How much money do you think you have lost by making emotional trading or investing decisions? I have lost thousands of dollars which is why I now invest passively AND trade robotically. This post discusses the skills and traits needed to trade robotically.
Investing using passive investment strategies like Ray Dalio’s All-Weather Portfolio requires the same mindset and skills to trade the popular TQQQ Trading Strategy.
It is all about managing your emotions and behavioral reactions to what the market throws at you.
Here are 8 skills and behaviors you need to learn to be successful as an investor OR a trader.
1) Understand Your Trading System
Whether you invest g in the Coffeehouse Investor portfolio or trade robotically in a system, understanding the system you trade is critical.
For example, people who trade the TQQQ Trading System understand that with the huge gains comes additional risk. Returns above what the market does requires taking on additional risk.
That means there will be losing trades as well as massive gains.
A trader needs to recognize how the trading system captures profit.
The same is true if you invest in a passive system like the Coffeehouse Investor. That system requires decision on rebalancing and allocation, but also requires the understanding the some assets in the portfolio will be up while others are down.
Once you understand the system you are trading, then being able to park emotions and trade robotically becomes easier.
2) Trade Smaller
This one is especially important when trading more actively. Really bad trading decisions are made when a trader puts too much capital on the line.
By trading smaller, your risk is lower which will allow you to keep your emotional reactions to bigger losses to the side.
There is nothing wrong with a series of small losses offset by those big winners. I designed the TQQQ Trading Strategy to do that, so that I could deal with what I know are bad emotional responses to larger loses.
3) Accept that Drawdowns are a Part of Trading
Any trading system – active or passive – that tells you that their system will not go into a drawdown is lying to you.
Drawdowns are a fact of life and they will happen no matter what system you trade.
If you can accept this, it is easier to just let them happen.
4) Limit How Often You Check Your Trade
Some trading systems require more frequent monitoring. Other strategies like passive systems can be adjusted once a year and then left alone until 1-year later!
Systematic systems that trade robotically require hourly or even minute-by-minute monitoring.
The TQQQ Trading System requires a daily check in to see what trade needs to be done the next day.
The key is to only check when you need to, and not let the gyrations of the portfolio drive you to decision (unless those gyrations create a real trade signal).
5) Be Consistent
To trade robotically is to trade consistently. Trade based on the trading signals and consistently apply those signals.
A lack of consistency opens you up to poor decisions – decisions that are made on the fly and without logic or process – which leads to poor performance in the long run.
6) Be Patient
Trading robotically requires patience. I talk about that in my eBook, where I advise traders to think long-term.
The big gains come after years of investing in a system; profits compound and the account size has the opportunity to grow higher.
My personal accounts started with small $25 automatic deposits when I was 18 years old, and have grown to high six-figures today.
That was because I was patient and let my money work for me.
7) Pay Attention to Detail
No matter how robotic a trading system is – either passive or active – mistakes can happen without attention to detail.
For example, errors in order entry are common. You buy when you were supposed to sell.
Also, errors in taking the wrong signal can happen. Make sure your system is updating correctly so that the signals you are getting are valid.
Looking out for the small things can make a world of difference in trading performance.
8) Take Breaks from the Market
I am guilty of this; I love researching and monitoring my portfolio and would do it around the clock if I didn’t force myself to step away from time to time.
You can still stay in-tune with the market by not watching it all the time. In fact, having balance in your life will lead to better decisions.
Because trading is really all mental, making sure you have balance in your life and are healthy is the most important thing.
Besides, if you don’t have your health, all the money in the world is not going to matter.
