The mindset of a successful trader

The mindset of a successful trader

This a special guest post by Promising Trader. It was originally published in the series The Successful Trader Survival Kit on Nov 6, 2019. Republished here with kind permission.

In this article, I will be sharing how I successfully began trading at home for a living! Here’s the first part of my trading plan for beginners.

Warning

This is no financial advice, all the content and the ideas present in this article do not guarantee financial success and may lead to a loss of your money. You should always do your own due diligence before trading or seek professional advice. Some of the links available on this page may generate a commission for the author.

The mindset of a successful trader

Use the mind

In this article, I will be sharing how I successfully began trading at home for a living! Here’s the first part of my trading plan for beginners. If you ar reading this, I guess that you are considering to quit your 9 to 5 job, and quite possibly like I was, are a beginner who wants to start trading at home like a professional! You will find plenty of resources online that talk about the discipline and psychology behind trading, which I will write an article on, or send you an email with the relevant information if you are subscribed to my newsletter! Because what I want to say hasn’t been covered yet (as far as I am aware), I would like to provide you with original and new content – something that doesn’t come from books or other peoples’ head, but instead comes right from my personal experience, of being in the trade industry in the cryptocurrency exchange for a year. Today, I will not only talk about what I believe is the right approach to becoming successful in investing, or how to speculate in the exchange by trading securities (stocks, currencies, cryptocurrencies, and bonds) – but will also try to convey all my recent feelings, mainly the emotions I felt when things went wrong. I hope that my recounting the very beginning of my journey as a home trader helps you, so you can immediately determine whether you are made for this or not. In fact, I will also impart some knowledge of other business models on you, which can really provide a useful comparison of personal experiences from those that are running these businesses!

The Number One Trading Strategy For Successful Traders

Before you begin putting your money at risk, it is essential to adopt the right mindset towards the exchange and your capital in general.

I am sorry, but if you were looking for the quick way, a recipe or a special hack that would unlock the golden path to becoming filthy rich – with no effort or retroactive effective dates whatsoever, then this article is not the one for you.

Succes

So, if you are still interested in acquiring successful trading strategies, it is time to find out how to do so in a nutshell:

Treat trading like a business

Without this, it doesn’t matter what you do in the exchange, the odds will never be in your favor; you will just end up gambling rather than trading (investing or speculating), as opposed to making money.

What do I mean when I say to treat trading as if it was a business?

Well, firstly, it is important to note that this is a proper business if you want to be a professional home trader – and I have written ‘professional’ in bold for a reason, otherwise, it would simply be considered a hobby, and not a business. Regardless, you should treat this profession seriously if you want to make any substantial profit.

Successful entrepreneurs are very good at knowing their numbers!

You would be surprised to know how much studying and preparation goes behind launching a fresh start-up business or a new product being launched in the market – at least for those that ultimately become successful.

The same should be said for trading, seeing as there is practically no difference. Entrepreneurs need to know exactly how much money enters and leaves your account, then use this information to calculate, then compare all the potential profit with their costs.

Every action that you take should have a purpose towards your goal and every money that you intend to spend (or move to buy or sell in the exchange) should be thoroughly studied. When you run a business, you must earn a certain amount of money within a given period of time, even when you are investing or speculating (which is what I am doing) in the exchange, you must be profitable and/or attempt to lose the least amount of money (if any) when the set amount of time has passed, or when a certain loss tolerance is reached.

The most important thing to acknowledge is that running a good business takes time and practice.

If trading was a video-game, you would eventually become a winner… Though you have to consider, after how many hours of practice and lives lost?

This same perseverance should be applied to any new things you do, the only difference being that you should (figuratively speaking) try not to ‘die’, as you won’t be able to respawn and restart like a video-game.

Capital Preservation

Survival is the name of the game

When you run a real money-making business, you should learn to not give up in the face of adversities… Apply the ‘video game’ philosophy – overcome the obstacles and master your craft. So, if you decide to make this big step, you must be aware that this is going to be YOUR business, and just being an entrepreneur, in general, is certainly not easy… otherwise, we would all be millionaires by now. I will admit to having started several businesses, then shutting them down later because my expectations for the business were not fulfilled straight away. Now, I have learned that it takes time and perseverance to reach success. If you are reading this article, it is likely that you are not an entrepreneur and you quite possibly have no knowledge of what being an actual entrepreneur means – exactly like me when I started (though I am sure that I can still make broad margins of improvement). Trading, like every other business, is not designed for everyone’s mentality or approach; this means that not everyone can absorb the tough punches it throws. Quite frankly, not everybody is able to get up once being knocked down by the exchange! However, if you are aware of this before you start, you can train yourself to be well-equipped enough for facing this struggle, and most importantly know how to manage your capital so that you are profitable in the long run. The last concept that I have learned – partially by reading books, but also by experience, is to ‘treat it like a casino’. Many websites and resources online will tell you that you should adopt this way of thinking for running a trade business. This is such a detailed topic that I won’t really go into much depth about, mainly because I want to share my own experience, rather than recycling what’s already been said, but I would recommend buying the book and reading it. Why a casino? Let’s imagine that you have a coin; every time you flip the coin and it lands on a specific side, you would make 10 dollars; while if it landed on the other side, you would lose 10 dollars. Statistically, if you would flip this coin 10 times, it can be assumed to land on the same side about half the time – making it exactly 50% in this example. Therefore, this must mean that if you play 10 times, the results of your coin-flipping would earn you 50 dollars (5 times on the winning side) but would also make you lose those 50 dollars (5 times on the losing side). In this example, you will have spent your time breaking even.

Do you think that casinos play this way? Definitely not. They are a proper business and take big measures to ensure that the odds favor them rather than the players, meaning that there are either no 50% chances for the casino to lose (much less indeed), or if there is, what they lose is less than what they would make when they win. And here is where the business aspect of this methodology emerges: Your approach to trading must be analytical; you should constantly try to see the bigger picture – rather than single events, especially when the outcome is negative. Like with the example of the coin, in the exchange you have exactly a 50% chance to get it right –after all, it either goes up or down every single time. If you can apply this way of thinking and determine how much you could win if you were to succeed, as well as consider how much you are willing to lose if you are wrong. This is how you start making money. Now, let’s imagine that the same coin you flipped earlier lets you win 10 dollars on one side, and only makes you lose 5 dollars on the other side. If you would flip it 10 times, with 5 of these times being a success, you would earn 50 dollars and lose 25, hence, giving you a profit of 25 dollars (50 – 25).  

About getting great odds on those tosses

This means that whenever you enter a position, or in other words, buying/selling something to start an investment, you must calculate the risk and be able to admit when you are wrong – resulting in you closing your position, which means leaving your investment and taking your money back, once you lose a certain amount or percentage of your initial investment. This is called being ‘disciplined’, and there is plenty of resources and books that cover this aspect of trading in detail. Another interesting book that was one of the first I ever read was ‘Mastering The Trade’. This persuaded me to close all the losing positions in the exchange (which was Binance at the time). Even when I was losing, I made sure to stay within my maximum acceptable loss value, so I could outweigh the loss and make a profit. You can find more details about this book, and others, right in this article: Top 5 Trading Books of All Time for Technical Analysis and Day Trading I will show you how I am able to predict my potential wins and losses later on, but for now, it is enough to know that this is my approach to be profitable in the exchange using the principles of Technical Analysis – a topic that I will cover in other articles; it has proven to work perfectly and still never ceases to amaze me!

Because I mentioned the trade like a Casino concept I think it is only fair to clear what I believe to be a key aspect that some of you may be wondering about at this point, is there any difference between trading and gambling?

Trading Vs Gambling

Etneral Sadness In the Sunless Gambling Den

If we check the dictionary, we can see that the definition of ‘gambling’ is exactly what you do when trading: To take risky action in the hopes of achieving desirable results. On paper (or screen), these two topics appear to be the exact same thing, such as buying specific security then waiting to sell it with the hope that its value increases. If we look at this from a ‘casino perspective’, would you consider it like gambling? After all, even casinos are spending money on their buildings, personnel, machines, and tools – but don’t you think they actually want people to lose their money in there? Hence, ‘taking risky actions in the hopes of achieving desirable results’. Well, honestly yes – yet not at the same level as the players, as they are the ones with the odds stacked against them, while casinos know that they have the ultimate advantage. Even if one lucky player makes a big win, there will be another 80 who will cover for that win and the loss of money. In other words, the gambler doesn’t make calculated risks to a specific margin; the rules and statistics of the game are not dictated by players, as they are the ones who put their money and hope on luck. They don’t have a way to ‘stop’ the dices in midair if they notice that they will lead to a poor outcome, nor can they simply take their money back and leave while the ball is still rolling. The biggest flaw here is that players don’t have a long term vision of their money, because they can’t just halt the game when things don’t go as planned. Thus, they have absolutely no tool to preserve their capital. Isn’t this exactly why you should treat it as a business? All these factors contribute to the difference between gambling, and making an educated decision based on calculations before taking a risk… So, if you trade with this business mindset, you are not gambling, or could even be considered doing so if you were to invest in Real Estate (just to mention a business model). When you speculate in the exchange, you can achieve exactly this and be able to preserve your capital. Using the tools and knowledge of Technical Analysis, you would be able to establish a goal value, as well as a maximum acceptable loss – which should aim to be at least three times smaller than the estimated profit made. Now you can probably relate to the coin-flipping conceptualization, thinking about a positive $10 on the winning side, and a negative $5 on the losing side. It is perfectly acceptable to lose 50% of the time if the money earned from your wins remains constantly greater than potential money lost. To conclude this chapter, if you asked me whether Gambling and Trading were the same thing or not, I would definitely say no. Gambling does not aid in the preservation of one’s capital while either a speculator or an investor, which can also be defined as a ‘trader’, or even better: a ‘businessman’, would always have the option to preserve their capital.

Trading Compared To Other Business Models

Once we understand how to invest in the exchange for a profit, it could be a good time to consider quitting your 9 to 5 job – since trading should be treated as its own serious ‘business’.

I would like to compare this notion with other models that I have had the opportunity to explore – some of which I am currently conducting.

I must admit that trading is still my favorite business model, despite it appearing to become rarer since it seems to be based solely on luck. Personally, however, trading for me is the least stressful of all!

Let’s talk about selling on Amazon; there are people out there making billions on Amazon, so please, consider the following content as my mere feelings towards it.

Amazon allows essentially 3 types of models:

Private Label

Private Label involves dealing with manufacturers (and possibly scammers) in countries where prices are insanely low – a prime example of this being products from China. This kind of procedure requires you to pay an upfront sum of money (usually thousands of dollars!) to have a product exported to your country or target country. Paying amazon to advertise your product should be simple a step in the process, this allows you to sell for very low prices until the product ranks (without the promotion being necessary), so you can start diminishing such costs and increase the value of the product – without which, one would not sell anything, resulting in the loss of a great deal of money, both for the manufacturing and storing of products at the Amazon warehouse.

Once your product starts selling well, you can increase your prices and reduce the advertising costs to start making money from then onwards.

During this period of time, dealing with negative reviews and refunds can be very taxing on one’s feelings, without mentioning what other competitors can do to your business which is very scary if you have invested all your savings on this model.

Getting in contact with a manufacturer that you don’t know or cannot even visit in person has a multitude of costs and risks, as you never know who you really are dealing with – and if you are not an expert in writing contracts with them, there is a high probability that you will end up losing money, and quite frankly, even if you are an expert, the chance of losing money is still very much present.

Exporting products also cost money, especially if there are customs issues arising, which would not only ca

use you to be charged the usual taxes and fees of exportation, but could also result in a loss of business, with the possibility of batches being delivered with a delay – an extensive delay may result in your stocks running out, hence halting any money-making; this may also have a detrimental effect on all the promotion you did before (to advertise your product).

However, the worst complication you could face is if you finally have your product in the designated country, at the warehouse, ready to be sold; then somebody, richer than you has patented your own idea has now prevented you from selling. This could be the same manufacturer you trusted and assigned with the production of your goods, who simply starts selling your products after you finally reached the stage of generating income – this should be an acknowledged threat since manufacturers can actually market these items at a cheaper price, after all, they are the ones making a profit from your purchases, meaning they could absolutely sell the products for less, even benefiting from your advertisement payments!

So, this is definitely not a hassle-free business model at all; the most noticeable thing is that sometimes it doesn’t even matter what you do, and rather depends on how much money you can afford to lose, or how much you can spend to protect yourself from any possible threats in this industry.

Amazon Arbitrage

Arbitrage is much simpler; it is basically the process of re-selling goods at a higher cost. These products are usually already well-known, and something that you are more than likely to find from wholesalers and stores in your own country.

The arbitrage business would probably never make you insanely rich, but it is also the least stressful and risky out of all the options.

Regarding Arbitrage, I can only say that having to deal with Amazon and customer returns is not always a pleasant experience, as well as handling people who are completely incapable of calculating profits, which eventually leads to them competing with you in regard to the same product – this can become an extremely difficult and frustrating situation as they are selling these below market price (somebody has tagged these people with funny nicknames).

Globally, it is a good business model if you know what you are doing, but still, there are many factors out of your control that can affect your business, or at least your mood.

Drop-Shipping

I have no clue how drop-shipping works in detail, because I don’t have any experience with it, but it involves selling something that you would never see, hence you are unaware if there are defects if it is exactly what you thought you were selling.

It is indeed an interesting business model as you basically only receive orders, forward orders and take money for that, but it involves investing in advertisements and an e-commerce website, to say the least, the only problem is when one of these products is faulty or unwanted, in that case, you must absorb the cost as you would refund it to the buyer and it is very unlikely that you would like to return it to the Chinese (very likely you would buy from there) manufacturer, plus this business model is most profitable in the USA and if you are not in the USA you would not want the returned product to be shipped back to you.

My Personal Preference

Bitcoin

Please, don’t get me wrong, all of the aforementioned options can be very profitable business models. Though I just happen to feel more secure, when my decision is the only thing that can determine my failure or success – and this is exactly what trading does, as opposed to the three business models mentioned, which are not necessarily affected by your actions. When you trade, it is always your choice and ultimately you are the one to blame for any consequences…. Which is a big relief for me.

Definition Of Speculator

A speculator is somebody who wants to exploit the market for higher profit, yet at a higher risk. In reality, there is a very thin line between an investor – who is usually alright with making smaller profit percentages (facing less risk), and a speculator – who may very likely start an investment while investors would leave it (more risk).

I have always been a blend of both, and honestly, you will probably end up being like this too. I have always taken opportunities that present themselves to me, but I tend to be an investor otherwise, closing a position when I am happy with the profit, before trying to enter with very low risk – which is why I don’t do much intra-day trading and prefer to leave my investments for days, weeks, or sometimes even months, as I enjoy my free time, instead of constantly waiting for a signal to buy or sell something.

What Is The Exchange In Reality?

Even though I believe it is nearly hassle-free, I don’t want you to think that this is a safe place. Actually, while with other business models you may be able to get away with some of your invested money (maybe even the majority of them), even if things go terribly wrong, with the exchange, you truly risk losing EVERYTHING you have invested in.

I have categorized into 4 main groups, the types of people in the exchange:

  • People who think to be smart
  • People who hope to be lucky
  • People who make informed actions
  • Filthy rich entities who determine the trend (with exceptions that we will discuss later as the content grows)

Now, which category do you want to belong to?

I would certainly love to be one of the ‘Filthy rich’ ones, but unfortunately, I am not, and I suppose that if you are here, neither are you.

Between the remaining three, I certainly want to be the informed guy!

Wouldn’t you agree?

If your presence in certain securities (regardless if they are cryptocurrencies, bonds, currencies, stocks, or others) is massive, you can influence the market in several ways, one of them allowing you to sell a huge amount of your securities, which can potentially cause a ‘domino’ effect, leading the products’ value to drop; another is pretending to sell a huge amount of your security, but we will go over this topic a little more in the future ‒ the reaction would be the same, however.

Whether you are selling securities or are pretending to, any negative news over the exchange can be spread throughout the media, and/or invoke panic amongst traders, who will subsequently close their position voluntarily or not (and this will be covered in a more advanced article), leading to even more sales panic, and eventually, a huge drop of security in question value. This results in a ‘domino’ effect since you start to think your security value is too high like other sellers.

Bitcoin is a good example and is security accessible to those who need to find an exchange. If the exchange is reputable, this diminishes the chances of a scam drastically as you can’t buy or sell false bitcoins.

Our task, as informed traders, is to spot whenever big investors (usually called wales in the jargon) are about to sell or buy something, and therefore take action to receive a little of the profit, almost like ‘little dolphins following the waves’.

Let’s not forget that the exchange, in a nutshell, is a place where basically everybody tries to take each other’s money.

Emotions Involved When Trading

Emotional Eggs

When you first begin trading in the exchange, you will inevitably experience the terrible feeling of losing money, and unless it’s not YOUR money, these emotions can really weigh you down.

Even if this is the shortest chapter, I really want you to try and imagine what I am trying to describe. I am sorry, I am not a professional writer, but I can ensure you that such feelings have tested my coronaries!

Before you embark on this exciting journey, I think it is only fair to let you know that you WILL lose money ‒ it is simply unavoidable, and at the beginning (if you are resilient enough to continue) it takes a huge toll.

I remember when handling a fraction of the money I am playing now, and spending my whole day and night watching, growing anxious if things were not going as expected. I fell in debt with my wife since I was taking family money, and was foolishly losing them, as she had agreed that I could take a part of our hard-earned savings and play with no experience at all.

Now, I can go to sleep without thinking about what I have purchased (I, however, still am concerned when I sell for a profit, but I will explain this in the future). It takes time and it’s really tough to see your money vanish. These emotions can be controlled with time and experience, almost as if they were a muscle, you would be able to train them whenever you went to the gym (metaphorically speaking).

Unfortunately, despite there being possibilities present to trade with no real money (and no real victories or defeats), this would only entice you to play with real money as you won’t get to face these feelings without risks, hence you would not be shaped by this experience.

My recommendation is to change the way you see the money.

If you are desperate for money, this type of work is probably not ideal for you ‒ yet if you are willing to see money as a tool to generate more income, and can develop an emotional separation from it, I guarantee that you will be able to train your responses much more easily.

If money was a hammer, you would be hammering your fingers a lot at the start, but then, you learn how to use it ‒ and even if it slips and still hits your finger, you will be able to dissipate the stroke as it wouldn’t be as painful.

And with that, we can conclude this article. If you made it until here I sincerely thank you; it was a long one, but I hope it was worth it.

Please, bear in mind that I am not an expert trader by any means and am most certainly not a financial advisor. What you have read today is my mere opinion and lessons I learned during my one year experience; doing what I did may or may not yield the same results.

Before you decide to start this path of investment, you should really have made your own due diligence!

Get more MekongMonkey

Subscribe to our mailing list and get everything about Bitcoin and Cambodia in your email inbox.

Thank you for subscribing.

Something went wrong.

Leave a Reply