Are You a Sniper or Shotgun Trader?

Most traders that I talk to are what I like to call shotgun traders. What does this mean you ask? Quite simply these types of traders spray their focus across a thousand differing trading strategies, tools and products, just like a shot gun sprays pellets all over the place.

Such a trading and investing attitude comes from a place of fear. A fear of either missing out on a trade or profit – hence why someone of these shot-gunners trade a million different markets – or a fear of making a mistake. This leads our shotgun trader friends to apply a myriad of tools and indicators to their charts which in turn creates paralysis by analysis and – you guessed it – more losing trades.

Shot gun traders have an unfocused and messy approach towards their trading which more often than not leads to poor results.

Are you a shot gun trader?

To be a successful trader, one that makes consistent profits in any market you need to think of yourself as a sniper trader – someone who is focused, only takes a shot when the best target lines up and holds a simple and clean approach to trading. This is certainly NOT an easy exercise, particularly when you first start trading and this is due – in part – to the enormity of information related to trading and investing that is widely available in the public domain.

There is just so much information to sort through – so many differing opinions that it’s little wonder most traders end up with their fingers in many different pies, trying to turn a profit.

Most are, as the old saying goes ‘jack of all trades and master of none’.

Steve Jobs said it well – That’s been one of my mantras – focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains”.

Focus is why Apple can move mountains and has transformed into one of the most valuable companies in the world by market capitalization.

Let’s look at two of the best traders and investors alive today and consider their investing methods so you can see what I mean about being a ‘sniper’

Warren Buffett, arguably the most famous and successful investor of all time has a specific, tested, tried and true strategy that has worked extremely well for him (and many others – including his shareholders) for several decades. He is a sniper investor, he knows his plan, he knows his strategy and he sticks to it through thick and thin

George Soros, in the headlines recently for shorting the Aussie dollar on the back of RBA interest rate cuts has devised his own investing theory known as reflexivity. He, like Warren Buffet has squared his focus for investing based on this theory and this focus has not waned for over half a century. He too is a true sniper trader.

Now, I hear you saying, well that’s all well and good Blake but I’m not a Warren Buffett or a George Soros.

Well the good news is you don’t have to be. You simply need to use the same principles, apply them to your own trading or investing and soon enough you’ll be swapping that tired old shotgun for a fancy new sniper.

So let’s take a look at how you can become a sniper trader:

  1. Keep a trading journal – any master trader knows their investments like the back of their hand. Keeping a trading journal and documenting your thoughts on your analysis and future direction of your chosen stocks or markets is the best way I know to gain intimate insight into my favourite stocks or markets. Updating your journal is dependent on your overall trading time frame. For example if you trade short term (say from a couple of days to weeks) you should be updating your journal daily, medium term weekly and long term monthly.  Don’t underestimate a trading journal it is a great way to take advantage of opportunities that meet your trading strategy as soon as they appear.
  2. Talking about trading strategy, this subject comes in at number 2. You must master one trading strategy – yes ONE strategy. Sure you can add to this later on but mastering one trading strategy, gaining confidence in that strategy and refining it until it is profitable is the surest way to making amazing profits in the markets. Be aware – you WILL be tempted to deviate, whether by looking at different types of stocks or markets or using other strategies. But stick with what you know until you have mastered it. How do you know you have mastered your strategy? Simple, when you can place a trade without a second thought, with the confidence that your plan will work – you have become a master.
  3. Keep things simple – Let me make this clear from the outset, you do not need a myriad of indicators, you don’t need to use Elliott wave plus Bollinger bands, plus Mac D’s plus breakouts, plus volume and whatever else. Keep your trading simple. Focus on price action, combined with price analysis being support and resistance levels. Listen to what the charts are telling you. Focus your attention on simplicity because it’s the simplest trading strategies that work.
  4. Use appropriate risk management and never let a trade go beyond your maximum dollar risk. Sniper traders only ever take trades with the highest degree of probability. They only ever take a shot once all the ducks line up. Likewise they always stick to their risk and money management strategy and never stray. If you your stop is triggered, get out – no if’s, no but’s and no maybe’s just exit the trade. Shot gun traders don’t do this. They hope and pray that a market will turn around usually to their detriment. It’s little wonder that 90% of traders lose money over the long term even though in general most traders are right more than 50% of the time. This is because they take small profits and let losses run – the opposite should be the focus.

Happy and profitable trading,

Blake Sterling
Analyst
Wealth Within