The Habits of Highly Successful Traders: Part 2

Today’s post is going to be a discussion about the second habit of successful traders. So what is the second habit? Resilience.

 Resilience is an interesting topic to discuss. Let’s start with the definition

Resilience –

The capacity to recover quickly from difficulties; toughness.

The ability of a substance or object to spring back into shape; elasticity.

The two definitions above can give us a pretty good idea of just what resilience means. Think of an elastic band. Just like the second definition says… elasticity… what exactly does that mean? 

Being like an “elastic” means that you are be stretched in a million different directions but ultimately come back to your original shape and form. The forces of nature can try to pull you this way and that way but you stand your ground and always come back to your center (original form).

Nothing can permanently take a different shape or form. No matter what happens you remember your center and always come back to this place.

So now let’s apply it to the markets and being a successful trader. Being a long-term successful trader will mean that you have endured a few losses and setbacks in the markets. But what will define your ability to keep moving forward is resilience. The ability to bounce back from setbacks is what makes successful traders. When your account is being fumbled by losses it can be hard to remain in a calm and peaceful state. But that is EXACTLY what successful traders do.

Experiencing a losing streak can make it incredibly hard to bounce back and continue trading. Newbie traders will want to adapt their strategy (when it is perfect the way it is) or completely change their strategy altogether. Bouncing around from strategy to strategy only continues to pull the elastic and stretch it farther than it can be stretched. What happens when the elastic stretches too far?

It snaps. This is what will happen when you continue to adapt your strategy or move strategies based on spur-of-the-moment decisions. You never truly master any strategy at this point. Continually moving strategies is the actions of a new trader who does not yet understand how to master the markets and wants to find the “perfect” strategy to make money NOW. To put it bluntly… this is NOT the way to success in the markets. Testing multiple strategies and moving from one strategy to the next pulls the elastic farther.

You stretch yourself so far and ultimately you will snap. This snap will represent you throwing in your towel and giving up trading altogether.

So how do you develop resilience in the markets and develop the ability to bounce back from losses with no loss of enthusiasm?

Well… it takes time. Through long hours dedicated to the charts you will find that your ability to bounce back becomes easier and easier. Your confidence in your strategy and in yourself as a trader grows as you have more time on the charts.

The first losing streak or setback is always the hardest. But once you have gone through a few losing streaks you know that your winning streak is on the way. You develop inner confidence in yourself and your strategy by spending hours and hours on the charts. This really is the way to develop confidence in your strategy. Take the time to backtest and identify your ideal setup. By looking at your ideal setup and knowing exactly what will make you take the trade you gain confidence to take trades in real-time.

I would suggest you write out EXACTLY what makes you want to enter a trade in the market. Are you looking for a support and resistance level? A daily candlestick pattern? Write these characteristics out and have them beside you each trading session.

Another important list to have with you at all times is what makes you NOT take a trade. Perhaps it is when the market has been moving against your desired position. When the market is trending. Any market characteristics that help you make trading decisions are so important. When you can pinpoint these characteristics you will have a better chance of making great trading decisions in the real market.

Backtesting is an incredibly powerful tool for developing confidence in your trading abilities and your strategy. Through backtesting, you can discover all of your statistics. If you find that your maximum losing trades in a row has been 8 in your backtesting and in your live trading you have had 3 losses in a row, you can have more comfort in knowing that your trading is still in line with your strategy. This is the power of backtesting. You really start to understand your strategy, where your strategy is strong, and where it is weak. You can then have a new level of confidence trading in the live market with real money!