Here is a simple list of what makes some traders shine. These are not hard to master – all you have to do is try!
Trading with a Plan
Successful (and professional) traders don’t trade at whim. They evaluate the technical & fundamental factors of a security and look at proper trade set ups / opportunities before committing to the trade. They know what their entries & exits would be. They have a stop loss in place or they have a plan B if things go wrong. Over time, they build a system and a strategy to get consistency in returns.
Conviction
Conviction is a key attribute. Successful traders don’t want to engage in gambling and hence they wait for a proper set up to materialize. (Well, there is always a temptation even for successful folks to gamble but if that is what you do regularly, then you are better off in Vegas rather than in the stock markets). Staying committed to your conviction once the trade is in place is equally important. No one can win all the trades they enter – the markets are so unpredictable – but those who stay disciplined certainly have better odds at winning. So one should focus on the right processes & making money the right way instead of just “trying to be right” all the time
Patience & Discipline
One of the key factors to success is one’s own patience. Patience is a virtue and as mentioned above, successful folks wait patiently for a trade “set-up” that meets their requirements. What this means is waiting for a few hours or days or even weeks for the right set up to emerge. Patience is required not just for the right entry but also for a planned trade to result in proper closure. These traders set their levels and wait for the results. They don’t change their mind every minute just because they see some movement in the price up or down. To do this, they train their mind & their emotions to stay on path and develop a set of rules. If your goal is to make money by trading stocks, you need to develop a system that lets you do it. Once you develop the system, more patience & discipline are required to play by the rules you set for yourself. Winning can’t be & won’t be far away if you do that.
Risk Management
Stock markets are risky. They can be unkind & treacherous. When you start trading, you start with a disadvantage – be it the broker commission or the bid-ask spread that you see every day eating into your capital. Besides that there is the market risk. So what do professional traders do? I haven’t listed the top traits in any particular order but this Risk Management trait would be number 2 trait in my books after the number 1 trait which is “have a trade plan”. No trade plan or strategy would be complete if it lacks the Risk Management element. Stop losses are a popular way of limiting your risk. But to succeed, one needs to identify & use the right (and reasonable) stop loss levels. Hedging is another way to manage the risk and successful traders always use stop losses or hedging techniques.
Keeping Emotions Out
Whether you trade as a hobby or for a living, one needs to learn the art of avoiding emotional trading. I have seen how emotional trading can ruin bank balances and lives. At times, even smart traders who have very good trading plans & strategies fail miserably because of their lack of skills in this one department – managing emotions and stress. This one trait I would say, is hard to master – and comes with lot of effort in training one’s own mind (and possibly not before some erosion happens to one’s bank balance).
Humility
Another great trait of traders who are truly successful. Not much needs to be said about this. If you understand markets are risky, stay nimble and more importantly humble, learn to accept your mistakes & learn from those mistakes and respect the alternate perspectives of other folks without laughing at them, I would say you have crossed half the bridge to success!
Happy Trading!
Crystalballing with Venkat 