We are halfway through our 4-part series – 4 Secrets of Wealthy Traders.
Part three takes a closer look at the day-to-day tactics of wealthy traders and focuses
on actual execution.
Secret of Wealthy Traders #3: They plan every trade.
It may sound like an obvious strategy to the outside world.
But anyone who has traded from the trenches knows it to not always be the case.
You’ve felt the soul-crushing pain of a thousand-dollar loss, anguished in the regret of missing an 80% run, and endured the choppy week that stopped out every trade you put on.
And at the peak of such misery… when you question why you even try to trade such irrational markets… poor decisions are often made.
Impulse buys. Reversing your positions. Doubling and tripling down so you can get out on an uptick.
We’ve all been there.
But wealthy traders, after years of practice and self-exploration, no longer make these emotional mistakes.
They plan every trade in advance. Every one.
Personal rules establishing daily loss limits, how many trades are allowed, and maximum losers in a row are followed to a T.
And I’ve seen it firsthand.
The most successful trader I’ve ever met trades only one instrument – emini S&P futures (wealthy trader secret #2).
I’ve never seen him have a losing day.
My friend trades based on volume profile. He studies the prices where the greatest amount of trading took place, then forms a hypothesis as to whether the market is in exploration mode (seeking new higher or lower prices) or consolidation mode (returning to previously accepted high volume areas).
As we became friends, he began sharing his methods.
But he didn’t just tell me what he does – he showed me.
I joined him online as he shared his screen and walked through his research the night before the trading day. I couldn’t believe how much work he did while the markets were closed.
After reviewing the trading action of the day’s session, he went through charts going back more than seven years.
He plotted the key areas of price acceptance, rejection zones, likely targets to the top and bottom, and formed a hypothesis for what he expected the following day.
But the real beauty of his preparation, in my opinion, was mapping out multiple scenarios.
If the S&P broke above a key area, he would target the next high volume node for a long trade.
If it rejected this area, he had a downside target should sellers take control.
And if the market opened to choppy conditions, he even bracketed a range that he believed could be faded back and forth to pick up a few points while the markets consolidated.
The end result of this 90-minute “homework session” was a spreadsheet that would make you dizzy.
But for him, this road map was the secret to his success.
And once 9:30 arrived the following morning… he stuck to his plan.
If he had identified 2035.50 as a buy level the night before, he bought it. No second-guessing.
If the trade failed, he was prepared to play the other direction. Again, according to a detailed plan developed the night before.
Keep in mind, his plan was not overly vague. It wasn’t a few key numbers scribbled onto a sticky note.
This successful technician planned entries, stops, targets and positions sizes… all before the trading day ever began.
Regardless of your personal method, the value of proper planning and research cannot be overstated.
Whether it means pouring over SEC filings to find an undervalued gold miner or analyzing the last 12 times Amazon stock had a cup and handle pattern, the work is almost guaranteed to improve your results.
Map the trade. Plan for both outcomes. Then pull the trigger and stick to your rules.