The Differences Between Amateur and Professional Traders
You might be wondering what professional traders “have” that you don’t, or
what it is that they know that you don’t. In today’s lesson, I am going to
explain to you that whilst professional traders are doing things differently
than how you might be, they do not “have” or “know” anything that you cannot
obtain or learn.
Becoming a professional trader might seem like something that is still quite
far away from being a reality for you. You might think that professional
traders have some “insider” information that you don’t know how to get your
hands on. I can assure you that neither of these things are true; you are not
as far away from making money in the markets and ultimately becoming a professional
trader as you probably think you are, and there is no big “secret” to trading
success that you have to travel to the ends of the Earth to discover. In fact,
I am willing to bet that all you need to get on the track to trading success is
probably a slight adjustment in how you think about trading and a willingness
to begin changing your trading habits.
There clearly are some differences between professional and amateur traders,
but what are these differences and how can you learn from them to improve your
own trading?
Professionals REALLY enjoy trading…the thrill, the hunt; they’re passionate
about it
Amateurs are looking to ‘change their lives’ or for some ‘key to
success’…they probably do not enjoy trading as much as a professional and see
it more as a “tool” to make them money. The professional actually loves the
challenge of trading, the challenge of mastering his or her own mind and they
are interested in the entire trading process, from the psychology aspects,
technical chart reading, to money management. If you
don’t love what you are doing, you’ll never find the necessary
dedication, mindset and habits to succeed at it, and that goes for everything
in life, including trading.
Now, you might think that you “love” trading and that you are really into
it, but you are still losing money and you are wondering why. Simply put;
there’s a difference between loving what you do and doing it correctly. For
example, professional traders enjoy trading and analyzing the markets, but they
are not addicted to being in the markets all the time. They are not addicted to
it because they know that part of being a successful trader is having patience
to wait for high-probability / obvious trade setups and not becoming “obsessed”
and emotionally attached to any one position.
Pros aren’t afraid of risk but they also know how to manage and contain it
FACT: Most people are afraid of risk. That’s why when you talk about trading
to most people they either think you are a little crazy or they have no idea
what you’re talking about. It’s in our wiring as human beings to be risk
averse, and this clearly works against most people when it comes to trading.
Trading is essentially a big mental ‘game’ of taking and managing risk. An
amateur is ‘afraid’ of risk while a professional understands it, accepts it and
manages it, and is thus not afraid of it. Professionals are not afraid of risk
anymore, they probably were at one point, like all traders, but because they
have long since accepted that risking their money is part of being a
trader, and they know how to manage it properly, they no longer fear the
risk involved with trading the markets.
A professional trader does not flinch when his or her trading strategy is
telling them to enter. The risk involved is just ‘part of the game’ to them,
and because they know how to mitigate it, they are not afraid of it.
Conversely, an amateur trader might struggle with the simple act of entering a
position; taking a view and pulling the trigger. Many amateur traders are
afraid to commit to a trade in the first place, because of the risk involved.
Also, most amateur traders become more risk averse after a losing trade,
just like most amateur poker players will become more risk averse after losing
a game of poker. However, in reality, the probability of winning or losing in
the market or in a poker game does not change simply because your last trade or
poker hand was a loser (or winner). Professional traders understand this and
they do not become more or less risk averse because of the outcome of their
last trade. Amateurs become far too influenced by their last trade and this is
why you have probably experienced what I call the “euphoria blow-out”; this is
where you blow out your trading account, or nearly blow it out, after a series
of winning trades. Amateur traders tend to feel “euphoric” or over-confident
after hitting a few nice winners, then their perception of the risk in the
market decreases, causing them to illogically increase their risk per trade and
take low-probability trade setups; which as you might know is a great recipe
for losing money really fast.
Professional traders view the market as a game of probabilities
For example, if you trade an average of about 3 to 5 times per month and
mainly focus on the daily charts,
like I do, you will need to wait about 1 year to see your trading edge play
out. You might not be profitable every month, say because you lost 2 out of 3
trades, but then the next month you might win 2 out of 3. The important thing
to understand is that you need to stick to your trading method and give it TIME
to play out. If you start straying from it and begin randomly entering the
market, you are going to negate your trading strategy’s edge and decrease its
long-term profitability.
If you trade say 3 or 4 times per week, you will need to wait a good 2 or 3
months to see your strategy pay off. You might have two losing weeks in a row,
and then the next two or three weeks might more than make up for those losers.
More than anything else, the ability to look past any ONE trade (and not let
its outcome influence your next trading decision) and understand that you need
to see your edge play out over a SERIES OF TRADES, is something that many
amateur traders seem to be unable to do or that they are simply unaware of. In
order to become a professional trader, you have to do three critical things:
1) Understand that any ONE trade does not determine your success or failure
in the market.
2) Start trading IN-LINE with point number 1 above.
3) Doing point number 2 above by ONLY trading when you are “sure” your
trading strategy is providing you with a high-probability / obvious trade setup
and not cranking up or ratcheting down your dollar risk per trade because of
how your last trade made you feel.
Professional traders know how to read a chart’s price action, amateurs may
or may not know how
Knowing how to read the natural price action of a market is something that
all professional traders know how to do well. I’m not going to say that “every”
trader strictly trades with price action strategies, like
I do, but certainly many do and the ones who use other strategies or methods
most certainly use price action analysis in some part of their trading
analysis.
Amateur traders may or may not understand the importance of learning how to
trade from a market’s price action. Many of them are still stuck in the search
for that “Holy-Grail” trading system, ignoring the fact that they NEED to
understand how to read the raw price action of a chart if they want to really
have a chance of making money as a trader. Even though I trade and teach price
action trading strategies, I won’t sit here and “preach” to you and tell you
that pure price action is the “only” way to trade successfully, but I WILL tell
you that you need to understand how to read and trade from price action (as all
professional traders do) and should you choose to develop your own “hybrid”
trading strategy or use another one, having the knowledge and ability to trade
off the “naked” price action of the markets will make any other method or
strategy you use much more powerful.
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