Why Successful Traders Make More By Trading Less – January 7, 2022
During my 25 years of trading and mentoring others, I have been dragged through the coals a few times. And by that, I mean I have; blown up a few trading accounts; had some massive gains only to watch them turn into worthless penny stocks, and; I even had one trade based around the volatility index blow up and become worthless the day after I bought it. I’ve had many other painful and costly trading experiences between those as well, and I know there will be more in the future. This leads me to the first topic I would like to talk about – learning through experience.
#1 – Learned Through Expensive Experiences
I help a lot of traders each year from all walks of life. They range from 18 to 85+ years of age. Some are total newbies, financial advisors, money managers, all the way up to billionaires. What is apparent is that the most successful traders (those who make money year after year) have the same things in common with how they trade. They all:
walk a straight and somewhat unemotional line outside of learning from losses and trading mistakes.
focus on managing their capital because they understand just how quick and easy it is to lose money, which is why they focus and follow strict rules.
follow very specific trading strategies/rules and do not trade on emotions.
protect their capital ALWAYS with stops and position management
only trade specific trade setups that put the probabilities in their favor
focus heavily on index and bond positions
say their trading feels slow/boring most of the time
trade multiple strategies
#2 – Ignore High Flying, News, Manipulated, and Hype Based Moves
It’s hard not to participate in some of these wild rallies and stock crashes we have seen over the last couple of years. It’s a natural tendency to want to take part in what everyone else is doing, and the lure of instant oversized gains is powerful. But, unfortunately, most individuals who get involved in these trades lose money for a good reason. They are trading based on greed/emotions with no real measured trading plan.
Don’t get me wrong; I’m not saying, “don’t trade these stocks.” In fact, many of these are incredible opportunities for experienced traders. These types of stocks generally become ideal for day traders and even momentum and aggressive swing traders. They can provide some quick extra cash. But that’s what these types of trades are – small, fast, higher risk trades that only a seasoned trader should trade.
For some reason, traders come into this business thinking it’s a game and believe these are the types of trades that should always be traded. They take oversized positions only to experience significant damaging losses to their account.
I conducted a survey a little while back, and the survey results blew my mind. Most people want to trade the volatile media-driven hype stocks and commodities. People fall in love with specific assets and want to trade only those, even if there are better assets and more efficient ways to pull money out of the market.
The results below frustrate the heck out of me because, to me, it makes no logical sense if you are in the market to make money.
Trader Survey Results Confirm Why it is Hard To Make Money
The above results make sense as studies have proven that humans react seven times more based on emotions versus logic. This is why the stock market has such wild price swings with Euphoric blowoff tops and Panic washout lows.
People are highly addicted to riding their emotions (adrenaline/dopamine), and they love the rush of fast-moving stocks and gambling, which is why the markets are regulated, along with casinos, for that matter. Simply put, people lose control of common sense and logic when they are on tilt with emotion.
Fast-moving assets with extreme volatility act as a bug-zapper light, which attracts bugs, only to kill anything that gets too close. In this case, new traders think they can make quick and easy money from hot stock in the news.
Trading is a numbers game, and it requires logic, rules, and a proven strategy to win long-term.
Based on the survey we did with thousands of traders, you can see that making the same amount of money with fewer trades and lower risk is not that exciting. Instead, traders prefer high volatility assets like metals, and natural gas, which are manipulated and have large wild price swings.
Also, from a trading statics point of view, those two are among the most difficult to trade.
As a pilot, I know the importance of keeping calm, having checklists/rules, and systems in place. Without them, you will eventually crash and burn; it is just a matter of time. The same holds true for trading and investing in that you need to trade what makes the most money, trade only the best setups, and have the lowest risk.
Hottest Symbols vs Biggest Trends
Bottom line, I don’t care about trading every day or trying to catch the hottest symbols everyone is talking about. Instead, I care about catching and riding the biggest trends in the US stock index and the Treasury Bond ETFs. These are highly liquid sentiment trends that produce oversized gains each year. This is also the reason ETFs have taken over the mutual fund market and why financial advisors and hedge funds primarily trade/own stock index funds and bonds.
Through the Technical Index and Bond ETF Trading strategy, I help individuals and advisors trade more efficiently. This strategy trades SPY, SSO, SPXL, QQQ, QLD, TQQQ and TLT, TBT, TMF, which generate large, compounded returns as shown in the chart below:
This proprietary ETF trading strategy is straightforward and only generates about 3 to 10 trades per year. Most traders dislike this type of strategy because it lacks lots of action and volatility. If you noticed, you won’t find many professional advisors telling you to jump into the fast-moving hype stocks, and for a good reason – they know better and want to protect your hard-earned capital.
#3 – The Power Of Slow & Steady Gains Are Mind-Bending!
As I learned a long time ago (and this holds true for almost everything across the board), learning something new, like mastering how to trade slower, consistent strategies, can take some getting used to. Everything new will always be a challenge, but once you master something, it becomes simple, low stress, and you will experience more consistent results. Take a look at this data from an Atalanta Sosnoff report. This should get my point across about how powerful slow, boring, consistent returns pack a powerful punch and why thousands of traders from 82 countries follow my index and bond trading signals.
Source: Eagle Asset Management.
The Technical Index & Bond ETF trading strategy has consistently produced positive annual results (CGAR average ROI 15% – 51% depending on ETF leverage, only 7 – 21% max drawdown).
If you traded with the 2x or 3x ETFs, you would have crushed the S&P 500 every year and experienced that rush feeling that leverage/volatility provides but within a safer/smarter way.
Passive trading styles like this are a bit different from those you may have traded in the past. My objectives consist of four very important concepts:
- Protect Capital At All Times.
- Trade Only When Strategically Opportunistic (probabilities are favorable).
- Trade Efficiently Using Bonds As Trade When Fear Rises among traders and investors.
- Move to cash or money market fund when the index and bonds are both out of favor.
Concluding Thoughts:
In short, I hope this has helped confirm your thinking of trading less and focusing on more solid trade setups. Or maybe it has opened your eyes to the world of slow and steady gains wins the race, with much less stress and effort.
Author: Chris Vermeulen