What makes a good trader

What makes a successful trader?

12:08, 31 October 2018

What You Need to Know

As a novice trader, you’ll have heard all the clichés about what makes a winner in financial markets. The successful trader has to be a cool-headed poker player, an iceman or woman with, to mix metaphors, nerves of steel. In the markets, it is a case of kill or be killed (financially speaking, anyway). Every moment is make-your-mind-up time. Deal, or no deal?

All very exciting, no doubt. But extremely misleading. The novice trader may be better advised to ignore all this high-adrenalin action talk and, and, as a starting point for discovering the secrets of trading success, contemplate the Greek aphorism, author uncertain: “Know thyself.”

For the would-be trader, this self-knowledge takes two forms. The first is having sufficient self-awareness to be able to select the right trading style for them. No two styles are exactly alike, any more than are two people, and the right style for one person may well be the wrong style for another.

No guarantee of success

Once they believe they have identified such a pending event, they would back their view with significant funds.

No trading style can guarantee success, but a shortcut to failure is likely to be the result of adopting a style that is unsuitable for the individual concerned.

The second vital aspect of self-knowledge relates to the biases inherent in the human condition, biases that, left unchecked, will make loss more likely than profit. One of the most widely-understood of such biases is known as the endowment effect, which steers people to value things that they own more highly, for no other reason than they possess them.

Think like a trader, not an investor

One immediate result of the endowment effect in financial markets is to bias traders towards taking long rather than short positions. Trading, by definition, involves a willingness to stand on either side of a trade, long or short, depending on where the best opportunities lie.

Another bias is known as loss aversion. Experiments have shown that people feel loss more acutely than gain.

Another such bias is the erroneous belief that a trading strategy, or any other financial-market position, “owes” the trader and will inevitably “come good”. There are several others grouped under the heading “cognitive biases”.

All this leads us to a key principle of successful trading, which is to remember at all times that you are a trader, not a long-term investor. Light-footedness and a nimble approach mark out the best traders.

What makes a good trader?

I have always thought that measuring how an individual reacts to the relentless stress, pressure and self-doubt created when making risk decisions for a living could create one of the most interesting studies of people. Managing performance over time is an incredibly personal journey and taking full responsibility for split-second decisions with huge financial consequences, can lead to an interesting discovery of self.

It is this self-awareness, and the ability for a trader to manage their mind-set through bleak periods of performance has always made the greatest impact I have seen both through my career, and through the management of 100’s of new traders at Amplify Trading.

To help our traders at Amplify better understand where their mind-set is at any point in time, I often refer to Daniel Kahneman’s Prospect Theory for which he won the Nobel prize in economics, in 2002. Kahnman’s theory was ground breaking at the time, because it examined why we as individuals do not always make wealth maximising decisions as neo-classical economic models would suggest.

This is interesting because it means a trader may make a different decision when faced with a market opportunity if they are at point C or A. When at point C any further gains will not impact how the trader feels so they will be more likely to get out of profitable positions, or not take any further risk. You can see the line to the left of point C is steeper which means the trader will have more to lose emotionally by taking a risk decision that goes wrong, then if it works out.

On the left of the chart the line is much steeper still, which points to the fact that loses are felt more aggressively than gains. Traders like to punish themselves more quickly for poor performance than reward themselves for a positive one. It is when a trader reaches point D that the difference between a good trader and a bad trader can be seen more clearly than at any other time.

At Amplify how a trader responds at point D is something we measure incredibly closely, we call it variance resilience. How does execution after a shock event (or poor period of performance) change compared to execution before that shock? Put simply, if a trader has taken a loss that is significant to them, are they able to remain focussed and competent, and take the next trading decision as if that shock event has never happened. Or, as described so well by Steve Peters Chimp Paradox, does the trader allow their inner chimp to now make emotional decisions that further impacts their trading performance.

The emotional response at point D will have the greatest impact on the future success of that trader. A trader that allows their ‘inner chimp’ to now dictate their actions may start at this point to revenge trade, withdraw or refuse to let go. All of these will not only harm their performance for that day or trade, but more importantly can change the track of progression for that trader, leading to a very different future performance. It is possible to see this happen to professional athletes where a shock event (think Tiger Woods or Novak Djokovic) hits performance not only for the next game but that poor performance itself then leads to a spiral of defeats. This in turn damages the self-confidence needed to perform at the peak of their ability.

If left un-checked a trader will then move to the left of point D on the chart, where the curve begins to flatten, and no further loss in money seems to matter. This is when a trader will do themselves the most possible damage. They will risk all they can because in terms of how they feel, it cannot get any worse. Reaching this point is probably the single most prevalent reason to explain why most new traders fail.

However, a good trader will be able to recognise both physical and mental signs that highlight the fact they are in an emotional state, which could lead them to making poor decisions of risk. So much of this is subconscious, and therefore difficult to measure and manage. For example, it may be that their breathing pattern changes, or they start to hunch over their desk. It may be that they keep on checking the market after having been stopped out of a position, unable to move on from a feeling that the market has treated them unfairly.

Most importantly however, a good trader will have the will power and discipline to then act on what these signals are telling them. They would have trained themselves to refresh their mind-set when it is most important to do so, and re-focus on the market opportunity. They will not allow what happened in the previous trade, or even previous day or week, impact on the next decision they make. A good trader can compartmentalise their experiences to always act in a way that increases the probability of the next trade being a successful one.

To try and ensure this mind-set at Amplify Trading we stress the importance of continuous improvement so traders can learn after each experience, to then be better prepared for the next trade ahead of them. Using Kolb’s cycle (below) it can be shown that no experience should be wasted, everything a trader does should be reviewed and thought through, to further enhance the profitability of the next trading experience. Not only are the markets always changing, but so is our interaction within them, and a losing trade, reviewed properly, can actually be one of the most valuable experiences a trader can have.

Reflection is incredibly important, and the best traders are aware of how their psychology is something the needs constant training and development. I deliver trading psychology sessions to some of the largest asset managers in London and New York, all of whom are humble enough to appreciate how vulnerable they are.

Intelligence and ability does not separate the successful or unsuccessful trader. The biggest difference between the former and the later, is the ability to always maintain focus and composure through awareness of self.

What Makes a Good Day Trader? 13 Qualities You Should Have

Under the right circumstances, day trading is a viable career option with plenty of built-in advantages. Most day traders work from home and don’t report to anyone but themselves (if they don’t decide to open their own office and be the manager).

Even better, successful traders can earn enough to live comfortable, even affluent lifestyles during their ample downtime. However, this line of work isn’t for everyone.

Successful day traders need to be self-motivated, disciplined, levelheaded and financially independent. If you’re thinking about pursuing a career in day trading, compare your own personality profile against this list of key characteristics and personality traits.

What makes a good trader?

In this article, we will look at nine of the top qualities that all successful traders have. By successful, we mean traders who have a long track record of success in the market. As you will find out, only a small portion of traders succeed in the long term,

Also, by successful traders, we mean people who have mastered their trading techniques and strategies. For example, this can include someone who is an expert in a strategy like trend following and trading reversals.

Also, These are people who enjoy doing what they do no matter their outcome. They will always be happy regardless of their daily or weekly performance.

How to be a good day trader

Before we look at the qualities that make a good trader, let us touch briefly about the process of being one.

First, it starts with interest in the financial market. If you don’t find things like stocks and currencies fun, then being a trader is not for you. You need to find fun in what you do.

Second, you need to learn about how the market works. This does not necessarily mean that you should go to school to learn about trading. You can use the free or premium materials that are available in the internet.

Third, you should come up with a good trading strategy. This is an important process where you apply the strategies that you have learned to the market. For example, you can learn to use price action and technical analysis. You can also be a trader who relies on the news to open trades.

Fourth, you should experiment with this strategy to see its results. Fortunately, many brokers provide a demo account that you can use to do this. A demo account uses real data and fake cash. After seeing that your trading strategy is working, you can move to the next stage and open a real account.

Qualities of a good trader

Personal independence

Since day traders (or, bette, individual trader) work from home, they need to be motivated to work for their own financial and personal betterment. If you thrive in a regimented office setting, you might struggle with the self-starting nature of this business.

Decisiveness

The market can change in a matter of seconds, so good day traders need to be vigilant, quick-witted and decisive. Talented day traders draw on past experiences to read new situations quickly and react appropriately. There’s little room for second-guessing here.

You should be strategic

We have seen many successful traders. We have also seen many who are not as successful. Being strategic is a very important trait that you should have. In this, you should take decisions after considering the bigger picture.

For example, if you are short crude oil, you should have reasons why you think that crude oil will drop. It is wrong to place a trade without having solid reasons. This is in fact, one of the top reasons why most new traders fall.

Inquisitive

As a trader, it is very important to be inquisitive for every decision that you do. This means that you should always ask questions about different scenarios before you open a trade. The idea here is to examine different scenarios before you make decisions.

For example, if you believe that the dollar will strengthen, take time to ask different questions about other issues that may lead the dollar up. Also, ask yourself different questions about the worst-case scenario for your trade.

Persistence and discipline

Since day traders don’t have hard-nosed bosses telling them what to do at all times, they need to stay on task during trading sessions and commit to intensive after-hours research and preparation sessions. Once they settle upon a profitable strategy, they stick with it until it no longer works.

And if you are not disciplined?

You will not abide to the rules of the game when things are not going your way. For example, if you have a trade open and its making losses, you might be tempted to adjust the stop loss hoping that it will reverse. Doing this will lead to huge losses.

Be Patient

Patience is a very important quality that you must have. Without patience, you have no chance of succeeding as a trader. This is simply because thesis takes time before they are actualized.

For example, you can open a trade expecting that your thesis will work out within a few hours. A few hours later, the thesis fails to play out. Therefore, you need to be patient and wait until your thesis works out if you really believe in it.

This also plays out if you are a new person with interests in trading. Most new traders start out thinking they will succeed no matter what. They don’t take time to learn how to trade. At the end, most of them end up discouraged after losing all of their money.

Interest and inclination

Good day traders exhibit enthusiasm for the financial markets long before they decide to go into business for themselves. If you’re naturally inclined to follow stocks, bonds, commodities and other securities, you’ll fit in as a day trader. If you’re not particularly interested in finance or business, you may struggle out of the gate.

Experience and familiarity

Traders who are naturally inclined to follow the markets begin with a sizable advantage, but there’s also something to be said for hard-won experience.

If you’ve ever worked in a financial capacity, you’ll have an instinctive fluency with the forces that drive the market’s movements. Better yet, you’ll be familiar with the trading platforms and systems that modern traders use.

Open-mindedness

The best day traders persistently pursue profitable trading strategies, but few if any find success immediately. Before you get into your short-term trading groove, you must be willing to try multiple strategies in succession. You’ll improve by sticking with what works and discarding what doesn’t.

Once you have refined your ideal strategy, don’t stop testing anyway (better in a demo mode), to have more opportunities to use as needed.

Familiarity with technology

You don’t have to be a programming whiz, but short-term trading demands at least some familiarity with advanced trading and computing systems. More importantly, it requires a willingness to try out new platforms and systems as they become available.

Be a (bit) risk taker

One of the most prominent qualities of all entrepreneurs is risk taking. To succeed, most of them leave their well-paying jobs to start a business they are unsure of succeeding (but you could also start part-time). They sell their belongings to invest in their dreams. Some, take huge loans backed up by their houses or cars.

As a trader, you need to be a risk taker too. You should be ready to take huge risks hoping that they will succeed. You should be ready to deposit funds in your account and hope that it won’t be lost. Without taking such risks, you don’t have the ability to succeed.

Financial independence

Day traders don’t have to be fabulously wealthy. However, they do need to have an adequate financial safety net that allows them to trade with money that they can afford to lose.

If you’re living paycheck to paycheck, build up some savings before beginning your day trading adventure. Once you start, keep an additional reserve in the event that you decide to move on.

Personal support

While day traders need to be self-motivated, disciplined and rational, they’re rarely total loners. Since their day-to-day existence is so stressful, the most successful traders tend to have strong networks of family and friends (and coworkers) to keep them in touch with the outside world.

Most are also avid hobbyists who spend their free time on fulfilling projects or adventures.

Summary

Summarizing in one post all the qualities that can help you to be a better trader would be impossible, also because many of them are subjective. Even those on our list can not and should not apply to everyone, but we consider them among the most important.
The one that will help you the most is undoubtedly experience, which will help you make some of these things that may seem complex at first glance look natural.

What Makes a Good Trader?

What separates good traders from bad traders?

A good trader realizes that trading is patience, discipline, and requires a trading approach adapted to their specific psychological profile.

A good trader concentrates on the PROCESS of trading, and not just on the result.

Here’s a list of other things that good traders do:

What Good Traders Do

A good trader knows if they have sufficient risk capital in order to achieve their financial objectives.

A good trader always acts according to their own judgment. They think for themselves rather than be blindly influenced by others.

A good trader never trades on hope. They analyze the market and take calculated risks.

A good trader stays out of the market when in doubt.

A good trader does not chase the market. They wait for signals to appear based on their market analysis and trading strategy.

A good trader does not overtrade.

A good trader does not fight against the trend. While they may trade pullbacks or countertrend swings, they are aware that this price movement is temporary.

A good trader always knows the reward-to-risk ratio of every trade.

A good trader cuts their losses instead of hoping that the trade will turn around.

A good trader allows their profits to run until an exit signal based on their trading strategy is triggered.

A good trader always analyzes their closed trades to find any lessons on how they can improve.

A good trader is patient and knows that there are periods when they don’t need to trade.

A good trader never widens a stop loss.

A good trader never cancels a stop loss.

A good trader treats each trade separately.

A good trader exits the market when in doubt.

A good trader does not blindly follow the advice of others.

What makes a Good Trader Good?

Trading is a discipline that requires a lot more than what I can write in one article. However, it is important for you and I to nail down what we lack and to figure what else we need before we get there, which is in line with the theme of continuous development. Right?

You see, we all want to become successful and we all want to be profitable. Yet, everyone has a different journey. This becomes a tricky subject also because every one defines success differently and there is no right or wrong answer to any of them. For me (as I write this post), I am looking to set up a Fund. While some of you may be looking for more profit, others are looking for consistency, and, some, to just achieve a net positive P&L at the end of the month. The truth is, only you know what you are looking for and only you know what success truly means to you.

When I meet with successful traders, I used to ask them how long have they been successful and I carry on with understanding what/how they trade. I said “used to” because I don’t any more. I find it completely pointless to ask such questions because, more often than not, we trade different markets. Even if I met a currency trader, it is very difficult to exchange ideas on the system. Hence, I have moved on and, instead, I ask them “What makes a Good Trader Good?” in the hope to learn any new insights to what success really means.

With that, here are some of the qualities that I have learned from good traders.

1. Successfully Filters Noises

Noises are every where especially in most trading communities – you get it on forums, newsletters, online news portals, news channels, group discussions etc. Nonetheless, this is not an uncommon phenomenon and professional traders know it. Because good traders have tried and tested all the methods available (to them), they end up finding an effective way to filter any noises that might go their way.

Good traders know that they need to stand by your own conviction and make decisions based on what you belief (related article). Hence, they make every effort to filter as much noise as possible even if some of these noises are relevant to their trade. What good traders tend to do includes:

The list goes on but I think you get the picture. There is no one-size-fits-all filtration method here but if you continue to search for the method that works for you, good traders know that it can save them in many occasions.

More importantly, the more noises they filter, the better their inner judgement becomes and that definitely influence their trading results.

2. Selective Development

Many traders think that good profitable traders stop learning as soon as they become consistently profitable. In my view, the contrary is true. Many good and profitable traders continue to learn. In fact, because they know what they are doing, these profitable traders continue to learn and they are very specific in their development.

By that, I mean that good traders would narrow down their search and only pick on new information that they know can help them become better. Unlike new traders who tend to learn everything on the planet, these veteran traders are cool and calm in their development. If they see something that might be useful, they take their time to read and explore the work of the author / educator before they decide if they want to integrate it into their own trading.

I truly believe this is one of the best ways to learn and this can be a good model for new traders to use. Because you are in a calm state-of-mind, the quality and amount of information that you can absorb is much more significant. You are filtering and only learning new information that are relevant, and that to me is a quality development.

3. Protecting ones Trading Edge

In NLP, we use a term call critical factor. This critical factor is a term used to describe your automated and unconscious defence mechanism.

For example, if I was to criticise you and you have strong reasons to disagree with me, you would likely step back and defend yourself. In this instance, your critical factor is up and what ever I say will not get through to your believe system. This is a natural way that your mind protects you and preserves your existing values and believes.

In a way, good traders have a similar mechanism to protect their trading edge. Good traders belief in their own trading and they trust it whole heartedly. In fact, it is because this belief that helps them remain consistently profitable. With that, they constantly keep their beliefs in tact. They find ways to ensure that those beliefs are never shaken even when they are challenged by the market.

Think about it, if you spent many years learning and developing your trading edge to a point where you are consistently profitable. Would you not protect it? You know you would, won’t you?

And from that point onwards, good traders protect their edge with everything they can. They would step back each time they are challenged and either ignore those challenges or ignore them as if it never happened.

4. Are Prepared to be Wrong

A good trader is prepared to be wrong (about their trades) no matter what he tells you yesterday, today or tomorrow. I don’t think this is a secret but all the professional traders that I’ve met makes every effort to prepare themselves to be wrong and these preparations can come in all shapes and sizes.

This is an interesting point to note because all these traders are very good at what they do – they are not a professional for nothing. They can explain their trades with confidence and conviction yet when you ask them how a specific trade might pan out, their conviction to the market direction switches. Just to be clear, this is not about being pessimistic or being overly cautions. This is a neither a switch from confidence to fear, nor is this a switch from a bias view to an aimless market.

Instead, these traders are able to whole heartedly accept that the market is random (related article) as they are aware that there is nothing that they can do to prepare themselves for it. In fact, they usually end their statement with a simple “Who knows?” or “Let’s see” phrase – subtle yet sufficient to bring their market views back to neutral.

5. Humility

I have been very fortunate to have met with a few successful traders who have been very humble of their success. In fact, one or two very successful traders that I have met don’t discuss their careers – they claim to be IT experts or businessman. When I found out they were market traders as well, they remain modest about their success.

Of course, you can find really good ones who like the attention too but I have seen more humbled traders than the opposite.

Initially, I didn’t understand but as my curiosity continues to linger, I finally understood why they remain humble. After awhile, I began to appreciate the beauty of humility and I realise that there is no need to shout your success because not one can take it from you.

And when you go beyond that, you realise that just by the mere fact of being humble, you can easily acquire the 4 qualities mentioned above too – it is as if they are part of the same package.

Conclusion

Are you a good trader yet? Only you know the answer. However, if you aspire to become one, I would most definitely recommend that you should go around speaking to some of them. Go pick their brains and see if you can find some useful lessons where you can apply on yourself.

The discussions today seem like very trivial lessons, yet, it is these simple qualities that make a good trader good. If you are new to trading or in the process of becoming successful, then you can try and model these qualities in your own trading, knowing that you are heading in the right direction.