I began this topic a fortnight ago with a column titled 'Want to Succeed in Trading? Don't do this!' You can check that out here and catch up on where we are at.
This column leads on from where that one left of with more of the mistakes that unsuccessful traders make. My goal is for those of you who want to succeed in the markets to avoid making the mistakes of those who have gone before you and the first step is knowing and acknowledging that these mistakes occur. Many of these mistakes relate not only to failure in trading, but failure in many areas of life.
I often quote people in my columns to back up a point and for today's column I am picking Thomas Edison, an achiever in a very different area of life than trading. Why? Because success in trading has the same principles as success in virtually all walks of life.
Losers Look for the 'Holy Grail'
We see traders all the time looking for a 'secret' to success that does not exist. In fact, this is true not just in trading but for all people looking for the fast route to riches. They look for the easy route, the simple answer to untold wealth. Consider these words from our great success figure for today:
"Opportunity is missed by most people because it is dressed in overalls and looks like work" - Thomas Edison.
Trading the markets represents a world of opportunity and appeal; be your own boss, work from anywhere, no more asking for a pay rise since the amount you can make is only limited by you alone. This has allure for a lot of people but make no mistake, there is hard work involved. The 'secret' to trading success is dedication, persistence and a lot of hard work.
Losing Traders Focus on Making Money
"I find my greatest pleasure, and so my reward, in the work that precedes what the world calls success" - Thomas Edison
One huge difference between the amateur and the professional it is this: the amateur focuses on making money, the professional focuses on managing risk. Managing risk also relates to getting good at trading first, before expecting to start making money. So the next big difference is that the loser focuses on profit, profit, profit whereas the winner focuses on getting good at trading first. Winners know they must learn before they earn!
Profits come to those with the competence to flawlessly execute a proven strategy in the markets. How do we get to that point? Dedication and practice. Learning, not losing. Consider what Edison means when he says "Results! Why, man, I have gotten a lot of results. I know several thousand things that won't work"! He achieved the desired result because he focused on the right things, learnt from failed attempts and managed risk in order to give himself a chance to succeed - no death by light bulb!
People who focus entirely on making a profit in the markets to the detriment of risk management almost always end up losing their money. If you want to succeed, put risk management and protecting your capital as a primary objective while you learn to trade. In other words, give yourself a chance to get good!
Losers Give Up
Winners in all walks of life, don't give up... they persist. What would life be like if the first time you fell off your bike, you never got back on? What if the first time you stalled a car, you gave up trying to drive? What if the first time you lost a game of sport, you hung up your boots forever? The silly thing is that new traders do this all the time. They start trading, they lose and then they stop. They have no more chance of success once that decision to give up has been made.
More often than not when I swing a golf club, I can safely consider it a failed shot. I am not a natural golfer by any stretch - I hook it, I slice it, I specialise in the worm burner and every now and then when the pressure is really on at the first tee with a crowd watching, I pull out the old 'windy' - a swing and a miss! I could easily give up and to be honest, have felt like it many times. But giving up is not an option! I am determined to get better at golf and learn from my mistakes. I don't expect I will ever play at the Masters in this lifetime but I know with absolute certainty that I can get to a point of competence as a golfer. No matter how long it takes, at some point in my life I will be an 18 handicap or better since that's my definition of 'no longer embarrassing'. I will persist.
Consider these words from Thomas Edison, "I have not failed. I've just found 10,000 ways that won't work" and "Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time".
It comes down to how bad you want something and how strong your personal resolve is. I have seen people fail over and over again in the markets who later go on to become very successful traders. They wanted it, they wanted it bad. Giving up was NOT an option. And, like Thomas Edison, they eventually learned enough from their mistakes and got what they wanted.