Over time, I’ve realised that two extremes create problems for traders. Understanding what these extremes are will help you become a better trader.

Avoiding the characteristics they exhibit will help improve your trading strategy and enable you to use the software much more effectively. Thus, you will become a professional trader!

We all have to start somewhere!

Across my many years of trading, I have discovered a lot about myself through trading and a lot about other people. When I was young and first started trading short-term on financial markets, I was very risk-averse. As a consequence, that made me a terrible trader!

However, having no aversion to risk could also lead you into some really bad positions in the market. Overconfidence is just as bad as none at all.

Understanding how to sit between these two extremes allowed me to become the best trader I could be.

What are these two extremes?

Extreme one: Over analytical

What we tend to find with profoundly analytical and academic people is that they’re trying to over-quantify. They’re trying to slice out every piece of risk that you could ever possibly imagine.

And that’s just impossible!

Therefore, these traders have a simple problem with taking risks. It is that mentality that can hinder those with overcritical minds.

To become the perfect trader, you need to have a sense of humility. It is a fact that you are going to get knocked back, you have to accept that you’re going to screw up now and again, and you just have to move on.

Extreme two: Too much risk

These traders rely on their gut feeling, which may work for a short time. However, it’s just not good enough in the long term.

Their style consists of stumbling across a “strategy” that generally works until one day it doesn’t, and suddenly, they’re out of business! At this point, they can mask themselves in glory and say, ‘What’ a great trader they were.

Where on the scale should you be?

In my trading journey, I have leaned on one side or the other at different moments in my career. I became the trader I am today by quantifying all of the things that are going on in the market effectively, but also by having the intuition and ability to be able to act on them.

You need a bit of that oomph to take risks because there’s no point in being unable to take risks. Trading is all about taking risks, not avoiding them.

Risk is equal, or more or less equal, to reward.

Your objective when trading is to try and earn money at the lowest possible risk.

If you go into the market without preparation and start trading, but you’re not entirely sure what the exact payoff is or why that occurs, you’ll lose over the long term. To stay around for an extended period, you must understand what you are doing and why.

From all of the data I’ve kept over many years, right from day one, when there was virtually nothing in the market, it has allowed me to look at the market and detect any subtle changes. It is a game of understanding but also having the confidence to commit.

The Perfect Trader

Ultimately to be a great trader, you don’t want to be on one extreme or the other, you want to be somewhere in the middle.

Where you are on this scale will be influenced by whatever trading style you have. However, it is essential to understand that there are those two extremes that are as dangerous as each other.

The message I want to portray to you is that I sat at one end of the spectrum and had to correct my behaviour, so I can confirm it’s perfectly possible to do!

You want to be able to implement a trading strategy and take that risk. It’s essential to understand precisely the dynamics involved within that because that will allow you to grow and scale up what you’re doing. It will also transplant a strategy from one market into another.

Understand what you are doing and why, but be comfortable taking risks and realising that you may often get it wrong. But that will not define your long-term objective. There is no reward without risk; that is what trading is all about. You need to get it in balance.

Therefore, the core element to what a perfect trader is really…

…don’t be on either side of those two extremes when trading..