How to Think Like a Pro and Win the Investing Battle

Chessboard, Stocks, Market

My job at TheStreet Pro is to help you become a better trader and investor. I take that mission very seriously and am always contemplating new approaches and different ways of thinking. My goal is to convey something that will click with you mentally and emotionally and help you improve your results.

Last week I discussed the main reasons that most aggressive short-term traders fail. The main problem is that most traders are gunslingers and approach the market like a casino. They are seeking a rush of dopamine and adrenaline that rewards risk and impulsive behavior. These traders don’t have the patience to be selective and strategic, and they end up churning their accounts.

The biggest danger of short-term trading is that short-term success and random good results keep them playing the game, but eventually the odds catch up, and they lose their capital.

Escaping the Gambler's Trap

So what can you do to escape that trap?

The first step is awareness. Do you see yourself in the description above? If you do, then you are on your way to taking some affirmative steps to change the way you approach aggressive trading.

In this column, I’m going to address something very basic: what is a trade?

Most failed traders think of trading as a single buy and a single sale. They view the initial entry as the primary factor determining their success or failure. In their minds, they are either right or they are wrong the moment they hit the buy button.

Great traders recognize that precise timing is impossible. You will never get an entry or exit exactly right except by pure luck.

Charts and technical analysis are not highly accurate tools. If you pin your success on "perfect" timing, you are already playing a losing game.

The Power of Incremental Action

The best traders in the world do things differently. They act incrementally. They move gradually, then suddenly. They don't just "buy a stock," they stalk a trade over the course of days, weeks, and months.

Winning trading is about the process of moving into and out of positions as the price action unfolds. You test the waters, dump the position quickly when it isn't working, and pursue it with vigor when it is. You don't have to be right immediately, but you do have to be reactive.

Winning the Strategic Battle

Trading a stock is an ongoing chess match of various moves. It is a dynamic process, not a static event. Sometimes the chart tells you to be the aggressor and press your advantage. At other times, you have to make a sacrifice, back off, and protect your capital.

The key to the game is recognizing when you are fighting a losing battle. A master chess player doesn't keep throwing pieces at a lost cause, they recognize the shift in momentum and move on to the next match.

When you stop viewing trading as a series of coin flips and start viewing it as a strategic battle that requires constant adjustment, you are finally on the path to becoming a winning trader.

The Tactical Game Plan

To move from the theory of a game like chess to actual winning trades, you need a repeatable process. Here are four steps to apply this incremental mindset to your daily trading.

Stalk the Entry. Stop trying to nail the bottom. Start with a small pilot position to gain skin in the game. This reduces the emotional pressure of being right immediately and allows you to observe how the stock reacts to market volatility without risking significant capital.

Press the Advantage. When a trade starts moving in your favor, that is the time to be the aggressor. Use the strength as a signal to add to the position. The goal is to have your largest size in your best-performing stocks, rather than being equally weighted across a dozen mediocre setups.

Make the Sacrifice. If the price action breaks a key support level or the story changes, sacrifice the trade immediately. It is much better to take a small, controlled loss now than to stay in a losing battle hoping for a miracle. Protect your "king," your trading capital, above all else.

Review the Board. At the end of each day, look at your positions not as static holdings, but as active maneuvers. Ask yourself, if I didn't own this today, would I buy it here? If the answer is no, it is time to back off and look for a better match.

The vast majority of traders will fail or underperform because they fail to recognize that their approach to the market just doesn’t work. They are too emotional and are dealing with psychological issues that push them to approach the market in a suboptimal way. Once you begin to be introspective, you can employ strategies like those outlined above to become truly exceptional.

At the time of publication, Rev Shark had no positions in any securities mentioned.