Is Your Goal to Beat Wall Street & Become a Millionaire Trader?
Do you want to be a successful Wall Street trader? Making money in the markets while others are busy working for ‘The Man’? Or maybe you just want to dabble for a little extra side income? Take away a pesky truck payment, gas expense, phone bill, or whatever it may be?
No matter what reasons you have for becoming a trader, which can vary greatly from person to person, there are a few core essentials that can help anyone stay consistent and achieve long-term success:
1) Have A Defined Strategy:
Every successful trader has a defined strategy and uses it to execute their gameplan every single day, and it all starts with deciding what type of trader you are. Once you’ve nailed down the approach that best suits you, you have the necessary foundation of a disciplined trader. Imagine constructing a skyscraper – it’d be nearly impossible to complete without a blueprint. Similar actions need to be taken when it comes to trading.
One of the easiest, yet underutilized methods of being a disciplined trader is to write down your plan for each trade. Seems simple enough, right? Problem is not many traders take this initiative, or they miss out on an essential aspect of it. Keep in mind that your trade plan doesn’t have to fill up much more than a post-it note, but it should be as detailed as possible when it comes to buy and sell prices.
This is where some costly errors can come into play. Most amateurs jump right into trades with the thought of “I’ll buy at this price and sell when the price goes up”. There are 2 major issues with this: First, it’s not detailed enough. Selling “when the price goes up” is much too vague. Second, there’s no plan for if the price goes down. This is how undisciplined traders let trades get away from them and blow up their accounts. With a simple plan, a disastrous consequence like this can be easily avoided.
Major Points:
- Decide what type of trader you are in the early stages
- Plan your trade and trade your plan (write it down!)
- When you are entering a trade, know what price you will sell at if the stock goes up, as well as if the stock goes down
- Failing to plan means you’re planning to fail
2) Cut Losses Quickly:
Cutting losses quickly goes hand in hand with having a plan and can keep you in the game for the long haul. No trader hits winners every single time – that’s just the way it goes in the stock market. You’ll make some trades that can wipe out your portfolio if you’re not disciplined.
Most experts I’ve seen have about a 70% success rate per trade, which means 3 out of 10 trades don’t go their way. By staying disciplined, you can protect yourself. But being careless and lacking self-control can diminish your portfolio in no time. There’s ample opportunity to capture gains in the market and consistency is what pays in the long-run. Have a defined strategy, plan your trades, cut losses quickly, and above all else, be disciplined.
3) Pay Themselves Consistently:
On the other end of the spectrum, when trades are, in fact, moving in your favor, you need to be disciplined as well. Don’t be the trader that routinely lets 20% winners turn into losers. Pay yourself those 5-10%+ wins when you have the chance and move on to the next one. It may not seem like much, but if you are implementing an active trading approach characterized by 2-5 trades per week, those modest gains can really add up over the course of a year. And assuming you’re keeping your losses small (about 3-5%), you could be making a nice profit for yourself. The bottom line is: you can’t make money if you don’t take profits.
Don’t be greedy and “hold for the top”. The problem with this is that you’ll never guess the top exactly, or the bottom either for that matter. Of course that’s the goal of every trader, to maximize profit, but you’re not a fortune teller. What you can do is play the odds and put yourself in ideal situations, and as long as there’s enough “meat” in between the top and bottom, you can still make your gains. You can’t get caught up in catching the top and bottom of a stock’s price action perfectly because it’s simply impossible.
The Wrap-Up: Fundamental Requirements For Every Successful Trader
If there’s anything you should take away from this it’s that disciplined traders are the ones that last on Wall Street. By having a defined strategy, cutting losses quickly, and paying yourself, you give yourself a much higher chance of success.
Implementing a disciplined approach isn’t all that difficult either. By simply deciding what type of trader you are and writing down your plan for each trade, that should take care of the rest. There’s no “when should I cut my losses?”, “when should I sell my shares for profit?”, or “what should I do next?” after you’ve already entered the trade because these details are specifically outlined in the trade plan.
Don’t let a lack of self- control and inconsistent practices inhibit your success as a trader. If you define your strategy, cut losses quickly, and pay yourself, then you have the potential to beat the street. Be disciplined and trade green!
Written by Matt Thomas
Great piece on trading buddy. But I would like to get some clarification from you on the third tips. I’ve been guilty of leaving my previous investment go from profit to massive losses, so I know first-hand that it sucks big time when that happens. You mentioned about selling when it hit 20% , but I think this is not a rule but depends on the investor right?
Hi Isaac – that’s a great question. Locking in wins at 20% certainly isn’t a “hard and fast” rule across the board – it will vary from trader-to-trader and situation-to-situation. What’s important to take away from that third tip of paying yourself consistently is the discipline. And it coincides with the first tip as well, which includes having a defined overall strategy, in addition to a plan for each and every trade you make.
Before you even place a trade, you should have a profit target in your head, or better yet, written down. And if that target is reached, at least a partial profit should probably be locked in at that time. In the end, it’s easier to capture multiple 5-20% winners than one 100% winner. There’s many more opportunities to capture those smaller winners over-and-over again, as opposed to shooting for huge 100% winners every single time. It’s much more difficult to hit those huge percentage winners on a consistent basis, and as a result, they’ll ultimately turn into losing trades most of the time.
It’s important to realize that this idea of capturing profits applies to short-term (day and swing trading) strategies much more than long-term investing though. I know you mentioned the term “investor” in your question, but capturing profits on a buy-and-hold strategy doesn’t necessarily apply the same as it would with short-term trading. Investing involves a much longer time horizon (usually a year or more) and some investors plan on never selling their positions. They’ll hold onto them forever, potentially raking in dividends throughout that time. Trading and investing have their similarities, but are also very different in scope and approach.
Hello Matt,
I always wanted to venture into stock trading, but I have been afraid to lose my money, and plus I was not skilled in trading. It is great that you are able to help people by giving them some sound advice about being a successful trader. I know this will help many people. Wishing you greatness!
I used to love trading. After about 3 years I finally called it quits. It can be very lucrative. And it can be happen very fast. That’s what I like about it. But as you mentioned making money super fast in this is not the key. Its more of just building and building, saving and saving. I like how you said cut your profits quickly. That is very hard to do but over time it gets easier. Nobody likes losing money but you can eventually lose all of your money if you’re not careful. I recommend following a great mentor.
Hi Brandon. Would you ever consider getting back into trading? Or did you have a bad experience that drove you out of it for good? Whatever your story is, I think it would be great for others to hear. Probably some lessons in there that could help, or maybe some warnings for beginners. Going back to your previous comments, following a mentor is definitely a great idea – modeling your approach after a proven successful trader can help immensely. Stock trading is inherently risky and not built to make it easy for you to profit, so following a defined strategy with discipline, cutting losses, and taking profits are extremely important. Avoiding substantial losses and capturing consistent profits can keep you in the market for a long time. Take care!
I’ve always thought this would be a great way to make money and would love to have more basic information on how to do it properly. Some people just seem to have a natural talent for it. But they must have learned how to do it at some point. If I knew I had a winning strategy, I think I’d have no problem sticking to the plan. Will you be getting into various different strategies, and maybe analyzing which ones to use, according to what the market is doing?
I appreciate your thoughts, Lynn! Some people do have a natural talent for trading, but in my opinion, that mostly applies to the mental aspect of it. Some people simply have a more disciplined mindset than others and can control their emotions when it comes to putting their money to work in the markets. These people still need to learn how stocks move and figure out a winning strategy for themselves though. It’s certainly not an exact science and relies mostly on calculated risks and discipline.
Sticking to a trading plan is easy to say, but surprisingly difficult to follow through on for most traders. There’s something about the psychology of traders that when they’re up on trades, they want to hold on for more. And when they’re down on trades, they want to hold on in hopes that the trade will turn back around. This mindset will result in losses time after time. Bad trades need to be cut quickly and profits from good trades need to be captured when presented with the opportunity. That’s why the best thing to do is write your trade plan down and take the emotions out of it: have a plan for if the stock goes down and if the stock goes up. Plan your trade and trade your plan!
Reverting back to your question, there are so many different trading strategies that it’d be difficult to cover them all, but my personal favorite is swing trading. Day trading or scalp trading can be rewarding but is not for beginners in my opinion. These types of trades also shouldn’t be taken if the trader cannot monitor their positions tick by tick. On the other end of the spectrum you have long term value investing, which involves hold times of a year or more, and there’s no way to avoid drops in the market with this strategy – you’re in it for the long haul.
Swing trading for me, is right in the middle of these 2 approaches. Profits can be captured fast, but the trades are a bit more slow-paced than with day trading. People with full-time jobs can take advantage of a swing trading strategy depending on their availability. With an active trading approach like swing trading (but not quite as active as day trading), you can also avoid bearish periods in the market when necessary. With a little patience, you can decide if you want to trade that day, week, or month based on market conditions. You don’t necessarily have the option of choosing when to participate with a long term approach.
Overall, I believe great trading opportunities can be found in any market, bullish or bearish, and it takes a disciplined trader with a defined strategy to capitalize on them. Take care, Lynn!