Traits Of Successful Traders

Adapt and build yourself to be a successful trader

Top 10 Traits Of Successful Traders

Aug 15, 2020 10:32

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No two trading plans can be the same because no two traders are exactly alike. Each approach will reflect important factors like trading style as well as risk tolerance. Not all profitable traders are also successful traders. You can certainly be a profitable trader without being a good, successful trader. For instance, if you always risk all your capital on every trade, you might be profitable for a while, but you certainly wouldn’t be a good trader. Enough time, however, will separate the profitable traders from the truly good and successful ones.

What are the other essential components of a solid trading plan? So, how do you develop a strategy to give you the best chances in the market?

Here are Top 10 traits that every trading plan should include:

Successful traders approach trading in a very professional way. They don’t treat it like a small fun hobby. Instead, they treat their trading like an actual business. If you fully accept your trading to be a serious business, you start to become more aware of your actions in terms of their impact on your business. You become more aware of the risks and consequences of every trade. Every decision you make becomes a business decision that could either harm or help the future potential of your business.

Someone who treats his trading as a fun little side hobby is far more likely to risk too much money on a trade with bad odds than someone who treats their trading like a business.

Successful currency traders are always prepared, at least as much as possible in a market that’s open 24 hours a day, five days a week and subject to random events from half a world away. To stay on top of their game, successful currency traders are prepared for: 

  • Upcoming economic data releases in the following week: Know what the prior report indicated and what’s expected in the upcoming report. 
  • Scheduled speakers: Find out who’s speaking (central bankers or finance officials), what they’ve said in the past, and what they’re likely to say this time. 
  • Central bank interest rate setting meetings and announcement times: Know when they’re scheduled and what decision the market is expecting. 
  • Important gatherings of financial leaders, such as G20 meetings or monthly get-togethers of Eurozone finance ministers: 
  • Get a sense of whether currencies are on the agenda and what actions are expected. 
  • Liquidity conditions: Stay aware of the different time periods, such as end of month, market closings or holidays, and time of day (for example, European close, option expirations, or daily fixings, when market liquidity may be affected). 
  • Unexpected events: Use rate alerts to stay on top of price movements outside expected ranges. Follow up on alerts to check for significant news and to assess potential trading opportunities.

Before you enter a trade, set realistic profit targets and risk/reward ratios. What is the minimum risk/reward you will accept? Many experienced traders will not take a trade unless the potential profit is at least two times greater than the risk. Set weekly, monthly, and annual profit goals in money or as a percentage of your portfolio, and reassess them regularly.

Most traders make the mistake of concentrating most of their efforts on looking for buy signals, but pay very little attention to when and where to exit. Many traders cannot sell if they are down because they don’t want to take a loss. Get over it, learn to accept losses, or you will not make it as a trader. Professional traders lose more trades than they win, but by managing money and limiting losses, they still make profits. Before you enter a trade, you should know your exits. Exits are far more important than entries. There are at least two possible exits for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Second, each trade should have a profit target. Once you get there, sell a portion of your position and you can move your stop loss on the rest of your position to the breakeven point if you wish.

Many experienced and successful traders are also excellent at keeping records. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don’t repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, the time, support and resistance levels, daily opening range, market open and close for the day, and record comments about why you made the trade as well as the lessons learned.

You should also save your trading records so that you can go back and analyze the profit or loss for a particular system, drawdowns (which are amounts lost per trade using a trading system), average time per trade (which is necessary to calculate trade efficiency), and other important factors. Also, compare these factors to a buy-and-hold strategy. 

After each trading day, adding up the profit or loss is secondary to knowing the why and how. Write down your conclusions in your trading journal so you can reference them later. Remember, there will always be losing trades. What you want is a trading plan that wins over the longer term.  Remember, this is a business and you are the accountant. You want your business to be as successful and profitable as possible.

Even if they’re not pursuing a technical-based trading strategy themselves, successful currency traders are still aware of important technical levels in the currency pairs they’re trading. For instance, they know the key Fibonacci retracement levels, where various moving averages are, important short- and long-term trend lines, and major recent highs and lows.

One more critical characteristic of successful traders is their personalized trading style. Successful traders know that there are countless ways to make money trading the markets. However, they also know that only a fraction of these ways will work for them. Every successful trader that we have ever talked with, heard of or read about has his / her own personalized way of trading the markets.

It is crucial that you find a trading style that fits you! Everyone has their own strengths and weaknesses and therefore not everyone should be trading the same strategy. You need a strategy that takes advantage of your personal strengths and avoids your weaknesses.

There are endless trading strategies that have the potential to be very profitable. But only a few of them will be a good match with your personality and preferred trading style.

Note: With a personalized trading style, it doesn’t necessarily mean that you need to have a completely original, new & self-developed trading approach. Not everything about your strategy has to be unique. It can very well be a well known, commonly used strategy. But you should at least add some kind of personal touch to it.

From experience, we can say that even if 10 people set out to trade the exact same overall strategy, they will all trade this strategy in their own (slightly) different way.

If you don’t yet know what your strengths and weaknesses are, in terms of trading skills, don’t worry. It takes time and experience to find this out. One great way to learn about your trading personality is by doing some kind of experimental trading period. During this time, you trade with a very low amount of money and try as many different strategies, techniques, styles as you can. While you test all these trading styles, you track your financial and emotional performance.

By doing this, you can find out what you are good at, what you aren’t that good at, what you like, what you don’t like and much more. Having this data should give you an idea about what kind of trader you should try to become. For instance, if you are terrible with very short-term day trades because you need more time to think, feel very stressed and prefer looking at the bigger picture, you should certainly not go into day trading. Instead, you could look at becoming a longer term swing trader.

The best laid schemes of mice and men often go awry, and the same could be said about traders. No matter how strong an individual trade setup looks, successful traders will only risk a small percentage of their overall account on it. While it may be exhilarating to place a trade with the potential to double your account value, it’s never advisable to risk losing your entire account equity. Limiting the amount of risk on each trade allows winning traders to let the law of large numbers work in their favor.

Successful traders attempt to take profit and minimize losses regularly, whether it’s a partial take profit (reducing the size of a winning position), modifying a stop order, or squaring up completely and stepping back after a profitable market movement. 

The greatest enemy to successful trading is not other traders, central banks or your broker: it’s yourself. Most successful traders don’t allow the outcomes of individual trades to really affect their emotional state. Emotional control also includes the ability to admit being wrong. For instance, if a certain type of trade works 7 times out of 10, you shouldn’t see the one losing trade as a bad trade. As long as you take the loss and thereby manage the risk, it was a good trade. But if you start to fight the trade and let the loss get out of hand, it becomes a bad trade. In other words, do not judge your trades purely based on their outcome. Therefore, they don’t constantly hesitate, rationalize and question themselves. Instead, they allow themselves to focus and take good trades without wasting time on rationalization. 

Many novice traders have a tendency to stray from their carefully designed trading plan when they get elated after a series of successful trades or depressed after a losing streak. Especially in trading, strong emotions can sabotage rational analysis and lead to poor results. Successful traders know how to manage their emotions, including taking a day or two off when they get too high or low, so that they can stay at the top of their trading.

Successful taders realize that they are not in control of the market (uncertainty). They view the market as a force of nature without an agenda. The only thing they can control is their own actions, activities, behaviors and emotions. The top traders know they are not infallible. All humans have biases and limits to cognitive abilities; anyone is capable of being swayed or easily distracted. Everyone’s personality is different, and brings different influences to bear on their decision-making. Successful traders work around these factors, accepting that losing is part of winning, and they know their job is to make money, not to be right. It is another of the paradoxes of trading: successful traders can lose money, get markets wrong, but still consistently come out on top. Failing traders can have wins, get markets right, and still consistently underperform. Successful traders win the Inner Game, They apply focus and concentration commensurate with what is needed. They will display realism, and not fantasist ideas hoping that markets turn their way, or bemoaning some sort of conspiracy. They will stay in the here and now, not dwelling on past victories or defeats, or celebrating as of yet unearned future victories. Importantly, they develop a strong relationship with losing. Some have even attested to me that they ‘love’ their losses. It makes them easier to accept, particularly if they can contextualize them as just part of the process of winning. Helpful behaviors to support development of this trait:

 

  • Focus on long-term goals and objectives, and the tools necessary to achieve them.
  • Review and evaluate actions and behaviors used within your activities.
  • Seek and receive feedback.
  • Step back from the fray.
  • Practice ways to clear the mind and develop objective thinking and reflection.

Successful traders try to keep their external lives in balance, holistic, and uncomplicated. Trading is a part of their lives, so if the other parts of their lives are out of balance or synch then this will affect their trading. Likewise, when their trading is out of balance, this can have an effect of the other parts of their lives. Many traders will look to remain fit and healthy and avoid doing things to excess. Likewise, they try to keep family matters as uncomplicated as possible. Their own investments tend to be safe and relatively un-complex. All of this helps ensure a clear and uncluttered mind in order to focus attention and resources on trading. It is easy to forget the human element to trading, as people try to add further to their tools, electronic systems, instruments and technical capabilities. However, it is our human aspects that make us successful. The great British Army Officer Field Marshal Montgomery, who achieved such success in the second world war, once said, ‘Man is still the first weapon of war.’ This is the same in trading: our humanity and our mind’s capabilities, despite limitations and flaws, are significantly more powerful than the most advanced computers. Helpful behaviors to support development of this trait:

 

  • Step back from the fray. Make time in advance for other interests and responsibilities.
  • Practice ways to clear the mind and develop objective thinking and reflection.
  • Focus on long-term goals and objectives, alongside associated strategies and tactics.
  • Engage in physical and mental activities to clear the mind.
  • Keep an inspirational object present to ground yourself.
  • Talk to people, do not lock yourself away.
  • Share your thoughts and feeling with a sympathetic listener, close friend, spouse or partner

Conclusion

Good traders aren’t born, they are created. All it takes is some practice and self-work.  Becoming a great trader has more to do with you than the actual market. The market has done what it has done and will continue to do what it’s going to do regardless of the actions of any single person or entity, therefore every trader’s challenge is to figure out the best, most sustainable and efficient way to extract profits from the market in a low risk, high probability manner that allows for flexibility and change.

We hope these 10 traits of successful traders could give you some idea on what aspects of your trading mentality you could work on. These 10 traits depict a close to ideal trading mentality. It may be very hard to implement all these characteristics into your own trading. Therefore, it is recommend thinking of these traits as ideals to strive after, instead of personality traits that you have or don’t have.

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