Trading is an adventure that has a different meaning for every individual. It affects careers, businesses, and entire industries. Traders are the individuals that embark upon this path, and succeed. They use a wide range of tools and strategies, and have their own specific principles that guide their efforts. There are differences and similarities between the routines and approaches of successful traders. Below are the main pieces of advice shared by 20 traders.
Disclaimer: this work is based on my cooperation with Bookmap, an order flow software. It’s been an honor to work with the company and to have the opportunity to interview these heroes. Though I didn't get paid for this piece, I wanted to summarize all the knowledge in one succinct post.
Remember: trading is a high-risk activity and requires to allocate risk capital in the first place.
1. LEARN before putting money on the line
Many folks I talked to had jumped into trading by chance, need or mere curiosity. Years ago, Walter Lesicar from Germany had left a significant investment in a bank for administration, but by 2001, almost none of the investment remained. When he spoke to the fund managers about his (mis)fortune, they not only pleaded ignorance, but made the situation even worse. After that, he gave up on banksters, and decided to explore the world of trading.
Bret Bossenberry went bankrupt during the subprime mortgage crisis after owning several successful businesses. It was after a good friend introduced him to day trading in 2008 that he started to gain his capital back. Similarly, Madaz was a structural engineer who began flipping burgers at McDonald’s when the recession hit. Trading allowed him to fulfill his dreams, turning chasing quick bucks into making big bucks.
All of them believe that learning is essential to becoming a successful trader. This trivial but important tip for starting a demo account is key to grasping the mechanics of the market. In an interview with Bookmap, the legendary FuturesTrader71 referred to this process as “stages of competence with human learning.”
“At stage 1,” he said, “you learn mechanically what you have to do, and you have no idea what the ultimate skill set will be. At stage 2, you realize, ‘Oh my God, I don’t know anything.’ So, you do a lot of homework, a lot of practicing, you are collecting information. Then, stage 3 comes which is when you figure out what needs to happen and you have to use your conscious mind to repeatedly perform this task.”
2. Trading is WORK. Treat it like an everyday business
Del the Trader claims that your attitude toward trading should be similar to that of growing a business. Luis Recabarren agrees: hard work and dedication are fundamental for success in trading. The focus of the trader commonly evolves from broad analysis into monitoring and trading of several securities.
If that’s not enough, FT71 points out that “it is essential to treat trading as a business in terms of commitment and capitalization.” In this regard, time management and effective time allocation maximize opportunities.
“Any day when you manage to extract $6,000 from the stock market and move it straight to your trading account is what I’d call a good day.” — Madaz, scalper from California.
“Most people don’t have the stomach for successful trading, it takes years of losses before becoming comfortable with being in the red and actually losing money for a living. Average Joe would never trade beer and TV for his financial freedom,” Marco aka BitScalp, an incognito from Malta, argues. I’d sign on to his words. Risky as it is, trading provides a degree of liberty that a day job cannot.
3. Create a PLAN and stick to it
I heard from Bret Bossenberry, without a comprehensive plan and strategy, trading is just as likely to result in losses as it is in gains. Bossenberry was not alone in stressing this. Jason Ramus explained that it is essential to have at least two types of strategies in mind: one that is applicable on a daily basis, and one that focuses on risk minimization during crisis periods.
Here’s what traders recommend:
- Create your own trading routine: wake up and get ready at the same time every day.
- Prepare the entry and exit levels.
- Always rely on stop losses.
- Start small to give yourself a chance to learn as you go and avoid major losses.
- Look for patterns. “Consistency is the first thing a professional trader is looking for. But if you have two red days in a row, you have to change something” — says Joseph Gasperoni.
- Recognize your mistakes.
- Remember — oversizing is only an option only if you have a strong setup.
“Plan your trade and trade your plan.” — Bret Bossenberry, options trader from Florida.
BitScalp appears to be an odd trader in this context. He’s in favor of “consistent improvisation [that] may benefit the trader from the standpoint of managing losses.” According to BitScalp, your financial background does not necessarily correlate with your success as a trader. Instead, it’s all about learning and adjusting throughout the process.
In terms of trading time, more traders prefer the (very) early hours. Carlos Martinez believes that the early session is the most profitable. Other traders jump in later in the day, when it becomes easier to observe trends and “ride the flow.”
4. Risk management is the key
Cut the losers, ride the winners. You may have heard this a gazillion times, but there’s a reason that the most successful traders keep repeating this mantra: newbies often ignore this simple rule!
Frank Pollack reminds us that trading with risk, and allowing for losses, enhances both your process and your outcomes. Exit strategies and stop losses should always be factored into your planning. You must never wish, pray or hope. If you WPH, you haven’t done your prep work.
Jason from the Oil Trading Group (OTG) supports this point, but adds that traders should carry on with successful trades for as long as possible. He shows that the relationship between risk and reward holds true for trading — the higher the level of risk, the higher the reward. Taking it one step further, Koning Karel argues that losses are necessary for changing and improving a trader’s strategy. Markets commonly teach humility that comes with time; it is essential to assess, and learn to avoid, previously made mistakes.
Walter Lesicar also speaks of losses and failures as a part of the learning process. In fact, when you start minimizing them, you ensure stronger outcomes and long-term strategic thinking:
“My stops in ES are 1,5 – 2 pts. When a trend starts, I am tightening and trailing my stops. Either the move runs in my favor or not, I do not and never wait until my stop is hit only because I have set it.”
Bret Bossenberry warns of the dangers of not counting on risk management. He tells of how his worst trade was in SVA when he was up $4,500. After returning from a shower, Bret was down $4,000. Instead of cutting his losses, he held his position, even as it plunged $8,000 without signs of stopping. The next morning, when the trader checked his balance, he had lost $27,000. “I will never do it again. ALWAYS STICK TO YOU PLAN!”
5. FUNDAMENTAL analysis is critical
Fundamental analysis is important, especially when it comes to value investment — an issue which was covered at length in an interview with hedge fund manager Longshortorflat. Still, TECHNICAL analysis is more important.
As Dean Market Profile put it, the combination of fundamental and technical analysis enhances trading outcomes. An order flow trader from India, Dean Market Profile utilizes fundamental analysis to see the bigger picture, while determining the additional factors behind price and volume movements. He uses his own LCT framework, where L stands for Logic, C is for Context, and T refers to Timing where order flow fits the timing purposes well. Nevertheless, “markets eventually reflect fundamental value in the long-term.” On the other hand, you may neglect this fact as a day trader.
Dutch trader Karel began his career in crypto; eventually, he grew bored of the crypto market, and decided to step into the forex. Karel believes that depression periods are the best times for purchasing financial assets, according to the cyclicity of the stock markets. Consistency is vital to this strategic approach, while success can lead to hubris and “pretentiousness.”
Madaz Money says short and long positions in trading involve specific events, such as dips, “washouts” or “panic pops.” The core indicators for these events include volume, volatility, as well as support and resistance. For some traders, market depth is central to their strategy, consuming up to 90% of their focus. In fact, Madaz Money argues that technical indicators only work if a lot of people use them.
Martinez recalled “trapped traders” who commonly buy high and sell low, which is damaging for them, but beneficial for counterparties. The achievement of the profit target in combination with stop loss is a central tenet of majority trading strategies.
“You have to understand how the market works and make it work for you.” — FT71.
FuturesTrader71 warns of duplicating someone’s trades, which won’t make you any money in the long run. Others have noted that the majority of the novice traders are technical traders. They look for indicators to inform their decisions, while also expecting someone to tell them when to get in and get out. While there is a lot of information on the market, tools like Bookmap and Trading View help traders locate and hone in on the most essential information. Frank Pollack watches the highlights of volume as contributing factor to growth, “effectively telling me to stay or to get out.”
BitScalp enjoys the predictable patterns found in crypto. “Now that Wall Street and Commercial Banks entered the game, we are beginning to see common market-making price patterns typical of forex, where redundant liquidity causes fast and violent moves followed by infinite periods of narrow trading ranges.”
You may have heard the name of this pattern, the “Bart Simpson,” which resembles trading the EUR/USD. “Technically they are just liquidity holes exploited by momentum ignition algos,” and order flow reading is vital for determining the entry and exit points. Marco gives specific recommendations for trading cryptocurrencies at leverage (read his interview or skip to the next section to learn more).
6. Choose only a FEW tools and indicators
There is an abundance of software available to traders, both free and paid. There are thousands of sources for information: from Stocktwits and quarterly reports to Facebook groups and private chat rooms. I can’t stress enough how important it is to choose your software wisely, figure out what works for you, and stick to it.
Consider that too many indicators will paralyze you. Following a wide range of indicators may get overwhelming. Too much data creates a clutter of information that may seem to correlate but in reality doesn’t. Here is a shortlist of indicators our traders recommended considering:
- Volume Weighted Average Price (VWAP)
- Elliott Waves
- 1.272 Fibonacci extension level
- Relative Volatility Index (RVI)
- Order Flow tools
Del the Trader’s Home Office Setup
The main techniques used for trading are the order flow and cumulative volume data. Software includes Rithmic, E-Trade, and Black Box, but is not limited to these programs. Sharing trading experience is beneficial to all traders, helping them improve their ability to optimize risks. Remember that, ultimately, people control the markets, while computers only execute orders.
The main techniques used for trading are the order flow and cumulative volume data. Software includes Rithmic, E-Trade, and Black Box, but is not limited to these programs. Sharing trading experience is beneficial to all traders, helping them improve their ability to optimize risks. Remember that, ultimately, people control the markets, while computers only execute orders.
7. Trade with leverage
Leverage helps maximize profit over time. FT71 states that having enough risk capital is crucial; you’ll need to trade with leverage to obtain your desired results. BitScalp refuses to trade Bitcoin without leverage.
However, keep in mind the high risks involved. Matt Davio remembers the year 2001 when he and his partner Jeff watched a Krispy Kreme position for over six months, from hedged to completely unhedged. They decided to short it.
At some point where we were a little bit bigger than we should have been for our risk portfolio and that has been up for about six weeks in that manner.
One day they got a call from a risk manager at their fund: “Hey guys, do you understand where you are in the position? What are your thoughts?” Usually, such a call means good news. But not in a situation when you are short. Both traders were so mentally exhausted from carrying that position that it was negatively impacting their other 15 positions. Eventually, they agreed to “puke out some positions and book the loss,” ending up with three million dollars. Two weeks later, the stock collapsed significantly; if they had waited only two more weeks, they would have ended up with an 18 million-dollar gain.
It was a worthwhile lesson, said Davio. The real takeaway, however, was regarding lightening the position to half or a quarter of the size. That was all they needed to satisfy the risk.
8. It’s always about the STATISTICAL edge
Yagub Rahimov from 7MARKETZ Group insists that the statistics and probability behind trading are crucial for achieving the best outcomes. “You need at least a 51:49 probability chance to win,” Lesicar says. “Understanding order flow and order book raised my chance, I guess, to at least 60% or more. That’s just because I see real time what is happening on the Bid and Offer side, where is absorption, where continuation is and when the market orders come in.”
Jason OTG supports the claim that trading “is not about luck but statistical probability and the edge.” The futures star from Chicago, FT71, is seeking out tradable statistical patterns for following the auctions. Trade simulating is a good first step to starting trading.
Peter Becker explains that the moving range of the market depends on the range on the bid side, and the range on the offer side. Thus, consistency of the small profits over time is a viable strategy. Understanding market mechanics makes a big difference in your trading chances, but random approaches are the enemies of the traders.
While volume, liquidity, and market depth remain the most commonly used indicators, risk minimization must always be a part of the trading strategy. To succeed, learn to control yourself.
9. Control your EMOTIONS
It is crucial to define risks and accept the fact that panic in the market represents an opportunity for returns. Still, a strong strategy helps minimize losses. Emotional intelligence may affect the trading process, eventually contributing to financial success.
“Trading is a game of stamina,” — Matt Davio, Oregon-based futures trader.
Andre Nastasi believes that opinions of the other individuals are inferior to trading process itself since the latter provides more knowledge and experience. Position management is the second step following risk management.
“There are times when you have to be aggressive, and times when it is better to remain calm,” said private equity manager and trader Luis Recabarren. “Just like for any activity, you need persistence to reach a sustainable level. Don’t fight the market, just follow its moves and act accordingly.”
The ability to step away from trading following a loss will prevent further losses. Emotions and overreaction may contribute to higher levels of risks. Keep in mind that there is always tomorrow. Some traders incorporate meditation into their routine in order to cope with the stress of high risks, helping them purge their mind of negativity and bring clarity.
Learn to rest, spend time with family, exercise, go for walks and take vacations. A healthy balance between your professional and personal life will reduce stress, and increase the quality of your decision making.
10. Love what you do
Once again: this mantra is trivial, but key to trading. You won’t succeed in the long term if money is your sole driver. Professional traders immerse themselves in the activity, constantly discovering new strategies and learning more about the industry or about their favorite stock. Of all the traders I interviewed, the striking majority didn’t have a specific financial goal to retire; each trader enjoys trading and wants to do it for as long as possible, solely for the joy of winning. But “good luck is always the result of good planning.”
So, “do something fun, learn something new, and help someone every day.”
BONUS section for the enthusiastic readers
A portrait of a “great trader”:
- A market participant who works and hunts for profits.
- A person who is able to accept risk and handle it daily.
- A trader who possesses willpower, flexibility, acceptance of losses, ego control, unbiased perspective, and the ability to not care too much about oneself.
Citations by these traders:
- “Success consists of going from failure to failure without loss of enthusiasm.”
- “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”
- “Fear and greed drive the market.”
- “Only the game can teach you the game.”
- “There’s a great quote I read by Thomas Edison, responding to someone who asked why it took so many years for him to invent the light bulb. Edison looked up and simply said, ‘I just ran out of ways it didn’t work.”
Selected bibliography by these traders:
- Market Wizards by Jack D. Schwager
- One Good Trade by Mike Bellafiore
- The Candlestick Course by Steve Nison
- Reminiscences of a Stock Operator by Edwin Lefèvre
- Flashboys by Michael Lewis
- Outliers: The Story of Success by Malcolm Gladwell
- Quantitative Trading by Ernest P. Chan
- Algorithmic Trading and DMA by Barry Johnson
- Dark Pools by Scott Patterson
- Fooled by Randomness, The Black Swan, and Antifragile by Nassim Taleb
- The Intelligent Investor by Benjamin Graham