Amateur Traders Vs Professional Traders

on Saturday, December 13, 2014
“A trader is the weakest link of any trading system” (Alexander Elder)
During one of the trading Seminar a student asked the following
“After 4 years of winning and losing hundreds of trades and blowing out several accounts both demo and live, trying different systems, experimenting with many strategies, I am still unable to achieve my trading goals and become a consistent profitable trader. I wonder why I am taking two-step forward one step backward and one step forward two-step backward and pretty much in league of majority of traders who are struggling to make consistent profit day in day out.
 As this problem is faced by many traders I decided write an article on this to find out reasons for failure for aspiring traders so as to kick start their trading career with a bang.
The most important reason for failure lies in my trading approach. Most of traders still react on emotion, fear & greed  and they need to change the way they think and get rid of this herd mentality, otherwise traders won’t be able to become profitable trader, no matter how hard they try.
“If you want to have a better performance than the crowd, you must do things differently from the crowd” (Sir John Templeton)
Professional traders think different from rest of the crowd majority of the time and that is why they are consistently profitable over longer period. Lot of these traders have started with small capital and made big fortunes by trading consistently year after year. Although their trading style and system is different from each other, some are technical traders; some are fundamental traders and some mixture of both.

Patience & Discipline

Amateur Traders are not sufficiently selective when entering trades. When they see volatile price movements, they become impatient and enter trades in middle of nowhere based on emotion, fear & greed rather than waiting for their system to give a buy/sell signal according to their trade plan. They want to be part of market action, as soon as they open their charts and see volatile price movements. They don’t think in terms of probabilities rather they give too much emphasis to an individual trade. They fear that if they don’t place an order instantly they might lose a golden opportunity to make money and when they finally place a trade, majority of the time it’s too late and they fall on trap to professional traders and enter at a level where these professionals are exiting their positions and as a result the market retrace and take out amateur traders stop-loss.
Professional Traders understand importance of patience and discipline in this business. They stick to their trade plan and don’t panic when they see volatile price movements. They understand that there is no place for emotion, fear & greed in trading. They know their edge and understand that if they stick to their system and follow their trade plan they would be profitable in the long run. They know that price doesn’t move up or down in a straight line and that after every impulsive move there would be a corrective move to entice more buyers/sellers and they don’t need to jump in the middle of a fast moving train. Rather they are looking for an opportunity to buy/sell at a discounted price (wholesale price) to get a better risk to reward ratio on majority of their trades. They assess their success or failure based on series of trades rather than an individual trade. They think in terms of probabilities and fully understand that there is random distribution between winners and losers. As such they don’t get upset if the miss out on a trade or have couple of losses nor they get excited after few winners


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