This Daily Task Makes the Difference for Successful Traders
Great trading is a slog, not a home run derby. But if you adopt this daily habit, you can trade successfully over the long term.
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Most new traders fail because they focus on hitting home runs and fail to protect their precious capital.
The greatest thing about the stock market is that there is always a new opportunity to make money. As long as you have capital, there is the potential to produce exceptional returns. No other businesses offer such a steady supply of money-making opportunities.
To many new market participants, the market looks like a get-rich-quick scheme. Every day, there is a list of stocks that made giant moves, and social media is littered with the boasts of traders who doubled their money in a matter of days.
For folks with a gambling mentality, this view of the market holds tremendous appeal. It is like sports betting, but with better odds in many cases. However, just like most forms of betting, you will be wiped out if you are too aggressive for too long.
Long-term successful traders have one main characteristic in common: they protect their capital. There are many ways to do this, but it primarily boils down to understanding risk and controlling it. The only way to hit home runs daily is to take on ridiculously high levels of risk. When you do that, though, you jeopardize your ability to take advantage of the next opportunity that comes along, which has much higher odds of producing a reward.
The primary job of a trader is to adjust risk exposure daily. When market conditions change, technical setups shift or fundamental events occur, you must change your exposure to reflect the shift in risk.
Sometimes, adjusting risk means dumping a stock you previously favored, but it also means increasing your position in a stock with an improved risk profile.
Adjusting my position sizes is my primary trading activity on most days. I’m always looking for new opportunities, but when I find one, I don’t just buy it and sit there. I manage the position and keep adjusting it as conditions change and my assessment of the risk changes. The goal is to have the largest possible position when the odds are most favorable and to decrease my exposure when risk becomes too great. Trading is about making many small moves as you prepare for the big moves.
If you want to be a long-term successful trader, you must have the right mindset. Approach it like a job where your primary responsibility is managing trades and avoiding too much risk exposure in a poor situation. You will make plenty of mistakes and have lots of bad luck along the way, but if you slog away at it on a daily basis and put capital perseveration foremost, you will be successful.
At the time of publication, DePorre had no positions in any securities mentioned.
