Part 2: What Separates the Profitable 10% of traders from the other 90%?

First order of business - to quickly address the small account project. It's not going quite as I planned, but things rarely do. It's slightly green after 2.5 weeks now, about +1K, I'll continue to work on it and get better for another couple weeks. I'd really like to double it.

To address some concerns: I had a lot of people picketing at my doorstep "You let a loss get to -1K on a 5K account?? What?!?"


I will always be nothing but honest with you. And the following comments are no different.

I am running this project for one reason, and one reason alone. To try and grow a small account for you guys. To try and show you what I think it takes to actually grow an account of any substantial value. Guess whats on the other side of that sword? Risk. If you're looking to avoid risk and find big money trades, you'll be searching for a long time. I'm not going to sit here and trade 100-200 share lots and use a $30 risk on trades. Thats how you trade when you're learning. Trading to "survive."

Eventually you'll hit a crossroads, and you need to switch into Trading to "thrive" mode - aka, actually make money. And again, with that comes increased risk. Thats the mode I'm trying to put on display with this stream - trading to thrive.  Sometimes that will involve me using a bit more risk than you may be comfortable with. Chances are I'm not doing it randomly, or shorting something "because it's up a lot" and praying. I've probably got a reason. So don't get bent out of shape if you don't agree with me on something. There are a thousand ways to skin a cat in this game - find what works for you. Thats a topic I'm going to discuss today.

I 100% advocate starting out small. You should "stay in the game" long enough to get realtime experience with real money, so using small size is great and very important early on. However, eventually you've got to take the training wheels off, and get dirty. You should fully expect to lose your first trading account. For me, it was my first, second, third, and forth. I was aggressive. I endured more losses than I probably had to, however I was able to turn that around to procuring bigger profits faster as well. If you've got some expendable capital and the right personality, maybe this is a good option for you. If you only have a small amount of money, then it's probably not. I went with the sink or swim method, but there's also a "take swimming lessons first" method too thats much safer.

I was aggressive. Did I do it the right way? Did I do it the wrong way? IS there a right or wrong way? The answer is ABSOLUTELY not. The right way is the way that ends in you making money. However you have to get there - that part is unique to you, just get there.

SO. What separates the 1 profitable trader from his 9 peers?

1) He is not afraid to lose. 

If you are afraid to lose, ironically enough, you will always be in the 90% of losing traders. This is, to me, the number one issue new traders with small accounts have.

I'm going to use an extreme example here - but if you ask any of the established guys you know and follow, they'll all tell you that the absolute BEST trades they've ever made... the big 5 and 6 figure trades all started with their balls halfway up their stomach from being scared shitless. Again, it's an extreme example, but take the point home, not the face value. I'm not telling you to go and risk your entire account on one trade tomorrow. I'm just using the example to say these guys weren't AFRAID to expose themselves. Are they thrilled about the potential risk? Of course not. Like I said, they're scared shitless. But the point is they're not afraid to put their hat in the ring when the right opportunity presents itself. You need to be the same way...on a much smaller scale of course, but have the same mentality.

If you are afraid to lose, how can you ever really win? You know you're supposed to let your winners run...but if you are afraid to lose, you'll never do that. If it feels like you're making the same mistakes over and over again and literally cannot fix them, maybe it's an indirect problem. An inability to let winners run stems back to "being afraid to lose" - there are levels to it. So if taking profits too quickly is your issue, don't focus on the actual problem of taking profits too quickly, but focus deeper on why you are so afraid to lose. Really diagnose your issues, whatever they are, and try and find the derivative of the problem until you reach a source. Address that. Trading is very much a Top-down mechanism, if something isn't right up top (your head), you'll never be able to operate the rest of your trading on downward - the entire process will be broken.

Bottom line: if you're afraid to lose money, you'll never make it in trading. It's a vital piece of the puzzle. Come to terms with it, and then you can begin. If you can't, you're not ready to trade yet.

So if you've got an account with $2000 in it and it's all you've got, you can't afford to lose, my suggestion is to not try right now. You're in a position with a 99.99% failure rate. If you cannot afford to lose the trading capital you have, then you will never be able to foster a healthy mental game. You've put too much pressure on yourself. You'll take profits too soon constantly. You'll let losers get out of hand because you don't want to eat the loss thats going to cripple your account. It will be a never ending cycle you can't escape. Something many of you are already experiencing I'm sure. So don't do it to yourself. Put yourself in a better situation before you begin.

Also, you need to develop the skill of (responsibly) desensitizing yourself to the value of money. If you think say...$5000 is a lot of money, or $10,000 is a ton of money, then guess what? You'll probably never get it in trading. Don't put profits on a pedestal. If you're up a few hundred bucks on a trade and you just take it because "well thats a lot of money and I don't want to risk giving it back", then thats not a good reason. You'll never break out of your perpetual shell of one step forward two steps back if you're physically unable to let a good trade work for you. I'm not saying go be greedy, or go let losses get way out of hand, I'm just saying if you end up in a good trade thats paying well, don't act surprised. Keep calm, watch the CHART, not your PnL, and exit when the CHART tells you to, not when the pessimist on your shoulder is telling you to cover up quick before big bad Mr. Market comes to steal your gains back.

2) He thinks logically, not emotionally. 

I swear this thought goes through traders heads...and I know it does, because it went through mine too at one time. "They are out to get me." And by that I mean just YOU. Not everyone else. Not the rest of the traders. Just YOU. Those damn market makers know you're in that trade! They know it! And now that you are, they've stopped everything else they're doing - and their mission is to squeeze YOU out of that short! Damn MMs!

Have you ever thought like this? Well....I have good news and bad news.

The bad news? You're losin' it, kid.

The good news? Your conspiracy theorist accusations are not true.

That is simply a natural reaction you have by default from being scarred from loss after loss. The answer is not that the market makers hate you and are out to get you. The answer is you probably chase trades too often and get poor entries pretty consistently, because you're gun shy and hesitant to take the initial entry you wanted, then panic when your idea starts to work and you waited to long to act on it.

My point is you need to think logically, not emotionally. For the same reasons I just discussed above...there's a reason you're constantly disgusted at yourself for covering a short and leaving 80% of the move on the table. You are reacting to your PnL, instead of reacting to the chart. Do the latter, and watch your green trades grow exponentially larger.

3) He is free of porous influence.

What do I mean by porous influence. By this I mean he doesn't wake up and immediately go depend on some chat room to give him trading ideas each day. He does his own scanning and his ideas are his own. It's fine for you to adopt someone else's idea, as long as you 100% understand whats going on, and you see the same thing. By porous influence, I mean you just frantically scan Twitter and your local chatroom, and take a trade without any research just because someone else you follow is. You allow yourself to be easily breached, you're porous. That will never end well in the long run. So it's ok to use Twitter & chatrooms for eyeballs and ideas...but don't allow yourself to be completely influenced and easily swayed to press buttons without a good reason that originates from your own brain.

Thats the only way to breed any sort of real conviction in your trading. You need to own your ideas 100%. Have a solid thesis & plan for every idea. If you're looking to your local chatroom for ideas, and then wonder why you always close trades early or get squeezed out on the first tick above your risk level and never have any conviction, look no further. Thats a large part of your issue right there most likely.

4) He is passive. 

One of the most important realizations you can ever come to is that more trading does not equal more money. Not in this world, this universe, or the next. If you're trading with the motivation of trying to eliminate earlier losses, or to force gains to appear, you'll just make the situation worse. Almost every single time. So maybe after a bad morning, while 9 of you are frantically scanning the top movers list looking for a top to short or a bottom to buy to make the losses back, the 1 profitable trader has already accepted that losses happen sometimes, and the next trade has to be made completely independent of the morning losses. Not in a reaction to them. If you can't suppress revenge trading and get away from the computer sometimes, you're going to be in a perpetual nightmare for a long time, which invariably ends in you losing either all your money, all your sanity, or in most cases, both. I know you've heard these things time and time again, but theres a reason for that.

This is REALLY not a complicated game. Everyone is always in search of the golden savior, the answer to all their problems someone is going to give them in 160 characters or less. This is not a complicated game. Don't make it any harder than it has to be, or go searching any further than you need to.

Thats about it.

Seriously thats about it. There is honestly much less than you think separating you from that trader you think is a God that you have up on a pedestal. He's not. He just does a few small, but crucial, things better than you.

Don't focus on the immediate problem you think you've got. Do your best to really evaluate yourself, and reverse engineer your issues to the root. Remember, top-down analysis. Are you afraid to lose? Thats a very, very large majority of the problem for most. If you are, figure out why. If not, keep thinking. Chances are if you're honest with yourself, it's probably not too hard to diagnose the genesis of the problem.


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