Five Habits of a Successful Trader – what you need to learn!

What makes a good trader? 

Are certain people born with the necessary skills to trade the financial markets or can you learn to become a successful trader?

Let’s look at a simple fact; financial trading is not easy and the inconvenient truth is that you have to work incredibly hard to get right. Around 70-80% of people lose money when trading online.

So what are some of the habits of the other 10-15% that are successful at trading the world’s financial markets?

1. Learn From Your Mistakes

Like most things in life, when we start something new we inevitably make mistakes. Human error. Trading is the same, the only difference is if you make too many mistakes you might end up bankrupt. So what are some of the most common mistakes that are made as traders?

• Risking money that you couldn’t afford to lose
• No BUY or SELL strategy in place
• Made a trade based on a “hot tip”
• No risk management (stop losses etc.) plan in place
• Closed trades too early
• Didn’t stick to your trading plan and “doubled down”

2. Create a Trading Plan and Stick To It!

Creating a trading plan will help minimise mistakes and will give you a better chance of becoming a successful trader. Without one, it’s likely you will fail as a trader so put pen to paper and write down how you intend to approach a trade;

• at what price will you enter a trade
• at what price will you exit the trade
• what size will your position be (make it relative to your account size)
• where will you place stop losses, profit orders etc.
• will you use a guaranteed stop loss?

Think it through, write it down – AND STICK TO IT!

3. Time Management

I truly believe that successful people are excellent at time management – it doesn’t matter which profession they’re in – they seem to understand that time is their most important asset and they use it with critical precision.

If you find yourself saying “I don’t have time”, you need to re-think how you’re spending your time. One common mistake is thinking that you’re busy because you are, of sorts, actually busy. But what are you spending your time on? Sometimes we over-commit to tasks that are not that important, rather than focusing on the tasks that will lead us to trading success. Controlling your own time is critical and so you need to learn to differentiate between important tasks and those that can be left until later.

Rather than using the words “I don’t have time“, try something like “this task isn’t a priority right now” and spend your time on the important tasks. Constantly ask yourself ‘what is the most productive use of my time right now’ – this will get you prioritising and keep you focused.

Stop procrastinating today!

4. Trader Psychology

Trading with a calm and collected mindset is key to becoming a successful trader. If you’re in a foul mood or your head isn’t in the right frame of mind, turn your computer off and don’t trade. If you’re in the right head space, are thinking clearly and know what you’re doing; you’re ready to trade. Here are some things to keep your eye on;

• Have a trading plan written down before you begin to trade. This plan will dictate your decision making.
• Leave your ego and emotions at the door, otherwise do not trade. Be calm, collected and flexible.
• Not every trade will go the way you want it to – you will be able to choose your entry & exit points, order limits and position size, but the market will always decide if you will make a profit or not. If the trade is going against you and your trading plan says you need to get out, close the trade immediately. Knowing when to cut a losing trade is a big step in becoming a successful trader.
• Do not trade position sizes that are so big that you lose sleep and your emotions take you away from your trading plan.
• Never ever run your losses. Yes it’s not nice losing money but remain disciplined and stick to your trading plan – if the plan specifies a stop-loss exit at 6,000 (for example) then you must exit the trade at 6,000. Moving your stop-loss further away is a risky strategy and can lead to a far greater losses than you initially had specified. Learn to cut losing trades.

5. Manage Your Risk

Risk management is a critical factor when trading and it must form a large portion of your trading plan and thoughts. Learn to master risk management and you’ll reduce your risk factor to almost zero. Here are some key points to consider with regard to risk management;

• Never risk more than 5% of the total trading funds in your account to one trade. Have a clear indication of how much capital can be lost on a trade before you enter it rather than focusing on how much money you might make.
• Always decide where you will place a stop-loss order on a trade before executing the trade. This stop-loss price is the level that proves to you that you have got the trade incorrect and its time to get out.
• Never move the stop-loss level! Decide what the stop-loss level will be before you open the trade and stick to it. No if’s, no but’s.
• Never forget the risk of volatility – your account can be wiped out in seconds if you don’t have a plan in place and stick to it.
• All your trades should finish in 4 ways: a big win, a small win, break-even or a small loss. There should never be large losses if you commit to a trading plan and understand risk management. If you can eliminate large losses you will go a long way to trading success.
• Lose the ego & stubbornness and stick to your risk management rules as per your trading plan; and never change the plan.
• Utilise profit limits and trailing stops. Trailing stops can be more profitable than your initial profit orders as trends tend to go a lot further than many of us expect – so use them!