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The difference between Amateur & Professional Traders

Which one are you?

Difference between Amateur and Professional Traders

Trading isn’t an easy profession and maybe one of the toughest professions because it needs significant psychological training. Human beings are by nature adamant and egoistic. That’s the exact nature that does not enable them to build a successful trading career.

However, there is a bridge from being a loss-making amateur trader to becoming a professional trader and it always starts with psychology.

In order to establish the role of psychology, or rather incorrect psychology, on trading, let’s first understand how amateur traders behave and trade. Here are a few characteristics of amateur traders and how professional traders differ.

Money oriented vs Process oriented

Newbies generally turn to trading for the lure of money. If they get initial success trading randomly, they get hooked.

There is no denying that the objective of trading is to make money, but if one gets fixated on the money part of the game, it affects the trader psychologically and all the decisions then are made with greed or fear, which is not an optimum setting for a trader.

Professional traders, on the other hand, swear by their process. Their aim is to screen for trading opportunities that can give them a return multiple times the risk they take, entering and exiting at the best time to pocket the differential while managing the risk tightly. While the final outcome is money, the aim to master the process of making money.

If an amateur trader makes a slight change in this aspect of trading and shift focus from money to the process, a lot of things will change. Streamlining the trading means eliminating emotions from trading, which is a prerequisite for successful trading.

Letting losses run vs cutting losses short

Amateur traders always have a loss aversion mentality. They would do anything to not book a loss and save themselves the pain. The seed of holding losses gets sown when the new traders get away with it a few times in good market conditions. They then hold on to losses each time, thinking that the market will keep saving them.

Professional traders have a mechanical view on stop losses. They are out of the position as soon as the price hits the stop loss. There’s no waiting or hoping.

Strict stop losses are an important element of risk management in trading. If you do not take the loss when it is small, you will eventually take a much bigger loss. You have to become an expert in taking small losses to be a successful trader.

Taking profits too soon vs letting profits run

Amateur traders, while holding on to losses will also take the profits too soon on the right trades. The bigger losses and lower profits math doesn’t work well in any business, and it certainly doesn’t work in trading.

Professional traders, on the other hand, get their trading math right. They cut the losses short, risk less, and let the profits run to make outsized gains relative to the risk taken. That way even when they are right less than half the time, they make a fortune.

To be a successful trader, you must get this math right. The leverage comes from large gains and small losses and not the other way round.

The aim is for minimal losses and maximum reward, not maximum losses and minimal reward....

Ignoring mindset vs Working on the mindset

Mindset is an important aspect of successful trading. Amateur traders, when they hit a series of losses would quit trading saying that the game is rigged in favour of large traders. They never work on improving their trading skills or preparing more for the game. They carry on their life with a loser’s mindset.

Professional traders, however, work each day on their mindset telling themselves that they can achieve a lot if they work for it. Their mind and their actions are always in sync.

To be a successful trader, a progressive and adaptable mind is important. You have to stop demotivating yourself and you need to believe in yourself. You need to tell yourself that you can achieve unimaginable heights if you work harder for it.

Ignoring mistakes vs learning from mistakes

Amateur traders never go back to the drawing board and move on from one trade to the next without taking the necessary lessons from their bad trades. If you cant do that, you keep on making the same mistakes again and again, putting yourself in the imperfect practice mode. It can be disastrous if that becomes a habit.

Professional traders tend to do post-analysis of their trades on a regular basis to look for what they did wrong and where they were right. Improving the process and eliminating avoidable mistakes is quite an important aspect of trading. One less mistake is one more leak patched and a lot of money saved. Imagine what you can achieve if you eliminate the most possible mistakes in trading? You will cap the downside significantly while working on and opening up the unlimited upside.

The final word

The journey from amateur to professional can be short or long, depending on how you approach it. If you see trading as a casual hobby, it will remain a hobby and keep costing you money, just like most hobbies. If you see it as a business that needs profit maximization and loss minimization, you will make all the possible changes to make profitable trading a reality.

The journey to successful trading can be quite short if you don’t make big mistakes and learn from your mistakes quickly. Better yet, if you learn from other successful traders and from the mistakes they made in their careers you would be a hundred steps ahead in the game.

The price you pay to graduate from being an amateur to a professional trader is quite small if you consider the rewards that successful trading brings. All you have to do is diligently work for it and improve your game one step at a time. So, keep on it and succeed, as just deciding to push harder keeps you ahead of thousands of traders who quit every day.

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Amateur or Professional - a Few Additional Thoughts

Not sure whether my points may help or not, but here are a few things I've learned over the years. Feel free to disagree, agree or add your own...

  1. The underlying structure drives behaviour... This effectively means that to get a change in outcome, one needs to focus on changing the structure which has led to the outcome.

  2. Humans come in all sorts of shapes and sizes. We have differing values and beliefs about ourselves and the way we experience the world.

  3. We will tend to have some strengths and some weaknesses. For example, I tend to see the world as interconnected systems, this is a strength in the right situation but…

Jul 21, 2022
Replying to

Thanks @Old Contrary Really good wisdom as always... I will take the test myself now :-)

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