The distinction between the 1% of successful traders and the remaining 99% is often stark. What sets the elite apart from the rest of the crowd? The answer lies in their possession of an edge—an advantage that comes from meticulous preparation, discipline, and the ability to adapt to changing market conditions.
One of the key factors that differentiates the 1% from the 99% is their relentless pursuit of an edge. Each day, before entering the market, successful day traders identify what their edge will be.
This involves several crucial steps:
Identifying the Setup: Successful traders have a keen eye for recognizing potential setups in the market. They understand that not every day is the same, and they adapt to the current conditions.
Developing a Playbook: Having a playbook, or a set of strategies, is essential. However, the 1% doesn't rely on just one strategy. They have multiple strategies at their disposal, allowing them to pivot when market conditions change.
Backtesting: The 1% understands the importance of backtesting their strategies. They invest the time and effort required to test different approaches under various market conditions, ensuring their strategies are well-rounded and robust.
This brings us to the "1000 hours theory," popularized by Malcolm Gladwell in his book "Outliers: The Story of Success." While Gladwell suggests that 10,000 hours are needed to master a skill, the 1% of successful day traders have undoubtedly spent their fair share of these hours perfecting their craft. On average, it takes around three years to become a profitable trader, and consistent profitability takes even longer. The 1% have dedicated countless hours to testing and refining their strategies.
What sets the 1% apart is that they can quickly identify setups and recognize if it's a good trading day or not, thanks to their extensive preparation and experience. They understand that trading isn't about being active all the time; it's about patiently waiting for the right opportunities to emerge.
While the 1% are patient and selective in their trades, the 99% often fall into the trap of overtrading, painting setups that don't exist, and not dedicating enough time to honing their strategies. They haven't gone through the necessary trial and error to find what works best for different market conditions and their trading style.
Additionally, diversification is a strategy used by the 1% to manage risk effectively. However, they don't spread themselves too thin. Instead, they diversify within their areas of expertise, maintaining a deep understanding of the assets they trade. This allows them to take calculated risks without overextending themselves.
Most importantly, the 1% trade with reputable brokers that have no conflicts of interest. Using an ECN (Electronic Communication Network) which offers raw spreads, a flat commission rate, and DMA (Direct Market Access) , ensures transparency and fairness in executing trades. The 1% carefully choose brokers that align with their trading strategies, reducing the risk of manipulation or unfavorable trading conditions.
In conclusion, the 1% of successful day traders possess a unique combination of skills, discipline, and strategy. They have a deep understanding of the market, a variety of trading strategies, and the ability to adapt to different market conditions. They recognize the value of patience, selective trading, and risk management through diversification. Moreover, they trade with brokers that support their strategies and offer a level playing field. By embracing these principles and consistently refining their craft, the 1% consistently outperforms the 99% in the challenging world of day trading.
