Most people lack the mental readiness to do what is necessary, consistently, to achieve wealth. This principle applies equally to trading.
The majority of traders end up losing, much like most people remain in the middle to lower economic classes. The reasons behind this are strikingly similar. Excluding unfair variables like being born in an economically depressed region or having severe physical or mental handicaps, the primary reasons why 95% of people fail at trading, business, and wealth creation are largely the same.
So, What Do the Top 5% of Traders Do Differently?
Stay in Trades Longer
The top 5% of traders hold their trades significantly longer than most. Use time to your advantage in the markets. Resist the urge to close trades too early. Allow them to develop and give yourself the opportunity to catch significant market moves that can yield substantial profits. This is one of the key strategies that helps the top 5% of traders achieve their success.
Place Your Stops Properly and Intelligently
Proper stop-loss placement is a critical factor that can make or break your success as a trader. The top 5% of traders have mastered this skill, and you will need to do the same. A key piece of advice is to use a wider stop loss than you might initially think is necessary. Often, traders correctly predict market direction or choose a good entry signal, but their stop loss is too tight and gets triggered by normal daily price fluctuations. The key is to place your stop loss outside of these daily price ranges and beyond nearby key levels.
Trade with Clean Charts and Focus on End-of-Day Data
Successful traders, who consistently make money over years rather than just a few lucky months, understand the importance of focusing on clean end-of-day charts. They primarily use higher time frame charts, especially the daily time frame, to make their trading decisions. Long-term successful traders rarely rely solely on short time frames or engage in scalping. Scalping or day trading can make the process more difficult, time-consuming, and stressful, ultimately reducing your chances of achieving long-term consistent success in trading.
Utilize a Clear Arsenal of Trading Strategies
Professional traders know precisely what they are looking for in the markets. They have a defined set of setups and trading strategies and wait patiently for the right conditions for their entry signals. To succeed, you must have a clear arsenal of trading strategies; you cannot just “wing it” and hope to “figure it out.” Without a plan, you’ll only discover that you were wrong and lost money.
Create a trading plan that includes printouts of the best setups you’re seeking. Have a daily checklist to go through before analyzing the charts and taking a trade.
Apply Sound Risk/Reward Per Trade
The top 5% of traders have reached their position by mastering the concept of risk/reward. They understand the mathematics behind it and know how to make it work in practice by placing their stops and targets effectively.
A crucial part of risk/reward is allowing trades to play out without constant interference, unlike the bottom 95% of traders. By learning to set and forget your trades, you’ll begin to see a gradual but consistent improvement in your trading performance.
Look for Confluence
When multiple factors of confluence align in a trade, it adds weight or authority to the setup, increasing its chances of success. Professional traders understand the need to tilt the odds in their favor. They identify key pieces of evidence on the charts that constitute confluence and wait for these elements to align for a high-probability entry. The goal is to gather as much technical chart evidence as possible to support the trade.
Thinking and Acting Properly in the Market
Your thoughts and actions in the market are the primary factors that determine long-term profitability.
Avoid becoming overly emotional about your trades or excessively influenced by recent results. Thinking and acting properly in the market involves trusting yourself and staying cool, calm, and confident despite the constant temptations and challenges inherent in trading. The top 5% of traders have honed their ability to think and act correctly over the years, developing a “sixth sense” or intuition for trading. This intuitive feel is a result of consistently thinking and acting properly in the market.
Write a Daily/Weekly Market Summary or Journal Your Trades
To become one of the top 5% of traders, you need to get in tune with the markets, understanding what has happened, what is happening, and what might happen next. Writing a daily summary of your favorite charts will help you make sense of the market movements and follow the footprint of money. For guidance, you can check out my daily market commentary for members. Starting this practice of daily journaling or market commentary will elevate your trading to a new level.
Treat Trading Like a Business
Professional traders approach their trading career as a business. It involves costs and expenses (such as losses, computer equipment, and internet data) and generates revenues (winning trades). Like any business, profit is made when revenue exceeds expenses. Unfortunately, for most of the bottom 95% of traders, expenses become too large due to excessive losses from over-risking, over-trading, or lack of knowledge.
To succeed, start treating your trading like a business by implementing all the strategies discussed in this article and acting as if you are already a wildly successful trader. Remember to trade like a hedge fund manager, even if you aren’t one yet.
Get Knocked Down and Get Right Back Up (Confidence and Resilience)
Losses are inevitable. You’ll face situations where trades that could have been huge winners fall short, or where trades just miss their targets and stop you out. As a trader, you’ll encounter many near misses and losses. If you allow these setbacks to affect you emotionally, you’re setting yourself up for failure. It’s crucial to stay cool and calm, and to get right back in the game. If you find yourself struggling to maintain composure, consider taking a break from the charts until you regain your equilibrium. Don’t let fear, frustration, or sadness from a lost trade derail you; instead, recover mentally and return ready to continue.
Conclusion
Above all, the top 5% of traders recognize that mastering oneself is the key to improving trading performance. While no one can truly master the market, mastering yourself will lead to better trading results.
So how do you “master yourself”? Begin by acknowledging that you are not perfect and that you have flaws, just like everyone else. These flaws are part of being human and can lead to mistakes in the market. However, by committing to continuous trading education, staying open-minded, and refusing to accept failure, you can transition from the bottom 95% of traders to the top 5%. Remember, there is no “Holy Grail” to trading success—only self-mastery, adherence to your plan, and relentless pursuit of your goals.