Getting Your Trading Edge from Consistently Profitable Traders

Novice traders usually come into futures trading thinking that they need some elaborate trading system or automated software to tell them when to buy or sell to become successful traders. Soon after, they feel like there is a secret that only a select group of traders know. This usually leads to wasted time finding the Holy Grail trading strategy. Frequently I get asked about newsletters and advisory services that offer trading recommendations. My reply is, "you do not need them and should avoid them." One problem with using these services is the false sense of trading success you may get. Imagine you find that one service with sound advice, and you make some money (we can all dream, right?). Then one day, you find out the company went out of business or they raised their subscription fee to some ridiculous amount. Where does this leave you, the trader, if you have not learned to trade and think for yourself?

Recently, I read a book titled, "One Good Trade," by Mike Bellafiore. His book looks inside the highly competitive world of proprietary trading (prop trading). I found some beneficial information in this book about the mindset of a particular type of trader. Mr. Bellafiore referred to these traders as Consistently Profitable Traders (CPTs). The list below describes some of the ideas these CPTs have learned throughout their trading careers. 

Having a strategy is essential, don't get me wrong. The problem is when a trader tries to find a perfect strategy and spends a lifetime searching for this elusive dream. A CPT can take a mediocre strategy and make money. How do they do this? Let's review the list below and see how these traders view the market, and then you can see if you are on the right track to success.

• A CPT will find a strategy that offers them a higher-than-average probability of success. In the markets, we call this "finding your edge," meaning having a slight advantage over your opponents. 
• Once this edge is developed, the CPT will consistently use this for every trade and not deviate from it. Many novice traders fall into the trap of making an emotional trade that is not part of their trading plan and making money. Creating a sense of false security for the trader, who then assumes the next time it will work, too. We all know how the next emotional trade works out, and the trader then realizes it was luck that made the previous trade a profit. There is a saying in the markets that goes like this, "You can break the rules once in a while and get away with it, but eventually, the rules will break you for not obeying them." 
• A CPT will never enter a trade unless they know precisely how to manage the trade components, the entry price, protective stop, breakeven, exit strategy, etc. Applying this rule will allow you to become more logical with your trading decisions. Managing your trade this way will take some of the emotion out of your trading.
• Once in a profitable trade, a CPT will never let it turn into a losing trade. Your plan should state when you will bring your original protective stop to breakeven once the price moves favorably for you. Allow the market to move far enough in your favor to avoid getting stopped prematurely. 
• A CPT will follow their trading plan and never use emotions such as hoping, praying, or wishing. Once the trade shows signs of failure, the CPT will allow the market to return to its protective stop and not just exit because they want to save a few ticks on the loss. 
• Risk management is essential to a CPT. They are always thinking about capital preservation more than capital appreciation. As traders, they will not risk more than 1– 2% of their available trading capital on any given day trade. Each CPT will have a maximum dollar amount they can lose on any trading day, and they will cease trading immediately when their losses are at that limit. 
• CPTs do not try to become rich on one or two trades. They understand that successful trading is based on a series of good trades to make them profitable, just as they know that one trade will not wipe them out financially. Trading is a probability business, and a trader must understand that you will not be right on all your trades, nor will you lose on all your trades. Once a trader realizes this concept of probabilities, they will find that after each trade, they will move on to the next trade and forget about the last trade, win or lose. 
• CPTs are often contrarians. You will find them buying while others are selling on news or emotions. You will also find them selling when the crowd is in herd instinct and chasing a market higher again on emotions or news.
• You will not find a CPT waffling when they have a trade setup. These traders will act immediately upon seeing their setup and follow their trading plan. Waiting too long or for a confirmation after your setup will make you late entering your trade. Too many traders get in long after their setups, and they try to use the original size risk. Not allowing for market volatility, they are frequently stopped only to watch the market resume in the direction of their stopped-out trade. 

Trading and thinking like a CPT will allow your trading to improve, and the profits may come much easier as you learn to control your risk and let the profits take care of themselves. You can see that these CPTs have a successful strategy, but that is a tiny part of how they view this trading business. The significance of having a trading plan and the discipline to follow it is crucial. Trade plans create the structure we need to survive in this business. Otherwise, we are just making random, inconsistent trades, and the odds of that leading to a long trading career are very low. 

Our trading plan can give us the courage to face the markets each day without fearing the outcome because we have a plan for each trade step and the discipline to follow the procedure.

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