“If you’ve got the time, the drive, and the right psychological makeup, you can enter the elite realm of the successful trader,” he wrote in a report.
Who is Robert R. Prechter?
Robert Prechter is a familiar name in the investment circle the world over. He is an American financial author, and stock market analyst, known for his financial forecasts using the Elliott Wave Principle.
Prechter shares his market insights in The Elliott Wave Theorist, one of the longest-running financial publications. Prechter has also developed a theory of social causality called socionomics.
Prechter has authored and edited several academic papers. He has written 18 books on finance and socionomics.
Requirements for successful trading
Prechter reveals some of the most important lessons he’s learned as an investor and financial analyst. He provides a list of requirements investors need for becoming a successful trader.
1. Get a method
Prechter says investors need an objectively definable method of financial market analysis.”It must be thought out in its entirety to the extent that if someone asks you how you make your decisions, you can explain it to him, and if he asks you again in six months, he will receive the same answer. This is not to say that a method cannot be altered or improved; it must, however, be developed as a totality before it is implemented,” he says.
According to Prechter, a prerequisite for obtaining a method is acceptance of the fact that perfection is not achievable.
“People who demand it are wasting their time searching for the Holy Grail, and they will never get beyond this first step of obtaining a method. I chose to use an approach called the Wave Principle, which I think reveals the true pattern of market behavior. But there are a hundred other methods that will work if successful trading is your only goal,” says he.
2. Be disciplined
Prechter says this requirement is well known by all trading experts but they sometimes take it too lightly.
“Nevertheless, it is so crucial to success that it cannot be ignored. Without discipline, you really have no method in the first place. The pressures from trading are enormous, and they get to everyone. If you are not disciplined, forget the markets,” he says.
3. Get some experience
Prechter says investing is not merely an intellectual exercise, it is also an emotional challenge as well.
“When trading, you must conquer a host of problems, most of them related to your own inner strength in battling powerful human emotions. There is only one shortcut to obtaining experience, and that is to find a mentor. Locate and learn from someone who has proved himself over the years to be a successful trader or investor – but they are hard to find,” he says.
4. Take responsibility and make accommodations for losses
Prechter says investors often are in denial mode if they incur losses and fail to take responsibility for their own actions and try to play the blame game.
This automatically disqualifies them from joining the ranks of successful traders.
“For instance, to moan that ‘manipulators’, ‘insiders’, ‘program trading’ or anything else is to blame for one’s losses is a common fault. Anyone who utters such a conviction is doomed before he starts. The biggest obstacle to successful speculation is the failure to accept the simple fact that losses are part of the game, and that they must be accommodated,” he says.
Prechter believes investors must employ an objective money management system when formulating their trading method.
“There are many ways to do it. Some methods use stops. I think a better approach is to commit only a small percentage of your available capital on each trade and let your analytical method dictate your action. After all is said and done, learning to handle losses will be your greatest triumph,” he says.
5. Be able to accept gains wisely
Prechter says the big moves in the market only come once or twice a year and investors should be wise enough to make use of them and gain from them.
“Those are the ones which will pay you for all the work, fear, sweat and frustration of the previous eleven months or even eleven years. Don’t miss them for reasons other than those required by your objectively defined method,” he says.
According to Prechter, the problem is that investors simply allow themselves unconsciously to define their ‘normal’ range of profit and loss.
“When the big trade finally comes, investors lack the esteem for their method required to take all it promised. So they abandoned both method and discipline. To win the game, they need to make sure that they understand why they’re in it,” he says.
(Disclaimer: This article is based on ‘Robert Prechter’s report in The Elliott Wave Theorist)
