How Can Retail Investors Develop the Thinking Pattern of the Long-term Winner?

In the well-known book Trading in the Zone, starting with the history of fundamental analysis, technical analysis, and psychological analysis, Mark Douglas tells us how psychology determines the success or failure of investor transactions, and teaches investors how to cultivate the mentality that a long-term winner should have.

What makes a long-term winner?

The long-term winner not only needs good single-track thinking and consistent trading strategies, but also a strong mentality/ attitude honed over time. Short-term winners do not equal long-term winners, and vice versa.

Being a long-term winner not only calls for positive trading thinking and

Long-term winners can afford to lose because of their control of risks. When long-term winners win, their capital curve often shows a healthy trend.

The mindset is also important. The purpose of trading is to make money, not to have fun or show off. Wall Street Giant Bear Jesse Livermore once said: “My trading principle is based on the premise of reverse thinking. Contrary to human nature, most of time the market is fooling with most people. How to be a minority winner? Start by cultivating the thinking pattern of a long-term winner.

 

#1 Think from the perspective of probability.

Accept all kinds of potential risks. Experienced traders are aware that trading is a game of probability, and random events with a sufficient sample may lead to consistent results.

When facing all the risks that may arise, train yourself to think from the perspective of probability and accept the risks comprehensively at heart without resistance or conflict. When stop loss comes out, don't blame yourself but gain experience from it, pay more attention to process than result, and continue to implement the trading philosophy.

#2 Build the basic mentality with the 5 facts below.

 (1) Anything can happen;

(2) In order to make a profit, it is not necessary to know how the next step will change;

(3) Any set of variables defined as advantages is random between bringing about profit and loss;

(4) The advantage is that one thing is more likely to happen than the other;

(5) The market is unique at all times.
 
#3 Implement trading ideas based on the following 7 principles of continuity and have the belief that you are a long-term winner.

1) I objectively recognize my advantages;

2) Before each transaction, I measure the potential risks in advance;

3) I fully accept the risks of this transaction, otherwise I am willing to abandon this transaction;

4) I trade with advantages without any reservations or hesitations;

5) I make the market profit for myself;

6) I monitor my potential for mistakes;

7) I understand the necessity of these principles for consistent profitability, so I would never violate them.

A winner’s thinking must depend on good money management. In addition to knowing which currency to trade and how to identify entry and exit signals, successful traders must manage their ingenuity and use money management for their trading plans.

There are many money management strategies, and many of them rely on core capital calculations, which is your initial balance minus the amount of money you put into your open position.

Core capital and risk limiting

Try to limit your risk to 1% to 3% when placing an order. This means if you trade a standard foreign exchange lot of $ 100,000, you should limit your risk to $ 1,000 to $ 3,000 by setting a stop loss order of 100 points (1 point = $ 10) above or below your entry points.

Adjust the amount of risk you take as your core capital increases or decreases. Your core capital is $ 9000, if you open a position with a balance of $ 10,000. If you want to increase another transaction, the core capital will be reduced to $ 8000 and your risk should be limited to $ 900. The risk in the third transaction should be limited to $ 800.

In addition, you should not be anxious when trading in the foreign exchange margin market. Trading without correct and stable strategy and in-depth understanding of the character of the currency pair and risk management is equivalent to gambling.

Net lot in the stock * market spread * currency pair point value equals risk. In the risk factor, the only thing a trader can really grasp is to calculate the long-term increase, together with the number of safe lots to control the transaction.