It’s true. Most traders fail. It’s what the statistics say, and from my time on Wall Street as a Market Maker during the dotcom bust, I’ve seen it firsthand. Does that mean that trading is a fool’s errand? Absolutely not.
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New trading tool for QQQ bullsSmart traders, who approach trading like the very competitive business that it is, can earn a substantial living. TheStreet Pro’s James “Rev Shark” DePorre is one of those guys. He started trading decades ago and has dodged the statistics ever since.
Last Saturday, he published his guide on how you can become part of the successful 5% of traders. I’ll summarize it below, or you can read the original here on TheStreet Pro in: “Why 95% of Traders Fail – And the Strategy Used by Those Who Consistently Win.”
Why do Most Traders Fail?
Some people think it’s a conspiracy. That some unknown “they” lurking in the shadows are taking advantage of the little guy. That couldn’t be farther from the truth. In reality, the issue is that most traders simply don’t approach trading like a business. They take random shots in the dark, without really analyzing what works.
Rev Shark has the answer. We need to use effective, repeatable strategies and not overtrade.
Overtrading is the big killer of trading accounts. Rev Shark tells us that the failure rate for pure day traders is much higher than for short-term swing traders. Why? Day traders are more likely to overtrade, treating the market like a video game. They trade volatility, which, at least intraday, can be random.
Day traders also need a high win rate on their trades to overcome the inevitable bad trades. Swing traders have greater control over their win:loss ratio and can handle a lower win rate because those wins tend to be big enough to outweigh smaller losses.
Learn To Do Nothing
It sounds counterintuitive, but you’re getting paid to watch the market and analyze it, looking for that “fat pitch” to swing at. What’s a “fat pitch?” It’s when technical setups, fundamental catalysts, and market sentiment all align. Your broker gets paid when you trade. You only get paid when you’re right.
Rev Shark says that patience is a position. Cash is a holding, and you should only take those trades that will pay you more than cash. You should also focus on the quality of your trades. It’s better to watch a few good opportunities than many mediocre ones. And you should trade like a sniper. Snipers spend 99% of their time watching and studying, and just 1% taking action.
Three Rules for Becoming a More Patient Trader
If you want to be part of the profitable 5%, here are three rules from Rev Shark:
- Wait for the setup: If the market is in a sloppy, trendless range, do nothing.
- Size up on conviction: When the stars align – like a biotechnology breakout with a clearly defined catalyst – that is when you stop being patient and start being aggressive.
- Pay yourself: Maybe you’re in it for the love of trading and would do it for free. But that growing trading account doesn’t do you any good unless you enjoy the fruits of your labor. Rev Shark, for example, pays his bills out of a small account that he trades aggressively.
Rev Shark emphasizes that doing less will make you more money over time. But remember that he’s talking about how much trading you do. Overtrading is bad. Rather, you should treat trading like the serious and difficult business that it is. The main part of your job is research. Trading is just the part of the job where you implement your plan.
Membership in TheStreet Pro has its Privileges
In addition to strategy articles like this one, every day on TheStreet Pro, we publish trading ideas and market commentary to help you find the best trades. Plus, you have access to a community that includes Rev Shark, Doug Kass, and others. The best part is that today is a great time to become a member of TheStreet Pro. An annual subscription is currently half off during our President’s Day sale. You can learn more here.
I hope you enjoyed this article and that Rev Shark’s advice will make you a more profitable trader.