New Trader Rich Trader 2

1. New Traders Chase Quick Riches; Rich Traders Pursue Consistent Growth.

The market will teach you many lessons before you consistently make money – the most dangerous thing you can do is make a great deal of money from the start.

Unrealistic Expectations. New traders often enter the market with the dream of doubling their money in a few months, fueled by stories of legendary traders. They focus on finding the "hot stock" that will bring them instant wealth, ignoring the fact that even the most successful traders have faced losses and challenges. This mindset leads to reckless trading and disappointment when the market doesn't deliver immediate riches.

Slow and Steady Wins. Rich traders, on the other hand, understand that consistent returns over a long period are the key to building wealth. They focus on making small, steady gains and compounding their profits over time. They know that the market is not a get-rich-quick scheme, but a business that requires patience, discipline, and a long-term perspective. They prioritize consistent growth over the allure of quick riches.

Focus on Trading, Not Profits. The most important thing for a new trader to focus on is the process of trading, not the profits. By focusing on developing a sound methodology, managing risk, and controlling emotions, profits will naturally follow. Trying to force profits will only lead to bad trading decisions and losses.

2. New Traders Succumb to Stress; Rich Traders Master Emotional Control.

Most stresses arise from unknown variables – fear of loss, uncertainty of market trend, or the need to make money.

Stress and Poor Decisions. New traders often experience high levels of stress when trading, leading to impulsive and irrational decisions. The fear of losing money, the uncertainty of market movements, and the pressure to make profits can overwhelm them, causing them to abandon their trading plans and make costly mistakes. This stress is often amplified by trading too large of a position size.

Controlling the Unknowns. Rich traders manage stress by removing as many unknowns as possible from their trading. They have a well-defined trading plan, a watch list of stocks, and a clear exit strategy before they even place a trade. They know their risk tolerance and trade accordingly. They also understand that stress can be a sign that they are trading too big or don't have faith in their system.

Faith in the System. By having a proven system and a solid trading plan, rich traders can approach the market with confidence and composure. They understand that losses are a part of the game and that the key to success is to stick to their plan and manage their emotions. They also know that if they are still stressed, they need to reduce their position size or do more testing on their system.

3. New Traders Crave Constant Action; Rich Traders Exercise Patience.

Much of the time profitable trading is boring.

The Urge to Overtrade. New traders often feel the need to be constantly active in the market, believing that more trades equal more profits. They are driven by boredom, the desire for excitement, and the belief that they can outsmart the market. This leads to overtrading, which results in unnecessary commissions and losses.

Waiting for the Right Setup. Rich traders, on the other hand, understand that patience is a virtue in trading. They wait for the right opportunities to present themselves, rather than forcing trades. They have a specific trading plan and only trade when their system gives them a clear signal. They know that the best trades are often the ones that are patiently waited for.

Planning and Research. Rich traders do their planning and research when the market is closed, and they trade their system when the market is open. They understand that trading is a business, not a game, and that the key to success is to be disciplined and focused. They also know that spontaneous trades are usually based on emotion, not logic.

4. New Traders Trade on Emotion; Rich Traders Follow a System.

Trade your system, not your opinions.

Emotional Trading. New traders often make trading decisions based on their emotions, such as greed and fear. They may buy a stock because they are excited about its potential or sell a stock because they are afraid of losing money. This emotional trading leads to impulsive decisions and inconsistent results.

The Power of a Trading Plan. Rich traders, in contrast, follow a well-defined trading plan that outlines their entry and exit signals, risk management rules, and position sizing. They have a system that they have tested and proven to be profitable, and they stick to it regardless of their emotions. They understand that their opinions and feelings are irrelevant in the market.

Systematic Approach. By following a system, rich traders remove the emotional element from their trading and make decisions based on logic and probabilities. They know that their system gives them an edge in the market and that the key to success is to follow it consistently. They also know that their ego can cause them to make bad decisions.

5. New Traders Stop Learning; Rich Traders Are Perpetual Students.

Always go to bed each night understanding more about the market than you did when you woke up.

The Arrogance of Knowing It All. New traders often believe that they have "figured out" the market after a few successful trades or after reading a few books. They become complacent and stop learning, which ultimately leads to their downfall. They fail to realize that the market is constantly changing and that they must continue to learn and adapt.

The Lifelong Learner. Rich traders, on the other hand, are perpetual students of the market. They understand that there is always more to learn and that they must constantly seek new knowledge and insights. They read books, study charts, and network with other traders to stay ahead of the curve. They also keep a trading journal to learn from their own experiences.

Humility and Growth. Rich traders approach the market with humility, knowing that it is too big for anyone to master. They are always open to new ideas and willing to adapt their strategies as needed. They understand that the key to long-term success is to never stop learning and growing.

6. New Traders Gamble; Rich Traders Operate a Business.

When you go to your computer to trade, you should approach it as if you are entering an auction, not a casino.

The Gambler's Mentality. New traders often approach the market with a gambler's mentality, hoping to get lucky and make a quick profit. They treat trading like a game of chance, rather than a serious business. This leads to reckless trading and ultimately, losses. They are often tempted by the flashing lights of the market and the promise of easy money.

The Business Approach. Rich traders, on the other hand, treat trading like a business. They have a well-defined plan, they manage their risk, and they focus on making consistent profits over the long term. They understand that trading is a profession that requires skill, discipline, and hard work. They also know that gamblers in the market eventually lose everything.

Professionalism and Discipline. Rich traders approach the market with a professional mindset, focusing on their trading plan and not their emotions. They understand that trading is a serious endeavor that requires discipline and focus. They also know that they are trading against other professionals and that they must be prepared to compete.

7. New Traders Bet Big; Rich Traders Manage Position Size.

The greatest determiner of your risk is the size of your trade.

The All-or-Nothing Bet. New traders often make the mistake of betting too much of their capital on a single trade, hoping to make a big profit quickly. This "bet the farm" mentality puts their entire account at risk and can lead to devastating losses. They are often tempted to use margin to increase their position size, which only amplifies their risk.

Controlling Risk with Position Size. Rich traders, in contrast, carefully control their position size to manage their risk. They understand that the size of their trade is the biggest factor in determining how much they can lose. They never risk more than a small percentage of their capital on any single trade. They also understand that a large loss can be very difficult to recover from.

Consistent Sizing. Rich traders trade the same dollar value in every trade to even out their losses with their wins. They understand that consistent position sizing is crucial for maintaining a stable equity curve. They also know that trading too big can lead to emotional trading and poor decisions.

8. New Traders Prioritize Profits; Rich Traders Prioritize Risk.

Your first job as a trader is to focus on trading, not profits.

Chasing Profits. New traders often make the mistake of focusing solely on profits, neglecting the importance of risk management. They are so focused on making money that they ignore the potential for losses. This leads to reckless trading and ultimately, losses. They often chase the "hot stock" without considering the risks involved.

Risk Management First. Rich traders, on the other hand, understand that managing risk is the most important aspect of trading. They prioritize protecting their capital over making profits. They know that if they can control their losses, the profits will naturally follow. They also understand that the market is unpredictable and that they must be prepared for anything.

Understanding Risk. Rich traders understand the different types of risk involved in trading, such as trade risk, market risk, volatility risk, overnight risk, liquidity risk, margin risk, earnings risk, political risk, time decay risk, error risk, and technology risk. They take steps to mitigate these risks and protect their capital.

9. New Traders Defend Being Right; Rich Traders Admit When Wrong.

Good investing is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake.

The Need to Be Right. New traders often have a strong need to be right, which can lead to them holding onto losing trades for too long. They are unwilling to admit when they are wrong and cut their losses, hoping that the market will eventually turn in their favor. This can lead to large losses and emotional distress.

Accepting Losses. Rich traders, in contrast, understand that being wrong is a part of trading. They are willing to admit when they have made a mistake and cut their losses quickly. They know that the key to success is to move on to the next trade and not dwell on past losses. They also understand that their ego can cause them to make bad decisions.

Focus on the System. Rich traders focus on following their system, not on being right. They understand that their system is designed to make money over the long term, even if they have some losing trades along the way. They also know that the market is always right and that they must be willing to adapt to its changes.

10. New Traders Give Back Gains; Rich Traders Lock in Profits.

Take your money off the table while it is still there. Trailing stops = keeping profits.

Letting Profits Run...Too Far. New traders often make the mistake of letting their profits run too far, hoping to make even more money. They fail to lock in their gains and end up giving back a large portion of their profits when the market reverses. They often become emotionally attached to their winning trades and are unwilling to sell.

The Importance of an Exit Plan. Rich traders, on the other hand, have a clear exit plan for every trade. They know when they will take profits and when they will cut their losses. They use trailing stops to lock in their gains and protect their capital. They also understand that the market is unpredictable and that they must be prepared to take profits when they are available.

Trailing Stops. Rich traders use trailing stops to lock in profits and protect their capital. They understand that the market can reverse at any time and that they must be prepared to take profits when they are available. They also know that it is better to take a smaller profit than to give back all of their gains.

11. New Traders Quit; Rich Traders Persevere.

The harder you work, the harder it is to surrender.

The Easy Way Out. New traders often give up too easily when they encounter setbacks or losses. They become discouraged and lose faith in their ability to succeed. They fail to realize that trading is a marathon, not a sprint, and that it takes time, effort, and perseverance to become successful. They often quit before they have a chance to learn from their mistakes.

The Power of Perseverance. Rich traders, in contrast, understand that success in trading requires perseverance. They are willing to keep going even when they face challenges and losses. They know that the key to success is to never give up and to keep learning and growing. They also understand that the market is a tough teacher and that they must be willing to pay the price.

Commitment to Success. Rich traders are committed to their goals and are willing to do whatever it takes to achieve them. They understand that success in trading is not easy, but that it is possible with hard work, dedication, and perseverance. They also know that the only way to fail is to quit.

12. New Traders System-Hop; Rich Traders Stick to a Winning System.

If your trading system does not fit your tolerance for risk and reward, and you cannot develop faith in its performance, then the odds are against your success.

The Search for the Holy Grail. New traders often jump from one trading system to another, hoping to find the "holy grail" that will guarantee them profits. They are constantly searching for the perfect system, never giving any one system enough time to prove itself. This system-hopping leads to inconsistent results and a lack of confidence.

Faith in a Proven System. Rich traders, on the other hand, understand that the key to success is to find a system that works for them and stick to it. They have tested their system and have faith in its ability to make money over the long term. They understand that all systems go through losing periods and that the key is to stay disciplined and follow their plan.

Personalized Approach. Rich traders understand that the best trading system is the one that fits their personality, risk tolerance, and trading style. They do not try to force themselves to trade a system that they are not comfortable with. They also know that the most profitable system is the one that they can actually follow consistently.

Last updated: January 28, 2025