The Professional Trading Edge

Professional Trading-3

The Professional Trader

''I don't come to work to earn a living, I come to make money.'' - Trading Great David Kyte

Without question the professional trader has been trained or conditioned by experience to look at and approach the stock market and individual stocks in a completely different way than the vast majority of the investing public. Of equal importance to having a rules-based system for trading the market, they have a system of thought for trading the market. As a guiding principal they do not, as the saying goes, believe the hype. Nor are they compelled to be fully invested in stocks when an alternative position (cash reserves) offers a more defensive opportunity, recognizing that the market can do whatever it wants, whenever it wants, regardless of popular opinion. Many market participants immediately equate the word trading with a higher degree of risk than they associate with the ''buy and hold'' method of investing that has long been sold to the investing public as sound financial strategy by the financial services industry. But the fact of the matter is, a properly designed professional equity trading strategy is focused at all times on controlling risk. The ability to dispassionately manage risk is arguably the most important skill a trader needs to acquire to win consistently. Many new traders, no matter how hard they try, struggle with putting on trades, or freeze-up when pressed to make a decision. It is not in most people's nature to directly assume monetary risk easily, or to be mechanical in their market activity. But in the eyes of a trading professional, whether a daily scalper, a weekly swing trader , or a monthly or yearly trend trader, ''buy and hold'' is not a viable or even remotely rational strategy, and represents the height of foolish risk-taking behavior. Gambling that something will work out in your favor, ignoring what market reality may be telling you, is a go-for-broke mentality that will eventually lead to major losses. A seasoned trader knows that there is always a proper time to sell even the most attractive security. They know that the people telling you to ''buy and hold'' with no exit strategy, are in the business of selling you securities, positioning you without protection to absorb maximum market risk. They are well aware that there are numerous, easily implemented professional hedging instruments and strategies available that are specifically designed to be used as ''insurance'', to prevent a potentially disastrous drop in portfolio value, that traditional brokerage firms flatly do not recommend to most of their retail customers. They know that claims from the online brokerage industry that their information and technology will allow you to ''trade like a pro'' are patently false. They also know that the financial services industry is cleverly designed to condition investors into being passive receptacles for fee-based or commision products, rather than active participants seeking superior returns in exchange for their risk and exposure. Professional traders, on the other hand, are completely independent and self-directed in their market activity. They approach trading as a business, and their daily preparation and activities reflect that they are practicing a craft, not just randomly speculating or passively hoping for the best. A disciplined trader chooses his own game, out of thousands available, plays both offense and defense, and has the patience to let opportunities come to him. Experienced traders have learned to have complete disregard for deadly emotion and popular opinion, and know that maintaining a statistical advantage and controlling risk are at the heart of successful trading.They focus on market mechanics, the supply and demand of institutional money flow and sector rotation that is driving stock prices hourly, daily, weekly, monthly, yearly, and they access and employ specialized tools, tactics, techniques, methods, and technologies to maximize their advantage. Combined, they give the successful professional trader his signature characteristic, his edge(s).