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There are seven things that I believe are pretty common in the successfully traders I have known, read about, and seen in action. Whether it is stock trader Nicolas Darvas in the sixties, commodity trader Ed Seykota in the twentieth century, or Jesse Livermore at the turn of the last century, many of these principles hold true. The closer I get to these principles the better I trade, the farther I stray the worse I do. In trading discipline pays.

The 7 Habits of Highly Successful Traders

1. Traders must have the perseverance to stick to trading until they break through to success. Many of the best traders are just the ones that had the strength to go through the pain, learn, and keep at it until they learned to be a success. 

2. Great traders cut losing trades short. The ability to accept that you are wrong when a price goes to a place that you were not expecting is the skill to push the ego aside and admit you are wrong.

3. Letting a winning trade run as far as it can go in your time frame is crucial to having big enough winners to pay for all your small losing trades. 

4. Avoiding the risk of ruin by risking only a small portion of your capital on each trade is a skill to not get arrogant and trade too big, if you risk it all enough times you will lose it all eventually. 

5. Being reactive to actual price action instead of predictive of what price action will be  is a winning principle I have seen in many rich traders. Letting price action give you signals is trading reality, trading your beliefs about what price should be is wishful thinking.

6. Great traders are bullish in bull markets and bearish in bear markets, until the end when then trend bends. 

7. Great traders care more about making money more than any other thing. Proving they are right, showing off, or predicting the future is not as important as hearing the register ring.

Who is Dan Zanger?

Dan Zanger is the modern day version of Nicolas Darvas.

His mother Elaine loved the stock market and Dan would often watch the business channel with her. One day in 1978 Dan saw a stock explode across the ticker tape at the bottom of the screen hitting $1. He made his first purchase and sold the stock a few weeks later at over $3. From that sale on, he was hooked on the action of the market tape, usually carrying a quotetrek with him to stay up on stock prices on his  jobs  in Beverly Hills as an independent contractor building swimming pools.

He attended a seminar led by William J. O’Neil and this was a major turning point in his ability to select winning stocks.  Dan studied chart patterns 25 to 30 hours per week learning to select stocks that would make big moves, before they moved. As technology and internet stocks took center stage in the stock market in 1997, Dan began to see powerful moves underway. He sold his Porsche for approximately $11,000 to have the necessary capital to jump fully into the market. Over the next year, he parlayed the 11,000 dollars into 18 million with the knowledge acquired over two decades playing the market and re-reading the works of William O’Neil. With this success, Dan was able to become a full time trader and leave contracting behind.

He recommended Darvas’ strategy and told traders that the Darvas System is, “widely used and followed today by the best traders in the world, and still this breakout method is little understood by most…”

Dan Zanger is still a big advocate of Darvas’ teachings and he tells traders that applying the Darvas method will “yield fortunes beyond the reader’s wildest dreams.”

Dan Zanger holds the world record for one-year stock market portfolio appreciation, gaining over 29,000%. In about two years, he turned $11,000 into $42 million.

Zanger was listed by Trader Monthly magazine as one of the top 100 traders in the world with an annual income of $25 million!

Dan Zanger is on twitter @DanZanger

He has a website at  www.ChartPattern.com and publishes the Zanger Letter

Here are some great videos where he discusses his methods:

 The $SPY has spent 19 days out of 20 closing above the 5 day ema and 19 days straight above the 10 day sma. The 50 day has held in this index for this entire year, if any bears are wondering, this is what an uptrend looks like.

I went fully long in my long term trend following account at around $157ish as it broke above the 10 day sma. My first long was from the beginning of January the day before the fiscal cliff to Early February where volatility shook me out. (All these trades are time stamped on my twitter account).

A close below the 5 day ema will now be my stop. It is hard to fight the momentum with no pressure on $SPY holders to sell and shorts getting hurt daily in this parabolic move. We could go to $170 this week before we see a pull back to a support level. My concern is that I will be violently kicked out of this position when there is a rush to take profits but I will let the market decide that day and continue to ride this wave as far as it will take me by tightening stops. We must all realize we have no resistance at all time highs this is just pure price discovery at these levels with winning traders strategy to “buy the dip” and let the FED work its magic printing presses of cheap money to keep fuel on the fire and alleviate any fear the bulls may have had.

 Google launched off the 50 day into a parabolic move. I was able to capture with calls for the most part. it did have a set back Thursday launching to new all time highs at open but then taking back my profits within minutes then rolling over but holding above the previous days lows. Friday was a little more of a slight pull back losing the previous days lows and finding support at the 5 day ema and finally recovering which is what we want to see. The last three days has been in a $900/$920 range instead of the parabolic move we has seen day after day. I think this will be a good range to play on the long side over the next week as it may consolidate. If we close below the 5 day ema it is a time to be cautious, under the 10 day sma I would even consider a short to the 50 day if the market does finally correct.

Apple gave the appearance that it had hit the bottom at $420 support and bounced Thursday. I went into Thursday with puts looking for the loss of the $420 level, it did not happen so I sold my puts for a profit and then went long off the bounce with calls. I took those profits and Apple looked strong. But eventually the stock succumbed to the $440 price resistance and the 5 day ema Friday, it was rejected at that level and even lost the 50 day before getting back above it and finding some support there. Apple is still in a long term down trend and the bounce was so far invalidated. This is a simply trade it is safe to be short below the 50 day and long above it with the 50 day as the stop. I will be fishing for a trend in this one after the 50 day shows whether it will become support or resistance.

“Trend  followers use reactive technical analysis. Instead of trying to predict a market direction, their strategy is to react to the market’s movements whenever they occur. This enables them to focus on the market’s actual moves and not get emotionally involved with trying to predict direction or duration.” -Michael Covel/ Trend Following

You Might be a Trend Following Trader if…..

1. …you love buying break outs above resistance and new all time highs.

2. …big trends make you happy not angry.

3. …you do not trade the concept of something being overbought you just use a trailing stop.

4. …your trading decisions are based on what is happening now, not your opinions, your fears of what will happen, or your hopes of what will happen later.

5. …you risk a little capital over and over again to make a lot of capital eventually.

6. …you are great at letting your winners run.

7. …trend followers don’t need a story they follow actual price action.

8. …you look for longs in a bull market and shorts in a bear market you are likely a trend follower.

9. …higher highs and higher lows are one of your best indicators to go long.

10. …you have been long $SPY for the majority of 2013 instead of trying to fight the parabolic move up.

This blog post is an excerpt from my book New Trader, Rich Trader.

“The funny thing is that the principles you have been teaching me for trading success have also been helping me in other areas of my life. I think much more clearly about many parts of my life now. My journal has expanded into a self-help journal as well as a trading journal. I did not even think about many of these things until after I learned many of the principles we’ve been discussing. I would like to read you some thoughts from my journal and see what you think.”
New Trader believed that his self-improvement would help with his trading and that he had really ingested the principles Rich Trader was trying to instill in him because not only did he understand their application for trading, but he applied them to other areas of his life.

New Trader began reading, excited to finally share these observations with his mentor.

• In life, as in trading, the right mindset is crucial for success. You must be confident in your decisions because they are based on cause and effect, not on emotions or opinion. Negative people who are unsure of themselves are not successful in any field. You need faith in yourself and your methods to be able to persevere and not give up before reaching success.

• You can risk too much and lose it all in your business, life, marriage, friendships or family. You have to measure the potential cost of every action. One affair can cost you your marriage, just like one big trade with too much risk can cost you all your capital.

• In business there are certain methods which bring in customers and turn a profit, and others which cause a business to turn away customers and lose money. Trading is similar: methods which turn a consistent and long-term profit are essential for success.

• Having unrealistic expectations in a marriage, job, or business will lead to unhappiness and failure just like it will in trading. You have to set realistic expectations so
you do not get discouraged easily and quit in any of these areas. You have to be satisfied that the results are worth your effort over the long term. You need to understand what to expect before you begin a marriage, a job, a business, or trading.

• Those who succeed in all areas of life are the ones who can manage stress the best. The best way to manage stress is to increase what you can handle step by step so that you grow into new circumstances. Another way to manage stress is to avoid actions which get you into situations you are uncomfortable with.

• Patience can pay big dividends in life. Patience is not inaction; it is simply knowing what you are looking for and taking action at the right time. Whether you are waiting for the right trade setup or the right person to marry, patience can protect you from irrational emotions and feelings. Wait for what you want, and when it is there go get it.

• In life, as in trading, people with written plans accomplish much more than people with no plans. Sit down when you are calm and rational and jot down goals to pursue. This will provide you with a map when life circumstances bring out your fears, greed, and other destructive emotions.

• Education does not end in school. To be successful in life or trading we must never stop learning. The market and the world are constantly advancing and changing and the only way to keep up is to keep learning.

• In life, the majority of gamblers are broke and the majority of good business owners become rich. The same principle is true in trading.

• In life, if you risk everything enough times you will eventually lose everything. Instead, just move in the direction of your goals every day, so even with setbacks, in the long run you will get to where you are going.

• Before making any decision in life, the question: “What do I have to lose?” is a serious question. This should precede, “What do I have to gain?” If the answer is: I could lose $100, but if I am right I could gain $500 and my odds of being right are 50% – then you have a good risk reward profile. If it is reversed, then you have a bad risk reward scenario and should pass. These are also questions you must ask in your marriage, job, business, or friendships before making decisions you regret.

• Failure to admit when you are wrong can be disastrous. When you are going down the wrong road it is better to turn back sooner rather than later. Never fight a war for a hill of bones, because even if you win, all you have is a hill of bones and regret over what it cost you.

• When you have won big prepare to take profits. Have an exit plan in place. If your house goes from $100,000 to $300,000, have a plan to sell and move. Do not just sit there and let it drop back down to $100,000. It is surprising how many people are in the right place at the right time and win what is equivalent to the lottery in stocks, a house, or a business but have no exit plan, so they ride it all the way up then all the way down again with almost nothing to show for it. Tragic.

• What most separates successful people from unsuccessful people in all areas of life is that they persevere until they are successful. Everyone has to overcome failures, but those who keep going are the ones with successful marriages, businesses, careers, and trading systems.

• People who are successful become experts in one area. They put in 10 years of learning and mastering one business, one career, one marriage, or one trading style. do not jump around and become a jack-of-all-trades and master of none.

• Successful people do what really leads to success, not what they believe will make them successful. They read books, study patterns, have mentors, and learn cause and effect.

• Winners base their actions on proven results, not on their own opinions or predictions. Feedback is crucial to them; people with strong opinions who believe they can predict what will happen reject feedback. Winners go with the flow of the trend causing their success.

• In life, those who are driven by their vision, passion, and plan usually end up where they want to be or close to it. Those who let their emotions and feelings take over and drive their decision-making usually end up where they do not want to be in life.

• I believe that people who realize they have made a mistake in a given situation and who cut those losses and try again will be much more successful than people who waste years on a marriage, business, or career that continuously gets worse. It is important to continue in a business or career that is successful until that trend changes.

The full book New Trader, Rich Trader is available on Amazon.

Paul Tudor Jones famous interview and documentary “The Trader” is a classic among market participants. It is one of the few places you can actually see a true Market Wizard and the young  money manager that would become a billionaire in live action. After watching it a few times over the years here are the lessons I have gleaned from watching the master in action.

1. It is possible to see that a market is dramatically overbought and to prepare for and then capture huge gains after the sell off.

2. Risk small amounts of losses to make large amounts in profits.

3. Bet against times when numerous leaders must agree.

4. Long hours and a strong work ethic are keys to being a successful trader.

5. While it is good to trade any market that will turn a profit, specializing in a market can lead to great success.

6. The markets go down faster than they go up.

7. If the market will not go down during bad news it will likely go higher.

8. The stock market moves in patterns and in cycles. Past price patterns repeat themselves due to human emotions.

9. Many times traders think a big position order size means that a whale knows something, most times they do not. 

10. It is okay to skip a trade if you can’t get your entry price.

11. A momentum move does not just stop, it takes time to roll over.

12. It is possible to trade successfully by gaming the actions of other traders.

13. Be aggressive at high probability moments.

14. Always stay in control of your trading and manage risk.
    

15. Focus on risk management as the #1 priority in trading.
    

16. Having the right mindset during a big loss that it is just temporary is the key to coming back and being successful.

17. Letting profits run is a great plan at times.

18. Being long at all time highs in the indexes is a great strategy.

19. Great money managers trade with passion.

20. Even Market Wizards are never sure if they will win when entering a trade. 

21. When the top in a market is hit,  there is a lot of money to be  made shorting as panic selling sets in. 

22. Guys from Tennessee can trade! (Sorry, I couldn’t help myself).
    

Risk management is far more important than profits, keeping the capital you have safe is more important than growing it. With the parabolic move we have seen in many markets it is crucial that we do not become greedy and lose our basic rules of risk management and put our account in danger of ruin. It is times like these that traders get over leveraged in can’t lose positions. Here is a look at all the types of risk we must manage as traders. Trading is not just about picking the right entry it is about protecting your account from destruction as you enter trade after trade, month after month, year after year.

Here are the many faces of risk:

Here is an excerpt from my book New Trader, Rich Trader about all the types of risk that a trader has to deal with.

1. You have the basic risk that your trade will be a loser. This is trade risk; however you can control the maximum amount you lose in the majority of situations through position size and a stop loss.

2. You also have the general market risk factor. You can pick a stock of a wonderful company but if the trend of the stock market itself is down for whatever reason, the likelihood is that your stock will also fall regardless of the fundamental merits of the company or the past strength of your stock’s price movement. The market is like a tide that comes in and lifts all ships and then goes out and lowers them back down.

3. You have the risk of your stock either being or becoming highly volatile. Volatility risk can scare you into selling your stock too soon or simply cause your system to stop working because the stock you bought hit your predetermined stop loss and forced you to sell – even though it might reverse and be right back where it started later that same day.

4. Overnight risk is when something unexpected happens when the market is closed and the next morning your stock gaps down in the pre-market and you never even had a chance to sell and stop your loss. This risk applies to everyone except day traders or traders who trade markets that are open 24 hours on most days

5. Liquidity risk is when there are just not many buyers or sellers for your stock so you lose money in the bid/ask spread. The “bid” is what a market maker is willing to buy your stock for, and the “ask” is what they are offering to sell it for. There are stocks and options that have such low volume that you can lose 5%-10% just simply buying and selling, even if the stock price does not move. If your stock has a BID $9.50 and ASK $10.00 and you buy it at the ask price then sell it at the bid price, you lose 5% when you enter and exit the trade. It is important to trade in stocks that have a small spread in the bid/ask quotes. Less than 10 cents is good but a penny or two is excellent.

6. Margin risk is when you use your stocks as collateral and borrow money from your broker to buy additional stocks. Most brokers, after you have set up a margin account, will allow you to buy additional stocks and double the size of your account. With margin you can use a $10,000 account to buy $20,000 worth of stock as long as the stocks are marginable securities. Some more risky penny stocks and small cap stocks are not marginable. The good thing about margin is you make twice as much profit when you are right, but the risk is that you can lose twice as much if you are wrong. Doubling your risk with margin greatly increases your risk of ruin by making your losses compound twice as fast!

7. Earnings Risk: If you are holding a stock through earnings, you are exposed to the risk of a sharp move in one direction after the announcement. It can hurt your account if the move is too fast after hours and blows through your stop loss.

8. Political Risk is a possibility if you are invested in a company located in a different country or your stock’s company does a majority of its business in a country that suddenly has a change in power. Investors and property owners of all kinds were wiped out when the Communists took over all private property for the state in Cuba in 1960.

9. Time decay risk: If you trade options, the clock is always ticking against you. A major component of a stock options value is its time value: each day it loses a small amount of this value until it is only worth its intrinsic worth of how much it is ‘in the money’ based on its strike price. So if you decide to trade options, realize you must be right about the price movement and the time frame. You are also paying for the right to control the shares, so you have to be right by more than the cost of the option for it to be a winning trade.

10. There is also the risk of error where you can actually put one too many zeroes on the amount of shares you want to buy for a trade, or buy the wrong symbol, or sell a stock short instead of buying it long. Double checking your trades before you place them is very important.

11. One of the most frustrating kinds of risk of all is technology risk. If trading is not hard enough already, you can also have your Internet connection crash or your broker’s trading platform go down while you are in a trade. These are good reasons to have a backup plan like the phone number for your broker ready at the push of a button to get out of a trade entered. Anything can happen while you are trading, so be prepared.”

“The whole world is simply nothing more than a flow chart for capital.”
-Paul Tudor Jones

Successful trading is the attempt to be on the right side of the flow of capital. Each change in price happens with a new agreement between the current buyer and seller. Buyers and sellers are always equal for a transaction to take place, the cause of movement is determined by whether the buyers want in more than the sellers want out. Prices moves when capital flows into and out of a market, and inflow pushes up prices because demand becomes more than supply, price discovery happens to find out what sellers are willing to take to sell their position.

Many crazy over bought or over sold trends occur because one side has little pressure on it, position holders, shorts, or buyers sit tight as a trend accelerates. Equity markets rise when new money has to enter to be put to work but there is little interest at selling due to position holders sitting on winning positions.

Price resistance on a chart is caused by simply being the place that current holders are taking their profits. Price support happens at the price that people on the sidelines are ready to get back in at. These are simply spots where capital flows in and out.

Growth stocks trend higher due to the demand on it from institutional money managers, it is the flow of capital into the stock in pursuit of owning the future earnings growth that drives a stock upwards, not P/E ratios or opinions.

Finding ways to quantify and trade the flow of capital is what a winning trading method is really all about.

Here are 5 ways I ride a trend after getting in. Ideally buying a stock that breaks out of a long term range into a new all time high is the best spot for maximum gains. Here are the spots to keep an eye on in an up trend.

1. First of all look to go long stocks when the general market is in an up trend. You should be looking to buy stocks in a bull market and go short in a bear market. Bull markets will have the short term moving averages over long term moving averages in the indexes. Like the $SPY with the 10 day over the 50 day. 

2. Hold a stock as long as each day makes a higher high and a higher low.

3. Hold a stock as long as it holds above a short term moving average like the 5 day ema or the 10 day sma.

4. Keep holding a long term position as long as it stays above a long term moving average like the 50 day sma.

5. Hold a stock that has support with a lower trend line.

The SPY trading range is currently at $163.50 resistance with very strong support at $162.50. We have two key support levels below us at the 10 day sma and 50 day sma. We are in an up trending equity market with cheap money flowing in day after day to be put to work. I have been fully long in my longer term trend trading account since $157.50 with the break above the 10 day sma. While so many others have been trying to call the top I have been riding the wave up letting the price keep me in. I could not have predicted this move but I can follow it.  My professional trend following friends are all long, the professional swing traders I follow all say we are over extended here 

Apple has had a lot of trouble getting over the $460 mark, Friday it lost the low of the previous day to find its way back close to the 10 day sma. Apple is in a short term up trend inside a huge down trend. I will look to be long again with a close above $460 or short with a close below the 10 day sma. There just is not a huge edge in trend at this point, it could get back to the 200 day with continued accumulation or return to the resent lows if distribution continues. Trading price at this juncture is the most prudent and leave the opinions at the door. This was a great winner for me over the past month.

Parabolic. Google has proven to be a safe haven for money managers, it is an innovative growth company with a great story, Google glass, Google fiber, You Tube, etc. and is big enough for money managers to get positions in. It is very extended from its 10 day sma and with in striking distance of $880. It is good to go to $900 in the next few weeks, the only warning sign that it may not make it will be if it under cuts a previous days low. This is what a momentum break out to all time highs with no resistance in a bull market looks like. I did very well with this one over the past few weeks.

Price is my dictator I am only its servant. The trend is my boss and I am its follower.