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10 Traits of top traders

Top 10 imageBeing a successful trader is not limited to one personality type – traders come from all walks of life with hugely varying backgrounds.

The old stereotype of city traders has been challenged in recent years. It is no longer associated with brash, loud and laddish behaviour. With the creation of the internet, and ever increasing simplification of trading platforms, the door has been opened to anyone who wants to try their hand.

As the traditional trading floors of the last century turn electronic a new set of trading skills are required. Here are the top ten I feel work best in our current climate.

Persistence

The number one trait a successful trader needs is persistence. No-one turns into a successful trader – or a successful anything – overnight.

As Malcolm Gladwell points out in his 2008 book “Outliers”, it is the 10,000 hour rule that dictates success. If you have not yet reached the point where you can call yourself a successful trader then – before evaluating whether or not you are suited to it – first consider how many hours you have devoted to the cause.

10,000 hours is a lot. But this is the requirement to be at the very top of your game. You should become good, or at the very least competent, way before that.

Many would-be traders give up too easily. It’s difficult to get the support of your friends and family if they don’t have the same passion for the markets. Most people will tell you you’ll lose all your money. But are the professionals really any smarter? They have help and support which retail traders can rarely access.

The first few years of trading are a steep learning curve. Even if you accelerate your education it will still take some time to experience the many different market conditions. Mistakes will be made. Make sure you learn from them.

Whatever you do don’t give up. Immerse yourself, continue learning and practising, discuss trading with fellow traders to improve your understanding until you’ve reached the 10,000th hour – then assess where you are and what you’ve achieved.

Commitment

Not dissimilar to persistence, you need to be committed to making a success of trading. I often tell people that I only spend 10-15 minutes a day trading. This is true, but that’s after I spent years learning to make trading work for me.

It was not always an easy road to travel – and there were many times I was tempted to stick to my day job. But becoming a trader was something I was committed to.

We all waiver from time to time – that’s to be expected. But never walk away – not even for a short period. If you’re experiencing losses and feel you need a break then take a break from trading, but not analysis.

If you feel trading is something you can dip in and out of then you’re probably not 100% committed. You wouldn’t dip in and out of a relationship and still expect it to work.

Calm

I often hear traders talk about being emotionless when they trade. They cite this as essential to their success.

Well, perhaps certain psychopaths have the ability of not getting emotional but I prefer to describe my emotional state simply as calm.

I dislike losing trades – it’s annoying that all the work that went into the analysis resulted in a loss. And I like winning trades – it’s very satisfying to see all my analysis and choice of trade develop into a strong trend where I can add to my positions and make additional money.

I cannot keep emotion out of my trading – but I can approach it with calm.

Being in a relaxed state while I trade isn’t the same as not caring or getting sloppy. You have to be on-the-ball with your full concentration.

If you are experiencing a losing streak it’s difficult to approach the next trade without a long list of negative emotions. So take a break from live trading and go back to basics – just do your analysis and watch the markets. You may miss a few good trades but the markets offer supposedly once-in-a-lifetime deals on a surprisingly regular basis. When you return to live trading you will have a better understanding of price action – and a calmer approach, too.

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Clarity

Being clear in your approach to trading is vital.

Firstly decide your preferred time frame and stick to it. Some very experienced traders are able to disassociate short-term and long-term trading, but for those new to trading the differences can be murky.

Next, define your trading goals. What are your trading rules?

These may have to be altered as your education progresses, but make sure you know why you are making a change and what the desired outcome from the change should be. Then check if it is achieved.

Plan the trade and trade the plan is a popular adage. It’s popular for a reason. A scientific and logical approach to trading is essential in order to know what works and what doesn’t. You wouldn’t as much confidence in a drug that had only been tested on one person – you need a decent sample size to determine its efficacy.

Make sure your plan/rules are clear and easy to follow. Then follow them. Finally calculate if they are supporting your overall goal.

Gut instinct and flying by the seat of your pants doesn’t cut it in trading.

Decisiveness

This is not one of my natural traits. It took a long time for me to master decisiveness. For me, the analysis was the easy part – actually taking the step to trade my set-up was where the difficulty lay.

Overconfidence in your ability can be of equal hinderance. Taking ill-thought-out trades is as unhelpful as being over-cautious.

The best way I have found – to address both ends of the spectrum – is to have a checklist.

It shouldn’t be too long or too short – between 5-10 items is ideal. Then decide if all conditions need to be met or if some can be optional. After completing your analysis see how well the potential trade measures up on your scorecard. If your rule states 4 out of 5 criteria must be met then take the trade – make no exceptions.

You can’t be a successful trader if you don’t take the trades. But, at the same time, do make sure you stick to your trading plan (which should include your risk tolerance).

Make sure that what gets measured matters and what matters gets measured.

Caution

As touched on, in the previous section, caution is required. You don’t want to be too gung-ho or blase about your trades.

Your rules, trading plan and strategy should all be well thought out and tested before you allocate full risk to your trades.

Caution is mostly required at two major times in your trading career. The first is when traders are just starting out. Many will be tempted to risk too much of their capital per trade – without the knowledge or experience to support that trade. In this instance caution is about minimizing risk while you build up trust in your trading strategy.

The next lesson in caution occurs later when traders have experienced some success. They’re on a high from a number of winning trades and they convince themselves they’re invincible. They relax the rules – again to chase profit – but eventually the market will turn against their positions and any profit (and possibly some capital) will be wiped out.

In the first instance the trader may blow up their account very quickly and decide trading is not for them. This is true if they’re not prepared to adjust their thinking. For those who are prepared to admit they did something wrong (instead of blaming the market) and can address the issue, there is likely to be a future in trading.

In the second instance, the trader needs to assess where the issue lay. Was it the strategy which was at fault (in which case amendments need to be made and tested). Or did they became careless and break the rules (in which case they need to look at themselves to see what changes need to be made).

Getting the balance between caution and decisiveness is an essential part of becoming a top trader. Having rules to follow and testing them in a logical fashion will aid in this endeavour.

Patience

Regardless of whether you are a day trader or a long term trader you need to practice patience. Waiting for the right set-ups to occur is crucial. Day traders can go several days without an appropriate set-up while longer term trend traders may go weeks or months between trades.

“You have to be in it to win it” doesn’t quite apply to trading. Or, at least, you should only be in the right trades. There will be plenty of times when not being in the market is the correct call. So, if you don’t see a good set-up today then wait until you do.

Even waiting for the right set-ups doesn’t guarantee success on a trade-by-trade basis. But it will over time. And if you want to be in trading for the long haul this is more important than making a quick killing. Trading is a probabilities game – so you should always ensure the odds are stacked in your favour.

Another aspect of trading that requires patience is during a trade. Especially for longer term trend traders. Being impatient and taking profits before the move is complete can seriously damage your bottom line. By having a trailing stop loss in place you can lock in incremental profits without affecting the overall position.

New traders can get excited by their paper profits. Paper profits are those from entry to current price action. When a position gets stopped out it will never be at the maximum obtained by price, as stops get filled on a pullback. For this reason I rarely look at my equity on my account as I know it is not representative of true profits (or losses). I prefer to keep a separate trading log.

Discipline

No list of required trader traits would be complete without mentioning discipline. But to be honest I find this term a little vague. Discipline by itself is not particularly descriptive – it is a word bandied about without a true definition and quite a negative connotation.

Being organised, having a plan and sticking to that plan – this is my idea of discipline. If my plan says I trade every day, with analysis at the weekend, then that is what I must do. If my plan says I must take every breakout in the direction of a trend, then that is what I must do. If my plan says I must keep a trading log of all my positions, then that is what I must do.

Being committed to your trading and having a system that works for you – and is one you can trust – is far more likely to putting you on the road to successful trading than discipline alone.

Monotony

Not strictly a trait, but trading certainly shouldn’t be too exhilarating. The well known business speaker Keith Cunningham claims making money is boring.

When I first heard this I was taken aback. Like many people the thought of making a lot of money was exciting to me. And this is true. But actually making it isn’t that stimulating. I do my analysis, I check my set-ups, I place my trades, I wait for them to be triggered, I manage my positions. That isn’t going to win any prizes for being the most invigorating way to spend my time!

Leave your excitement for what you can do WITH the money. Try not to confuse the two. And wait until you’ve found a consistency to your trading profitability before you make any grand plans about spending it.

Honesty

Despite the most recent financial crisis being several years behind us the media is still alive with stories of the greedy and dishonest bankers they claim left us in such a mess.

I do not know any of the people involved so I have no idea if these claims are true or not. What I do know is that when it comes to your own personal approach to trading, honesty is the best policy.

By this I do not mean access to insider information or any other dodgy dealings. I mean you have to be honest with yourself.

Keeping a trading log is the best way I have found to keep a true account of my trading successes and failures. Losing trades must never be swept under the carpet. Even if you made a schoolchild error it must be recorded. This way it has been acknowledged and the likelihood of it being repeated is now far less likely.

If you break your rules make sure it is recorded. Try to understand why you made an error, or erred from your system. In his 2007 book “Failing Forward” John C Maxwell brought to the masses the proposition that it is your perception and response to failure that make the real difference.

Learning from your mistakes is not a new idea. But being aware of them and taking action to rectify and alter your future behaviour is a little more difficult to implement – until you get some practice!

Conclusion

This is my list and by no means any definitive list of traits required to make a successful trader. But I hope you get the idea of some of the changes you can make to help improve your trading.

Trading does take determination but does not need to involve any negative personality traits. City traders have a reputation for being brash, cold and maybe arrogant – I do not believe these are necessary characteristics to becoming successful in trading.

Learning to trade will highlight aspects of your personality which are not conducive to trading. Be prepared to address the necessary imbalance.

Finally, it’s incredibly unusual for anyone to start any endeavour and find themselves unchanged by the process. Make sure the metamorphosis you undergo is a positive one.

Hope you enjoyed my trading article. If you have any comments you would like to share then please feel free to leave them below.

Good disciplined trading…

Anne Chapman

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