When learning to trade (or even improve your current trading), it’s important to model yourself after those who are successful. Here is a list of habits of successful traders.
1. Patient with winning trades, enormously impatient with losing trades.
Let your winners run and cut your losers short. You work so hard to find a setup, you wait so patiently for your entry, you nervously put your money on the line, but then you, wrongfully, look to exit as quickly as possible. If you are going to go through all that hard work of finding a trade, let it work for you and pay you for that hard work!
2. Making money is more important than being right.
We are all in this game in order to make money. At the end of the day, that’s what matters. Part of the process is taking losses and being “wrong” and accepting that as part of the game. The goal is for your winners to be larger than your losses and end up on the plus side at the end of the day.
3. Look at technical analysis as a picture of where traders are lining up to buy/sell.
When looking at support and resistance, realize this is where other traders are looking to buy or sell and you’re wanting to go along for the ride.
4. Before you enter, know where you will exit for a gain or for a loss (targets/stop).
Know your plan and work your plan. When you enter a trade, you don’t have control over the market, but merely are reacting to what it does. Thus, as the market goes in your favor or against you, you must have rules that you stick to instead of making your plan up on the fly. Know how much you are risking for how much you have to potentially gain. Is it worth it?
5. Approach each trade with the same mindset you did on the previous losing trades.
You can’t always be right. When you take a loss, don’t let it affect your decision making process when taking the next trade. What this leads to is skipping valid setups or taking invalid setups. How often do you find yourself “skipping the winners and taking the losers”? You have to take every trade and stay within the same, clear-headed mindset each time. If you don’t have a clear head, take a break! Don’t “revenge trade”. If your losses are affecting you mentally, consider trading a smaller size, so when a loss happens (and they will!) you won’t be crippled by it!
6. Use naked charts and focus on zones (and not exact levels/targets).
The more complexity you add to your charts and your trading plan can cause “analysis paralysis” where you have too many signals and indicators telling you different things. Keep it simple and stay focused. The market is rarely exact and usually find support and resistance at areas of price rather than an exact high/low price. Keep that in mind when looking at swings or areas of support or resistance.
7. Realize that being uncomfortable is okay. Even with experience, you will still be uncomfortable.
No one likes to take a loss and feel like they made a bad decision, even with experience. However, when things get tense or stressful, you need to have your plan to rely on, which will keep you clear minded when making decisions. This only emphasizes the necessity of a trading plan that outlines what you will do when emotions are clouding your judgement.
8. Trade markets that fit your personality. Trade markets where you feel like a participant and not an on-looker.
Some markets are slow and steady and some gap around and move wildly. Some have small ranges and some have huge moves. Depending on your personality, some markets won’t fit your comfort level and that’s okay. There are many markets to choose from!
9. Stop trying to pick top and bottoms.
This also goes back to the idea of making money over being right. Your analysis may tell you that the market will bounce or fall at a particular spot, but you must let the market tell you that it is. It’s tempting to enter at tops or bottoms with the idea of being “right” about where the bottom or top is. However, letting the market tell you are right (by waiting for a proper trigger or waiting for other signs of a trend break) will pay you more than the times you’re wrong!
10. Stop thinking about something being “cheap” or “expensive”. Instead, “Will it go higher or lower from here?”
No matter what something is priced, it can get “cheaper” or more “expensive” from there. For example, before the 2008 crash, Ford (F) was priced at around $8. During the crash it was down to $4, which looked very cheap compared to where it was. However, it continued down to about $1.50! So was it cheap then? Well, it could’ve gone down to $0.10, or even $0! The opposite situation would be when Apple (AAPL) was priced at $400, which seemed expensive, yet it continued up to $700 (a 75% gain!). Instead of looking at a something as cheap or expensive, instead look at the chart and decide what direction the trend is and go with the trend.
11. Willing to change sides (short/long) if the market tells you so.
This also goes back to making money over being right. If the market is telling you that the trend is changing, listen to it. Ignore what the “talking heads” are saying on TV, what news events are occurring, or what you want it to do. Listen to what the chart is telling you.
12. Trade aggressively when trading well and modestly when they are not. Not more aggressively to make up losses.
Trading more aggressively when you’re not trading well will only dig the hole deeper.
13. Realize the market will be open again tomorrow. There will be more opportunities even if you missed one today.
No matter when you start your trading career, there will be long history of trades and missed opportunities that passed you by. Even on any given day, there might be a huge move that left without you. No matter what move or opportunity you missed, the market will be there tomorrow and there will be new opportunities.
14. Never add to a losing trade.
This is how traders blow (wipe out) their account. When you are on the wrong side of a trade, cut your losses and move on. Never try and average up and compound a loss.
15. Making money is the goal, but don’t let it cause you to force trades. If you follow your rules and still lose, it’s still a successful day.
At the end of the day, when asked, “did you have a successful day?” As long as you followed your rules, you had a successful day. If you break your rules and still make money, that re-enforces bad habits, which is a very bad thing! How will you know if you followed (or broke) your rules unless you have a trading plan that outlines these rules?
16. Practice reading the right side of the chart, not the left.
It’s good to backtest strategies by looking at historical data, but, ultimately, to make money, you have to be able to read that hard, right edge.
17. Have an “edge”. Something that gives you an advantage over 50/50.
Often, trading is compared to gambling. If you are a novice or don’t have an “edge” it definitely is gambling! At a casino, the “house” always has an edge where they will end up on top given enough time. With trading, we want to be the “house”; we want to have that edge that puts us on top and the end of the day. Your “edge” could be a method of determining the trend, a way of determine support or resistance, a way of entering the trade, a way of managing a trade in order to maximize profits, or all of the above!
18. One or two trades a month, makes their month. Grind through a bunch of small wins and smaller loses, but only a few make the month.
Not every trade needs to be a home run. Being successful at trading is a long process that includes a lot of “singles” and some “strike outs”, but it’s the occasional “home run” that keeps us coming back for more. You can have a very successful career simply taking small winning trades, one after another.
19. A losing trade is not a reflection on themselves as a trader.
After doing all your analysis and you happen upon a picture perfect trade, sometimes the trade will still fail. Afterwards, it’s easy to then second guess your technique, your rules, and yourself. You must realize that losers are part of the game and that no one is a perfect trader. You will have streaks of winners and streaks of losers, but the important thing is properly manage your account and to not give up. Often you will hear stories about individual traders (typically from someone who is wanting to sell you something!) who made amazing profits or had an amazing winning streak. What you don’t hear is how they are doing overall, over the long-term. Are they still positive? How did they handle a streak of losses?
20. Their business isn’t trading, it’s finding the right trades.
Most all a trader’s time isn’t spent being in a trade. Instead it’s finding the right trade. As mentioned above, after going through all the hard work of finding a trade, it’s important to let it work for you and pay you for that hard work!
21. Trade the reaction and not the news.
When news events occur it’s easy to form an opinion on what that means for the market. However, no matter how we think the market should react to a particular news event, it doesn’t make it so. Out of all the individual and computer traders out there, it’s impossible to predict how everyone, as a whole, will read a news event. If it’s bad news, it may not be as bad as they were expecting, so it’s interpreted as good news, etc. It’s important to realize that we, as individual retail traders, cannot move the market. We can merely react to what the herd is doing.
22. They write down every trade and keep a trading journal.
Keeping a trading journal is a great way to improve your trading. With a record of your trades you can see formations. For example, you may make most money on Mondays, so trading larger size on Monday could increase your bottom line. Or, you may struggle on Fridays, so trading smaller size or not trading at all on Fridays could help your bottom line. Perhaps certain times of the day or certain times of the month produce better trades? Having a trading journal is another way of having an “edge”.
This list is in no way an exhaustive list, but hopefully it can help break you from some bad habits or create some new, good ones!
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