once they have entered (exits).
Amateur traders tend to overcomplicate and overvalue the buy signal, when their real focus should be elsewhere.
Top traders believe in complex exits
While they value simplicity, successful traders will have many reasons to exit from a trade.
For example, they may have:
- A initial stop-loss
- A profit objective when they enter the trade
- A trailing stop to protect profits while in the trade
- A risk/reward stop to ensure the trade makes sense
- A different trailing stop that comes into play if the market type changes
- A time-stop if their idea is not working out.
These exits all serve to maximise profits and minimise the inevitable losses.
Top traders believe in letting their profits run
An oldie but a goodie. One of the habits of successful traders is to let their profits run.
If you are in a good trade, don’t be tempted to take your profit quickly. Use a method that protects your gains, and at the same time allows you to capture big wins if the trade does go well for you.
Top traders believe in cutting losses short
The flipside of letting your profits run is cutting short your losses.
Successful traders see losses as a “cost of doing business” and are quick to realise any losses.
Amateurs will do anything to avoid taking a loss, including holding onto a big losing position.
If you do one thing when trading in Forex, make sure you have a stop-loss and abide by it.
Top traders believe in understanding the risk/reward ratio before they enter into a trade
A cardinal habit of the successful trader is checking the risk/reward of a trade before entering into a position. If it is not favourable, then they won’t place the trade.
For example, you may want to have a risk/reward of at least 2:1 on any individual trade. Your potential profit from the trade should be twice as big as your potential loss. This means that if you only get 50% of your trades correct, you would still come out a winner.
Top traders believe that it is ok to lose more often than they win as long as the profits from the wins are greater than the losses from the losing trades
I’m going to leave this section to the esteemed Dennis Gartman of the Gartman Letter, who sums this habit up perfectly with this story:
“I’m good at trading and I’m wrong alot according to my wife. When we got married, we sat down the first year and she said you know this is really very sad. You had a good year at trading. You made us a very nice living this year but Dennis you were wrong 53% of the time this year. I thought this was terribly harsh. You couldn’t even beat a coin toss. I got out of it by saying, Sweetheart I’m so in love with you that it’s colored my ability to think. She bought it. I got another year. We sat down the second year. She said, my wife the accountant, one plus two equals three. She said this is really very sad. You made more money trading this year then you made the previous year. But this year you were wrong 57% of the time. And people pay you for your ideas. And I’m standing by the notion last year that I told you. You can’t even beat a coin toss. You need to do better. Sweetheart I’m trying. Third year we sat down. My wife, the accountant, one plus two equals three. She said this is sad. You made more money than you made the previous two years. That’s lovely. I want to stay with you. But Dennis, you were wrong 68% of the time this year. Almost 7 out of 10 of your trades lost money. You have got to do better. I told her Laura I’m trying. I’m gonna try. Fourth year we sat down. My wife, the accountant, one plus two equals three. She said, you know, I get it now. You had the best year you ever had. Made more money this year then you made the previous three years. That’s lovely. This year you were wrong 81% of the time. I think if you can just be wrong 95% of the time. We’re gonna get stinkin’ rich. I think I can do it. I think I have it in my grasp to be wrong.”
Top traders believe in developing a mental model of the market
Successful traders develop a story about the market and how it works.
They organise their thinking into a detailed set of beliefs about how the market works and have a routine in place to monitor its elements.
See this video by Market Wizard Ray Dalio, the manager of the world’s largest hedgefund, who has made his mental model come to life.
Top traders believe that they could be wrong and are willing to adapt
Good traders trade what is in front of them.
Most likely, you will have several beliefs about how the market works (your mental model).There will be occasions where those beliefs don’t mesh with reality. Even if your belief is logically correct, the market may do something different.
If you hold too tightly onto that belief, then you may not see the market for what it truly is and miss out on significant opportunities or hold onto a losing position for too long.
Have a “grain of salt” about your mental model as the real world won’t always match up.
Top traders believe that trading is a serious business not a hobby
Successful traders manage their trading like they would a business.
They have a carefully constructed business plan for their trading and follow a “rules-based” approach to selecting, entering and exiting positions.
A business plan is a formalisation of many (if not all) the beliefs in this lesson. It includes:
- Trading strategies
- Contingency plans.
Developing your plan should be a fun experience – and your plan should be enjoyable to read. You’re not in school or at work so make it lively and motivating!
Top traders believe in recording their trades diligently
If I was to ask you “what percentage of successful traders record their trades?” what would you say?
If you said 100%, you would be the closest to being correct.
If I asked you “what percentage of amateur traders record their trades?” most likely the numbers would be reversed.
Now, what if I ask you “are you recording your trades?”
Successful traders have developed the habit of recording each trade they make. They know that without recording their results, they won’t know what is working and what is not, so they won’t know what to change to improve.
Top traders believe in reviewing and monitoring their trading systems
Successful traders will periodically review their strategies, as well as monitor their performance in real time.
If a strategy starts to deteriorate, they know about it and can stop trading or switch to a new strategy.
Top traders believe that they are the determining factor in their success and believe in the importance of self-work
“An investment in knowledge pays the best interest” – Benjamin Franklin
Top traders know that they are the most important factor in the profit equation.
Their success or failure is entirely dependent on their own skill and ability to execute, so they spend less time focusing on the market and more time on themselves.
To emulate their success, you want to cultivate a habit of self-improvement that allows you to consistently function at a high level.
Occasionally you will get your butt kicked by the markets. Self-work will give you a foundation of strength to remain persistent even in times of stress.
Top traders believe in preparing their mind before they trade (like an elite athlete before an event)
Like an elite athlete, successful traders only place trades when they are in an optimal mindset. If their “headspace” is askew, then mistakes happen.
Similar to their athletic counterparts, these traders have a routine to ensure that trading decisions are made when they are in the zone.
This could include:
- Visualising and rehearsing prior to the event (trade)
- Meditating to calm the mind and boost creativity
- Regulating their emotions by using a technique such as feelings release
- Verbalising instead of internalising the trading decision to a colleague or loved one.
By freeing yourself of negative emotions such as fear or greed, you put yourself in a state from which you can make unencumbered and clear trading decisions.
Top traders believe in unifying the body and mind
There is a deep connection between the performance of the mind and the health of the body.
You may notice that when you feel an emotion you feel it in your body. You feel tense across the chest or nervous in the pit of your stomach.
By helping your body relax, you help the mind to relax too. Successful traders know this and make a conscious effort to maintain their physical health. It’s not at all uncommon for top traders to practice yoga or run marathons.
You don’t need to go to the extreme of running marathons; you could simply do some stretches and breathe deeply before making any trading decisions.
Top traders believe in having a life outside of the markets
As tempting as it may be to stay continuously bonded to the market, top traders know that sometimes they need to switch off and unplug.
- Have just suffered a loss that was large or traumatic
- Are feeling burnt out
- Are gambling instead of trading because you need some excitement
- Have loved ones that are not getting the attention they need.
Then it could be time to take a break. And be proactive about it. Plan breaks ahead of time, and plan to spend time with your family regularly. You have other areas of your life that need attention too.
Top traders believe in having gratitude
If you have the ability to achieve your goals through trading, you are fortunate. It can be wise to be thankful and acknowledge the good things you have in life.
Gratitude is highly recommended for traders. And like the earlier habit of powerful beliefs, it is worth practicing before you achieve the success you are chasing.
Gratitude keeps you happy and helps you stay grounded. Overconfidence and arrogance are the market demons that gratitude keeps in check.
Top traders believe that trading is a game and that they make the rules
As an individual you trade in an unlimited environment.
No one is telling you what to do. No school teacher. No boss. No forex broker.
Successful traders know that they make the rules.
Yes. There is a framework – a matrix – which you operate in, but within that you are free to choose how you play the game of Forex. So why not choose rules that advantage you?
Each of these beliefs on their own should change the way you think about the markets. Together they make you elite. Like Neo in the Matrix, they take time to master, but when it comes to traders that is one thing you do have. You might spend six months learning these skills, and then have 20 or even 50 years of your Forex trading career to benefit from them.
How to do they compare with your beliefs.
In the first lesson of this course you cataloged twenty plus beliefs that you hold about Forex trading.
How does the list you made compare to the list above?
How many of the beliefs of top traders do you have on our list?
If you have similar lists that is great. Well done.
If you don’t then that is OK. You will learn them on this course.
You next job is to re-write your list of beliefs.
Decide which areas you would like to learn more about, which beliefs you would like to keep, and which of the beliefs of top traders you are ready to adopt now. Note that is a work in progress that you can come back to, don’t feel like you need to adopt all these beliefs now.
The one belief I will ask you to adopt right now is responsibility for your results.
Through-out this course we will make each of these beliefs your own.
Our next lesson will be on how to create a scientific path-way to financial freedom through Forex trading.
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See you again soon!
- Fill out the My top Forex trading beliefs course work. This will be a work in progress you can come back to as you integrate the new beliefs throughout this course.