What Separates Professional Traders
Posted on 03 September 2009 by Jay Norris
1) Mind Set
The first big difference between professional traders and those that aspire to be pros’ is mind-set. The pro knows that over a particular period of time he is going to generally make X amount of money. He has a positive mind set, and understands that his risk to not making his money comes, not from having losses, but from not taking trades.
2) Stops
The professional views stops completely different than non-profitable traders. The pro’s attitude is “why even trade if you think you are going to get away with risking 20 or 30 pips”. The pro will use what are called “catastrophic stops”, and rarely gets stopped out via those stops because market conditions will shift and give the trader a heads up to take the position off, or reverse it long before that catastophic stop gets hit.
3) Experience
The trader knows what kind of market he is in at all times because he has experienced it before. He knows what the current trends are because that is all that matters — being in the now. He shows up every day with his lunch bucket in hand. His positions shift with the market and he gives himeself enough room to be an hour, or even a day early. And he is never late.
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Jay Norris is the author of Mastering Trade Selection & Management, McGraw-Hill, 2011, and Mastering the Currency Market, McGraw-Hill, 2009.
Trading futures or Forex is a risky endeavor and not suitable for all investors!
Tags | "Forex Trading" "Forex Education" "Trading Education", Add new tag, Currency Trading. Trading Education, Parallel Analysis of Markets, Trader Mind Set
Point #1 the mindset of a trader is really important. Profitable traders think differently from the rest of the herd. This really comes down to letting winning trades run and cutting short the losing trades.
Regarding point #2 I have tried trading without stops or with catastrophic stops in place but found once I defined risk and placed a stop so that I had a minimal favorable risk to reward ratio in place my trading made tremendous improvements.
Point #3 is also excellent. How could a trader trust his system and stick to his trading plan unless he had the experience to do so.
Best,
Jordan
Thanks Jordan!
Very interesting article.
How would you describe a catastrophic stop loss? For example, a point that is well beyond a resistance line on the weekly chart? A risk to a high percentage of the account?
Hi Yohay,
A catastrophic stop is one where you would have to see a serious outlier, as in a 3 standard deviation move against your position to knock you. The reason you use it is not to determine your risk but to establish your maximum risk. You will exit your trade when you get a fact based behavioral signal against your position, similiar to that that prompted you to take the trade to begin with — for those percentage of trades that are not winners this is how you will exit them the vast majority of the time. The cata stop is in case something out of the ordinary happens when you are asleep. Something most pro’s undertand also is that even if you have a stop in, and something out of the ordinary occurs, as in another 9/11, or worse, and the markets blow out, there is no guarantee that you will not incur a debit balance.
Thanks for the clarification.
Setting stops at 20 to 35p is is a sure way to be stopped out. If you are trading actively, then set your stop way beyond the current fluctuation in price range as a safety measure. If the price starts to move against you 20-30 pips and thats all you want to risk, then exit the position. Price has a way or spiking, and if your stop is within reach of a spike, then you are dead meat.
thanks Patrick, you got that right!