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What a Trader Really Needs to Be Successful


When I first began trading, I did what many others who start out in the markets do: I developed a list of trading rules. The list was created piecemeal, with each new rule added, usually, following the conclusion of an unsuccessful trade. I continually asked myself, what would I do differently next time to make sure that this mistake would not recur? The resulting list of 'do's' and 'don'ts' ultimately comprised about 16 statements. Approximately six months following the completion of my carved-in-stone list of trading rules, I balled up the paper and threw it in the trash.

After several years of trading, I came up with -- guess what -- another list! But this is not a list of 'trading rules'; it's a list of requirements for successful trading. Most worthwhile truths are simple, and this list contains only five items. (In fact, the last two are actually subsets of the first two.) Whether this list is true or complete is arguable, but in forcing myself to express my conclusions, it has helped me understand the true dimensions of the problem, and thus provided a better way of solving it. Like most rewards life offers, market profits are not as easy to come by as the novice believes. Making money in the market requires a good deal of education, like any craft or business. If you've got the time, the drive, and the right psychological makeup, you can enter that elite realm of the truly professional, or at least successful, trader or investor. Here's what you need:

1) A method. I mean an objectively definable method. One that is thought out in its entirety to the extent that if someone asks you how you make your decisions, you can explain it to him, and if he asks you again in six months, he will receive the same answer. This is not to say that a method cannot be altered or improved; it must, however, be developed as a totality before it is implemented. A prerequisite for obtaining a method is acceptance of the fact that perfection is not achievable. People who demand it are wasting their time searching for the Holy Grail, and they will never get beyond this first step of obtaining a method.

I chose to use, for my decision making, an approach which was explained in our book, Elliott Wave Principle. I think the Wave Principle is the best way to understand the framework of a market and where prices are within that framework. There are a hundred other methods which will work if successful trading is your only goal. As I have often ! said, a simple 10-day moving average of the daily advance-decline net, probably the first indicator a stock market technician learns, can be used as a trading tool, if objectively defined rules are created for its use. The bad news is that as difficult and time consuming as this first major requirement can be, it is the easiest one to fulfill.

2) The discipline to follow your method. This requirement is so widely understood by the true professionals that among them, it almost sounds like a cliche. Neverthless, it is such an important cliche that it cannot be sidestepped, ignored, or excepted. Without discipline, you really have no method in the first place. It struck me one day that among a handful of consistently successful professional options and futures traders of my acquaintance, three of them are former Marines. In fact, the only advisor, as ranked by Commodity Traders Consumer Report, consistently to beat my Telephone Hotline record from 1983 to 1985 was a former Marine as well (he has retired from the advisory business).

Now, this is a ratio way out of proportion to former Marines as a percentage of the general population! Why should this anomaly exist? Think about it. At some point in their lives, these people volunteered to serve in an organization, which requires, above all, discipline. These are people w! ho asked for the opportunity to go charging through a jungle pointing a bayonet and pitching grenades, surviving on roots and bugs when necessary. That's an overdramatization perhaps, but you get the point. These people knew they were 'tough,' and wanted the chance to prove it. Being 'tough' in this context means having the ability to suppress a host of emotions in order to act in a manner which would strike fear in the hearts of most people. I was never a Marine, but years ago while attending summer school with Georgia's 'Governor's Honors Program,' I was given a psychological test and told that one of my skewed traits was 'tough-mindedness' (as opposed to 'tender-mindedness'). I didn't exactly know what that meant, but after trading and forecasting the markets for fourteen years, it is clear that without that trait, I would have been forced long ago to elect another profession. The pressures are enormous, and they get to everyone, including me. If you are not disciplined, forget the markets.

Robert Prechter is the founder and CEO of
Elliott Wave International
, a global trading advisor. Mr. Prechter has authored several books on Elliott Wave and the new science of socioeconomics.


 

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