7 Psychological Traits of a Successful Trader

Has Strong Work Ethic for Market Preparation

A trader’s day begins one to two hours before the market opens. This time is spent scanning and researching news headlines for potential catalysts. He spends time updating watch lists, analyzing relative strengths and weaknesses of sectors. He plans trade execution and trade management details for his best trading ideas and develops a market bias for the open. When he finishes, he leaves time to relax.

Plans the Trade and Trades the Plan

Successful traders do not take a trade without planning, without knowing the risks and the potential rewards. The entry price, stop loss, share size, and profit objectives of every trade are spelled out in writing. The risk for each trade is small and consistently the same. He takes trades only when the rewards are greater than the risk. Some traders like to have at least a 2 to 1 Reward to Risk Ratio. Other like to have 3 or more to one. The important thing is that it is written down in their trading plans and is followed without compromise.

Has Emotionless Trade Execution

All details of a trade are pre-planned. There is nothing to think about except execution of the trade at or near the pre-planned price with a pre-planned number of shares. The amount being risked is small and the reward is greater. There is nothing to fear. When the trade is triggered, there is no hesitation. If or when a stop loss is triggered, there is no thought or emotion involved, no hesitation. The loss is taken. The trade didn’t work out. Time to move on.

Has Good Risk Management

Risk management decisions are made outside of trading hours. This is a time when the trader must take off his trader’s hat and put on his trading manager’s hat. He decides what percent of his trading account he is willing to risk on each trade. If the account grows, so does the dollar risk per trade grow, but the percentage risked remains the same. If the account shrinks, then the dollar amount risked per trade also must shrink.

He limits his total risk exposure to a certain percentage of his account, which means limiting the number of new trades taken on at any given time. He limits his capital exposure so he always has something in reserve and never gets a margin call. The manager puts all of these rules in writing and enforces them with an ironclad fist.

Tracks Results Religiously

He logs every trade into a spread sheet or comparable program. Every trade entry, exit, profit, loss and trade type is accounted for. At the end of each week and each month, he calculates his profit & loss, ROI, Batting Average, $Win/Loss Ratio, and identifies errors that are repeated most often.

At the end of each trading day he keeps a diary of each trade, complete with snapshots of entries and exits. The diary continues as the trade is managed and finally closed.

Goes the Extra Mile with After Hours Preparation

Successful traders scan the earnings calendars each night to ensure they don’t have or take on a new positions going into an earnings report. All appropriate earnings dates are enter onto tier one watch lists. Trading into earning would be gambling. Fed announcements are marked on their calendars for the same reason. Watch lists are scanned, pruned and updated once more. Then its time for a balanced life.

Humility

Successful traders know they can just as easily be wrong at any given time as right. They never brag about their big wins and they are equally secretive about their losses. It is a numbers game and they must stay focused and disciplined to win.