Better to be a "Profitable" trader or a "Good" one?

It’s one and the same thing right? What’s the difference? There is a massive difference between the two...lets look at each of them separately.

Being profitable is very straight forward - If the sum total of all winning trades is greater than the sum total of all losing trades in a given time frame, then the trader is profitable. Simple.

Defining a "Good" trader is much more complex as everyone sees it differently. While I’m not attempting to provide a definition that ends up in meridian dictionary – my intention is to take a step back and look at the forest rather than focusing on the trees. In my mind, the 2 essential elements of good trading boil down to having a comprehensive trading process or method that is time tested and accounts for good risk management….and a rock solid discipline to execute on the trading process. The zillion different characteristics of good trading that come to mind can ultimately be rolled up into 1 of these 2 elements.

That sure sounds simple and easily doable, doesn't it? It’s not. Think about the infinite versions you have read about majority of stock traders losing money over time….and apply it to my equation above and think where the problem might be. Is it really that difficult to come up with a proper trading process? Or is it really that impossible to follows your own plan? Well, the answer is not that simple. 

It can take years for traders to identify the lack of a proper trading process. The first 4 years of my trading, I thought I had the process nailed - but it wasn't nearly as comprehensive - and didn't have proper risk controls baked into it. Most traders are smart people…combine that with the wealth of information available out there – sooner or later most will figure out the gap....just the time it takes to get there would vary. However, “knowing” and “doing” are 2 very different things. Isn't ‘knowing’ and ‘doing’ one of the key differentiators between people who succeed and those who don’t?

The 2^nd element of the equation, Discipline, is the hardest to master…and this will end up being the “decision-maker” on how much a trader will grow eventually. It can be challenging to comprehend why it is so difficult for most traders to achieve the level of discipline required in executing their trade plan in spite of trying so hard….the answer lies somewhere in the understanding of human psychology.  Everyone knows that emotion is a big driver in trading and controlling the strongest emotions of ‘Greed’ and ‘Fear’ takes a lot of self-awareness, practice & constant re-designing of the process so it can complement the way the Trader's mind works without disturbing its harmony.

An institutional or hedge fund trader will have some aspects of “risk controls” or the “discipline factor” baked into the trading platform. For example, the trading platform inhibits a pro trader from putting more than x% of $ in a single trade -or- having more than a certain loss on a single position. 

For the retail trader, the "discipline factor" is entirely internal & all in their mind. Nobody is watching over their shoulders to ensure they don’t deviate from their trade plan (assuming they have one). The only thing standing between their plan and it’s flawless execution is their mind and the tsunami of emotions going through it based on multiple factors. Acquiring this discipline is an extremely challenging task and many traders would end their careers before they are able to solve this mystery. Discipline is one of the biggest areas where a pro trader has a significant edge over retail traders.

Now if a trader has mastered their 'Discipline to execute' but they don't have a solid trade plan - then that's also a problem because there is no plan to follow. So there must be a handshake of both elements in order for it to work.

So the million dollar question is, does mastering both these elements guarantee success? Well, nothing is guaranteed in life...but I do think that if someone has gone so far to master these 2 elements then over time the odds of success are heavily skewed in their favor and eventually they will achieve success.

To sum it up, a trader's profitability doesn't tell the whole story as they might have just had a good run. A good trader, on the other hand, has the right methodology, risk controls, mental attitude & discipline that might not bring success in certain pockets of time, but in the long haul it surely will.

If you found this article useful & have some experience with technical analysis (chart study) then please give me 5 min of your time by clicking here to fill out a short survey that will help me in designing a stock video game that focuses on identifying bad trading habits & fixing them through playing games.

Follow me @KingsHedge and always strive to be a "Good Trader". 
Cheers!!