5 Rules to Develop a Professional Trader’s Mindset

So, you want to become a professional trader? Before you start, it’s worth thinking about  exactly who or what a professional trader is.

Most people think a professional trader is someone who works for some big bank on a trading desk, but this isn’t true. Of course those are professionals, but a professional trader can be anyone who takes their trading seriously, who approaches their trading like a job and has a set of trading rules that they follow. This might seem like a simple definition, but you’d be surprised how many people approach trading with no plan. And trading without a plan isn’t actually trading – that’s just gambling. And that’s not professional.

STEP 1: DEVELOP A TRADING STRATEGY

The very first step to becoming a professional trader is to create a trading strategy. This strategy will affect every trading decision you make so it needs to reflect your ultimate goals and the style you use to try and achieve them. And while there’s a lot that goes into creating a profitable trading strategy, there are two key pillars to build around.

The first is that your strategy must have a winning edge over the long-term. Sure, you might have a few winning trades and be happy about your success, but that doesn’t make you a professional trader. A real pro has the ability to repeat their success consistently and over a long time frame.

Second, you must manage your risk. The way to make money from trading is by building on the existing funds in your account. If you don’t protect your bottom line by incorporating an appropriate approach to managing risk, you simply won’t succeed long enough to become a pro.

STEP 2: TEST YOUR STRATEGY

After you’ve created your trading strategy the next stage is to test your strategy in the markets.

Testing is the only way to know for sure if your strategy has a winning edge in real market conditions. For example, if your trading strategy is based on breakouts, you need proof that it actually works. The best way to prove that your system has an edge is to back test it using historical market data and there are many programs that allow you to do this.

STEP 3: TRUST YOUR STRATEGY

Once you’ve put the hard work into deciding on your trading goals, strategy and style, you need to learn to trust them.

What this means is that you should follow the rules that you have set in your trading strategy for a period of time before considering any changes. You need to give your strategy a chance to perform. This can be a major issue for beginner traders as it’s very easy to be reactive and change your strategy quickly in response to a few losing trades. But remember, being a professional is a long term goal so you need to give things time to work. If your level of risk is suited to your broader strategy, you should be able to manage a few losses provided your long term profitability is increasing.  Obviously, if you are sustaining consistent losses without any wins, you need to look at whether you have a more fundamental problem with your approach.

STEP 4: STAY DISCIPLINED

Once you’ve established trust in your system, you need to remain consistent in your trading activity.

This means that instead of focusing on making a specific amount each day from the markets, you should focus on following your strategy each day. After all, this is the plan you’ve put in place. Your analysis has determined that this is the way to reach your goals. Anyone can win a few lucky trades. Professionals know how to stay in the game.

STEP 5: KEEP LEARNING!

The best traders and investors are constantly learning and improving their trading abilities.

Markets change. Systems change. New technology emerges. Part of your long-term success as a trader is to continue accumulating new knowledge and experience and applying it to your trading. Warren Buffett, widely regarded as the world’s best investor, recommends that professional traders read at least 500 pages a day. While this might be extreme, the point is that to be successful in the markets you should set aside time to learn more about the markets.

CONCLUSION

There’s no guaranteed way to be successful as a professional trader, but following the above rules will help improve your chances of becoming a pro. Just remember that true mastery of any activity is only achieved through constant application of the processes that lead to success.