6 traits you need to become a successful trader

Many people are aware of the widely used statistic that 90% of traders fail. So what separates successful traders from the unsuccessful? People often make the general assumption that success stems from intelligence, natural ability, education, know how, experience, and resources. In reality however, these assumptions are just not right. Great traders are often characterised not by their intelligence or educational background, but rather by areas like discipline, adaptability, mindset, flexibility, drive and determination.

I believe, with the right attitude and mindset, anyone can succeed at trading in the long-term, regardless of education or intelligence level.

Read also: How childhood beliefs are sabotaging your trading potential

1. Commitment

While this may be true to some extent, the word failure should be replaced with give up. The first key ingredient to winning at trading is COMMITMENT! If you’re serious about growing your wealth in the long run, using trading as a wealth creation tool, then you must commit to becoming a profitable trader. This way, when enduring long periods of negative returns, you’ll be less likely to give up.

Commitment is one of the most important aspects of success in any field. To have a chance at winning a marathon, you firstly must finish the race. The same rule applies to trading. The profession of trading is no easy feat. It takes dedication, determination, resilience, and willpower to become a profitable trader. The only chance you have to succeed at trading is by finishing what you started, while enduring any ups and downs along the way.

2. Develop a winning mindset

Firstly, ask yourself “why am I trading”? If your answer has little to do with wealth creation, you’re likely one step closer to failure. Trading, like any investment strategy, is about generating wealth in the long-run. Someone with a winning mindset does not see trading as a form of gambling or a hobby, they see it as a great way to fund a better lifestyle through great returns.

Having a winning mindset in sport is crucial to achieving success. The same holds true in trading. You have to believe in and make the most of your natural abilities, as most professional athletes do. And like most professional athletes, you have to practice, practice, practice.

Winners don’t fear failure, and neither should you. A great way of reducing fear of failure is to be process, and not outcome, oriented. So don’t stress about long-term performance targets, instead have faith that your trading plan will deliver, regardless of short-term account volatility.

Some key ways to develop a winning mindset:

  • Set clear, achievable goals; i.e. achieve a 20% return with only a 5% drawdown per year
  • As the old cliché goes, “if you fail to plan, you plan to fail”
  • Learn to thrive under pressure
  • Constantly debrief successes and failures
  • Search for the truth
  • Leave your ego behind
3. Create a trading plan that’s simple and fits your personality type

Having an adaptable, simple and easy to follow trading plan is crucial to long-term trading success. The simpler the trading plan, the more chance you have of following it and not straying off track. Simpler trading strategies are also easier to amend and adapt to shifting market conditions.

It’s important that your trading plan matches your personality type. For people with very analytical minds (the left side of the brain), a mechanical trading system might be suitable. Whereas for left brain thinkers (the creative types), a discretionary system might be more suitable.

4. Become an excellent risk manager

Top traders focus on playing great defence, not great offence. The key is to protect what you have and to not focus too heavily on making money. The market is vicious in that it will eventually punish unnecessary risk taking and complacency.

Being a good risk manager means always using stop losses, never risking more than 2% of capital per trade, minimising drawdown events when possible, and always having an understanding of total portfolio risk.

  • Never risk more than 2% of your trading capital on one trade
  • Don’t take on position sizes that make you feel uncomfortable
  • When in doubt, widen your stops
  • Always have a clear understanding of how much capital you’re risking
  • Understand that historic volatility is not necessarily a guide to future volatility
5. Strive for continuous improvement

The dynamic nature of financial markets means that you can never be complacent. There is no room for complacency.

Constantly seek to respond and adapt to financial market conditions by learning, debriefing, improving, and streamlining everything you do. This means keeping a trading diary and regularly reviewing your trading.

Education and learning is a key element of continuous improvement. There is plenty of free information on the internet about trading, such as endless YouTube videos, trading blogs and websites dedicated to education. Try and read one new trading book every one to two months. And if you’re willing to spend money, consider hiring a trading coach or attending educational seminars.

  • Keep a trading journal that tracks all of your results
  • Review your trading plan regularly
  • Record trading performance in a spreadsheet, and analyse data every month
  • Spend 20% allocated trading time dedicated to education and improvement
6. Hold yourself accountable

The problem with trading for yourself is that there’s no one holding you accountable for your actions. I’m fortunate as a trader to have my employer, colleagues, and a large client base all holding me accountable for my actions. This accountability limits stupid risk taking, laziness, ill-discipline and unprofessional trading practices.

Not many people are great at holding themselves accountable. It’s so easy to start pushing the boundaries of your risk limits and trading plan, especially when no one is watching. From personal experience, when trading my own account, there was always the temptation to break my trading rules, because if a trade went bad, no one knew.

If unable to hold yourself accountable over the long-run, then try and report monthly to a family member, friend, colleague, or even a trading coach. Not only should you report performance metrics, but show them how disciplined you were at following a trading plan.

As humans have a deep seated need to please others and gain approval, being held accountable to someone each month will help you stay disciplined, limiting the potential for trading mistakes.

Conclusion

The main reason why many traders fail is that they simply give up when the going gets tough. If you’re serious about funding a better lifestyle through long-term profitable trading, you need to make the decision to commit. Without commitment, there’s every chance you’ll give up during your first or second major drawdown. And by committing, and following the five other steps, you too can be a part of a select group of people who achieve trading success.

What other traits would you add to this list? Let me know in the comments below.


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