There are five components to trading well:
1. The trading process. The things you need to do on a day-to-day basis to be a good trader.
2. The wealth process. Exploring your relationship with money and why you do or do not have enough to trade with. For example, most people believe that they win the money game by having the most toys and that they can have it all right now if their monthly payments are low enough. This means that they save zero dollars and are over their heads in debt. If this is you, it also means that you don’t have enough money to trade.
3. Developing and maintaining a business plan to guide your trading. Trading is as much a business as is any other area. The entry requirements are much easier because all you have to do is deposit money in an account, sign a few forms, and start trading. However, the entry requirements for successful trading require that you master all the areas listed here. That requires a lot of commitment, which most people do not have. Instead, they want trading to be easy, fast, and very profitable.
4. Developing a system. People often consider their system to be the magic secret for picking the right stocks or commodities. In reality, entry into the market is one of the least important aspects of good trading. The keys to a moneymaking system are elements such as determining your objectives and the way you exit a position.
5. Position sizing to meet your objectives. We’ve discovered through our simulation games that 100 people at the end of a set of 50 trades will have 100 different equities. (They all get the same 100 trade results). This extreme variability of performance can be attributed to only two factors: how much they risked on each trade (i.e., position sizing) and the personal psychology that determined their position sizing decision.
Based on the five components of trading well, rate yourself by asking the following questions:
How well have I mastered the discipline of trading well each day? Do I do a daily self-analysis or a daily mental rehearsal to begin each day? If not, why not? (I will give you a lot of ideas about how to improve in this area throughout the Super Trader book).
Do I really have enough money for trading to make sense? If you do not, you probably need to work on yourself and the wealth process.
Do I have a working business plan to guide my trading? If you don’t, you are not alone. We estimate that only about 5% of traders have a written business plan. Then again, perhaps you’ve heard that only about 5% to 10% of all traders are really successful. Super Trader will guide you toward developing this kind of working document.
Do I have a set of objectives thoroughly written out to guide my trading? Most people don’t. How can you develop a system to meet your objectives without having objectives?
How much attention have I paid to the “how much” factor: position sizing? Do I have a plan for position sizing my system to meet my objectives? It is through position sizing that you either meet or fail to meet your objectives.
How much time do I spend working on myself? You have to overcome your psychological issues and develop the discipline necessary to carry out the processes described above, which are necessary for success.
Most of the items described here could be the topic for an entire book. However, my intention was to give you an overview of what is required for successful trading, and my job as a coach is to find talented people and coach them on following the fundamentals I’ve described them here.
excerpt from dr vank tharp
