How To Think Like A Trader 4 Ways Winning, I can always tell when I meet an experienced and successful trader. All you have to do is ask them about their view of the market and if they talk in terms of certainties versus probabilities and only share one potential scenario rather than a possible few, you know right from the start they really have a lot to learn.
The traders that can, as Bruce says, formulate various scenarios and then position themselves with an open, but prepared mind and a game plan to match and then simply watch for the signs in the price action which scenario is correct, is one that is best positioned and prepared to see great success.
Do that every day, every week, every month, every quarter and every year and it won’t be long until you see how important and helpful this thinking process and approach can be no matter what your strategy, time horizon, or objective.
Here are some ways and methods to think in a manner different than the crowd. source kirkreport
1. Learn how to read sentiment indicators. Be aware of one way sentiment expressed by options traders, the media and financial bloggers.
If too many people agree or are pumping the same view they’re probably late and out of step with evolving, contrary information. If universally disseminated news is seemingly bullish but the market breaks then take it as a sign of real weakness.
Most of the hardest breaks in stocks the past year have come immediately on the heels of “good” news from the Fed, Treasury or Congress.
2. Be a cynic. Don’t argue with the tape but look at the other side of every coin. I’ve long noticed that as a group Russian and British traders are better than average. Why? Because by nature they question widely accepted beliefs.
New opinions translate to revaluations. Leave your dogma at the door and be open to the unexpected and seemingly illogical. Winning traders have a reason to be in the trade.
Even if based on nothing more than a vague, ethereal feel, a good discretionary trader has a profile in his mind and the moment his thesis is no longer provable or valid he is out of the position.
3. Even profitable trades can lay the groundwork for bad habits. My friend is an excellent trader who bought the S&P’s on a temporary low several weeks ago. The market rose about 20 points within a few hours of his purchase.
He took the profit and the market immediately tanked and made a new low. I called and congratulated him, “Great trade. You bought the old move low and got out on the swing high.” His reply both surprised me and displayed the mind of an expert speculator.
His view was “I bought the market thinking the low was in and the cover while profitable and seemingly adept was the wrong play. If the market had continued higher I would have been out with too small a profit.
I don’t trade for the expectation of being paid for the ‘wrong’ trade but I do expect to maximize the ‘right’ trade.” Human nature is much easier addicted to the pleasurable than the beneficial.
4. Recognize past mistakes and eliminate them. This month’s Golf Magazine has an article analyzing each shot of Tiger Woods career.
Tiger’s success is less predicated by the good things he does than by virtue of doing far fewer bad things than other PGA golfers. All of us have a particular bad habit that consistently costs us.
You should get an occasional feeling of deja vu when repeating a stressful event. Embrace that personal information as a signal. Your worst habit is potentially your best fade.