People from all walks of life define “success” in very different ways. Physical health, financial well-being, and spiritual growth are just a few of the measuring sticks used to quantify prosperity. In the arena of active trading, success is measured in terms of dollars and cents.
For a vast majority of market participants, the supreme goal of trading is to make money. So, why do some traders excel at this endeavor, while others fail miserably? In short, what makes a successful trader?
Of course, the answer is multifaceted and involves a variety of factors. However, the vast majority of consistently profitable traders share two essential traits: aptitude and mindset. The basic inputs of time, capital, and market access are required from a functional standpoint, but the intangibles of adequate aptitude and proper mindset greatly influence whether a trader can achieve longevity in the marketplace.
Among traders, there is an old saying: “Academics can’t trade!” This axiom is certainly tongue-and-cheek, but it does shed some light on what trading aptitude is all about. A trader doesn’t need to be a theoretical physicist or have a postgraduate degree from MIT to make money in the markets. In fact, winning traders often come from humble academic backgrounds.
However, having a strong trading aptitude is an integral part of attacking the markets competently. A rock-solid knowledge base in three distinct areas contributes to the successful trader’s edge:
- Technology: The contemporary marketplace is digital in nature. Without a working knowledge of how to apply computer/internet technologies, trading efficiently can quickly become a monumental task.
- Arithmetic: Having good number skills is a definite advantage. Software trading platforms have made performing calculations in real-time exponentially easier than in years past. Nonetheless, if numbers are intimidating, then accurately deriving trade-related items such as risk exposure or stop loss and profit target order locations will be difficult. You don’t need to be a mathematician to trade — but being fluent at basic arithmetic is a must.
- Focus: Having the capacity to ignore “market noise” and other distractions and concentrate on completing the task at hand is an invaluable asset. People who are able to hone a razor-sharp trading focus are typically much more organized and results-oriented than those who cannot. Simply put, being scatterbrained is expensive.
Mindset Is Everything
The capital markets are dynamic environments where anything is possible. Wins, losses, failures, and successes are often determined on a minute-by-minute basis. With so much going on, it can be difficult to maintain a healthy attitude.
A successful trader’s mindset varies depending upon many factors. Size, style, and the market or product being traded will have a considerable bearing on one’s perspective. Nonetheless, no matter the style or market, the “three Ds” have a tremendous bearing on a trader’s potential success or failure:
- Discipline: Having the wherewithal to develop and strictly adhere to a comprehensive trading plan is a key aspect of successful trading. Discipline promotes consistency and eliminates the pitfalls of emotional trading.
- Determination: Realizing a capital loss in the markets is unavoidable. No matter how infrequent losing trades may be, bouncing back after a loss is crucial to winning over the long-haul.
- Dedication: Putting the work in before, during, and after every trading session is a common characteristic among successful traders. Without a commitment to the process, success is likely to remain elusive.
Developing a winning mindset can be a challenge. Many aspiring traders bring psychological and emotional baggage to the marketplace from past failures, which can be difficult to overcome. However, if the three Ds are present, then much of what makes a successful trader is already in place.
Understanding What Makes a Successful Trader
At its core, active trading is an unforgiving profession. At the end of each day, week, or month, a final score is tallied, and there is a winner and a loser. If you make money, you live to fight another day. If you lose money, your income and funds will take a hit.
The good news is this: The vast majority of what makes a successful trader can be learned. Grasping concepts such as basic strategy, principles of risk management, and trading plan development are invaluable in avoiding common pitfalls. For more information on these topics and how to join the ranks of successful traders, check out the educational suite at Daniels Trading.