How A Professional Trader Sees The World Differently From The Typical Retail Investor

This morning, I thought I’d tell you how a professional trader sees the world differently from the typical retail investor. Thankfully, we have a good crowd here; not everybody is ‘typical’.

In today’s inbound mail, as usual, I had three so-called investors write to alert me to their “favorite” companies, all of them true penny stocks, trading at under $1.00. Being shareholders, they also happen to be unpaid promoters whether or not they realize that.

If the market was a religion, these people would be known as proselytizers. Chat rooms and most blogs are full of this stuff, which is why I never go near them. I make up my own mind, my own way, on everything.

Most of the time, I know nothing of the companies being referred to me other than perhaps the name. It happens that in every one of the cases today, I know the company, have done my own due diligence, where warranted, including meeting with management, and had already made a decision.

As for this kind of mail, I never allow it to influence me. Before I file it under “G,” I take a mental note of the name of the company to be sure I record a negative.

Just so you know, I’ll listen to management of any company or to any professional analyst. They are paid to do a job and so am I. But, I don’t listen to shareholders. Shareholders don’t seem to understand there is a difference between a company and a price, and an investor and a trader.

I am a trader of prices, and I know that in maybe 90 percent or more cases where I get letters from shareholders, the prices are going down and the people are losers. I say that having gone down that road myself many years ago.

If you want to trade penny stocks, I have a theory. There are some people who want to be part of the team that likes to push a boulder up a mountain and there are others, like me, who lie in wait on the other side, seeking opportunity.

I am part of the crowd that likes to work smart, not hard. You have to know where you stand. You simply have to know whether you are a stock pusher or an independent and objective trader.

Also today, I received a letter from one of my pro traders, as a submission for the blog. The differences in these letters ought to be revealing.

Athletes always talk about being in the “zone.” Everything becomes effortless; the game slows down improving decision making, heightened sensations getting him in rhythm with the natural ebb and flow of the contest.

Getting in the zone is essential to profitable trading; peak performance achievable only through preparation and visualization. Successful performers and traders share similar attributes and pre-game routines.

We have all heard the adage that “practice makes perfect.” As athletes spend countless hours perfecting their techniques, traders also need to spend time researching and developing their craft. Otherwise, if it’s just a matter of betting red or black, they ought to go to Vegas. Even as a gambler, you want to be the house, so you must put in the necessary work to get the odds on your side.

How to earn a living, trading for yourself:

1. Study market history to find a repeatable edge in different types of markets.
2. Determine the current type of market; trending and volatile, range-bound and trend-less, trending with little volatility.
3. Develop a pre-game routine, a sequence for traders to identify potentially profitable trades; assess risk, determine optimal size of one’s wager given the risk involved and probable outcome, placing stops and profit objectives to maximize risk-adjusted returns.
4. Visualize success.
5. Now that you have planned the trade, trade the plan.

Contrary to what you learned in school, markets are not efficient, human beings are not always rational, but prone to over-reacting in extremely tense situations due to the emotions of fear and greed. Experience has taught us that adequately prepared traders are able to pull the trigger, making trades when others cannot think clearly, thereby increasing our odds of success.

As I see it; the trader here knows how to fish, the others have been hooked.

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