4 Secrets the Best Traders Know (But Most People Don’t)
What makes a great trader or investor? Many people believe it’s about knowing when to buy. Others say it’s their skill for finding unknown stocks, or pinpointing the exact time to sell. But do you know what? They’re all wrong. And if you focus your attention on any one of these approaches, there’s a high chance you’ll lose.
In this video, I’m going to tell you the 4 key skills you need to be a profitable trader. And contrary to what many people believe, there’s no single career maker. The best traders and investors use a special combination of skills to reach the top. And you’re about to learn what they are.
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So just think for a minute. Does success hinge on one skill? Many people say it does. They believe that a single special ability is the key to excelling.
But I’m not so sure. In my eyes, this narrow view of success only skims the surface. Take Bill Gates for instance. Everyone knows he’s a programming genius. Most people probably credit his fame and fortune to this one talent.
But what about his flair for strategic thinking? Gates is also a master communicator and skilfully collaborates with others. Without these abilities, Microsoft’s co-founder may have been just another Silicon Valley employee.
There’s a name for this: The Iceberg Principle. It states that only a small portion of information is clearly visible. Many of the key facts sit below the surface. I believe the multi-sided nature of success is fascinating. You can apply it to almost anything.
And no more is this evident than in the world of trading. You see, a successful trader needs to master a host of abilities. It simply isn’t enough to have a great entry technique. You have to score well across a range of areas.
It’s interesting to look back at some of my colleagues over the years… a standout memory is of foreign exchange trader during my days at Bankers Trust. He had just come over from another investment bank, and he had a big reputation.
I guess this guy was keen to make an impression… and he did exactly that. In one of his first days on the job, I recall him losing over $1 million dollars. Now this was an earth-shattering event back in 1993. And his stay at the bank was over in record time.
Now, this guy had many hallmarks of a top currency dealer: He was assertive, lightning fast with numbers, and he had steely emotional control when under pressure. But there was a weakness… he didn’t always keep risk in check.
And that’s a big lesson for every aspiring trader… you can’t win a multi-skilled game like trading without a full set of abilities. Sooner or later, a weakness drags you down.
So how do you avoid a similar downfall? How do you get ahead of the countless people who fail?
Well, the key is to be an all-round trader — not just a specialist in one area.
Okay, let me tell you the four skills that you need to master:
#1 Trade size: Know how much you’ll risk on each trade.
This is a critical step in the process. You need to decide how much you’re willing to lose if a trade fails. This will directly affect how many shares you buy. Getting this right is a key part of staying in the game. And how you avoid end up like my former colleague.
Now, there are several ways to do this. I won’t outline them all today. The point of this video is to get you thinking like an all-rounder, rather than explaining specific strategies. Many traders overlook this aspect of trading. Instead, they stumble from trade to trade. Their decisions around trade size are more gut feel than systematic.
My strategy is to invest a relatively small stake in many stocks. This helps me diversify and manage risk consistently. My aim is to minimise the amount of money I can lose in any single stock. A stock could go to zero overnight and I’d still be okay.
Many losing traders do the opposite… they have a few big bets. They mistakenly believe that’s how the pros trade. But sooner or later, a big lose wipes them out. The key to avoiding this fate is to learn how to set your trade size. Think more about what you could lose… not how much you could make.
#2 Entries: Have a set of buying rules that you follow consistently.
Now, here’s the thing, many people focus all their attention on when to buy. They believe this is the only thing that really matters. If you buy right, the commonly held belief is that you’ll make money.
But this is wrong. Even the best buying tactics are useless on their own.
My approach is to trade with the trend. The entry process I use involves buying into strength. I believe this increases the odds of making a profitable trade. Strength is also an excellent screening tool. By only focusing on strong stocks, I automatically cull many under-performers. This helps narrow down my choices.
A plan for buying is especially important in volatile times. My strategy keeps me out when prices are falling. This means I never get in at the low. But the flipside is that it helps me avoid buying a stock that’s going lower.
Now, my approach isn’t the only entry strategy. Other methods can also produce good results. The important thing is to have a plan… you need a set of entry rules that you follow consistently. And if you do this, you potentially set yourself up to have a big edge on most people.
#3 Exiting losses: You need an escape route when it doesn’t go to plan.
I believe that no other factor has more impact. Exits are a hugely important. Getting this right separates the best traders from the likes of my former colleague.
Most professional traders use a pre-set exit point, or stop loss, for every trade. There’s no second guessing what to do if the market hits this level… you get out of the trade. My approach is to use an initial stop loss of 25%. If a stock falls this much from the first buy signal, then the trade comes to an end. The exit is clinical and clear-cut.
Some people say that selling a losing stock locks in a loss. And they’re right. But what they often don’t understand it also protects your capital from further falls. You see, many stocks continue lower after hitting their exit stop. Holding and hoping for a recovery can be a risky strategy.
Think of it like this: A good exit plan is a bit like a safety net… it helps ensure you don’t get stuck with a stock that doesn’t recover. Protecting your capital is the key to being able to take the next trade.
That brings us to essential skill #4…
#4 Exiting wins: Maximising profits is the hardest task for many traders.
One of the biggest mistakes people make is to take profit too soon. Traders who cash-out early never get the big gains. And that’s because they sell their winners before the shares really get going. Rather than big double and triple digit wins, they end up with lots of mediocre gains.
My approach is to use a trailing stop. The aim of this strategy is to stay in winning trades for longer. I only sell when the trend appears to be over and the shares are falling. The downside of a trailing stop is that it never gets me out at the top. The profit you give back at the end is the trade-off for maximising my time on a trend.
Just like entries, there are other ways to exit winning trades. The point of the video isn’t to explain each one, rather it’s to focus your attention on the skill itself. Many traders overlook the importance of selling a profitable trade. And this helps explain why many people fail in the markets.
So remember: A fine line often separates success and failure. The difference could have little to do with being the best in one area. Rather, it’s about who has the whole package. Hopefully this video points you in the right direction.
If you’d like to learn more about my strategies, I’m about to host a free skills accelerator course. I’ll be teaching 5 key tactics for identifying, managing, and exiting high potential stocks. You’ll find all the details at my website: motiontrader.com.au.
As always, if you enjoyed this video and thought it was valuable, then please click the like button and share it with your friends. And be sure to subscribe to my channel and click the bell icon for notifications. Thanks for watch, I’m Jason McIntosh, and let’s find some trends this week.
I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.