10 Traits of a Profitable Trader
So, 10 traits of a profitable trading… hmmmm
Since online trading increased in popularity among retail trades, many are tempted to try speculating in the world’s financial markets.
It is not about just one market anymore.
Traders are tempted by many markets, as brokers’ offering covers the whole financial spectrum from the same trading account.
This article aims at pointing out the traits of a profitable trader and what “wannabe” traders need in order to succeed in trading.
Profitability and Trading
Before we jump into any details, we must define profitability in trading.
Naturally, by returning more than the initial investment, a trader becomes profitable.
But even such definition needs refining. Here are a few important factors to consider:
- Timing plays a crucial role.
- Time horizon or how long it takes to make a profit?
A definition that sums up everything would state that a profitable trader is the one that sees the trading account consistently growing.
Moreover, to include the time pressure, a profitable trader is one that trades for a living.
The pressure to perform to cover the day-to-day expenses mounts and affects the trading result.
Can you handle that?
If the answer of the above question is yes, you’re closer to the concept of being a profitable trader.
Traits of a Profitable Trader
Imagine building a house from scratch. Here is how it goes…
First, you need to buy the land.
Second, work with an architect.
Third, apply for a building permit.
Next, look for a contractor. And so on and so forth.
All these factors need funding.
This should be supposedly available either from personal savings or from borrowing from others.
Important note: borrowing from others is definitely not recommended, especially for the inexperienced trader
The sum of all these actions and some more is needed for a successful final outcome.
The same goes with profitable trading.
It is the result of a combination of factors with a bigger degree of complexity.
Unlike the construction business, in the trading business, things do constantly change.
We talk about variables meaning something else in a different context.
Yet, if we are about to build a list of the traits of a profitable trader, it must start with capital.
More precisely, the capital available for trading purposes.
Capital Availability
It all starts with the money at stake.
Or, the skin in the game.
The bigger the account, the higher the pressure to be right and perform.
Hence, the performance of a $100 account differs from a $50000 account, even if we talk about it in percentages.
The problem comes from the capital involved.
Losing $100 doesn’t mean much to many traders, and a drawdown of 50% also.
But on a bigger account, the trader will likely do things differently to protect the account first, and to perform, second.
Therefore, we can say that the traits of a profitable trader would differ based on the size of the trading account.
Capital availability refers to funds both in and out of the trading account.
To be profitable, the trader needs the peace of mind given by the financial freedom outside of the funds available for trading.
Experience
It goes without saying that experience is crucial.
The more time spent in front of the trading platform and charts, the more experienced the trader becomes.
In the long run, it is one of the most important traits of a profitable trader.
Focus on One Market
Financial markets move fast.
Nowadays, trading algorithms act so quickly on little or no news that the trader has a hard time following multiple markets.
Even within the same asset class (e.g., currency trading), it is literally impossible to cover all currency pairs.
Hence, focus on one market, like the foreign exchange, and narrow it down to a few pairs that suit the trading strategy well.
Knowledge
Trading education is one of the most underrated traits of a profitable trader.
You don’t need higher education degrees, but trading education.
One can learn from various online sources or become an autodidact – learning by doing.
Obviously, the first option is more expensive but has the advantage of taking less time to reach a certain level.
The profitable trader knows all about the markets tracked, which may or may not influence the prices.
Ability to Diversify
Diversification requires a deep understanding of correlated markets and how to spread the risk among correlated/uncorrelated assets.
Also, finding the appropriate diversification level is a difficult task – how much is too much for the account to keep growing?
Macro-Thinking
Like it or not, all traders must have their own macro vision, regardless of the market traded.
Interest rates affect all assets, so everyone looks at the central banks around the world and their decisions on the local interest rate levels.
Hence, they interpret the macro-picture even if they act at the local level.
Technical Vision
That’s especially needed in pattern recognition.
The ability to “see” things of a chart should not be underestimated.
Here are a few of them:
Classical technical analysis patterns
These are only some of the things that fall into this category.
Patience
Sometimes the markets just don’t move.
In fact, it happens often.
Waiting for the right entry or for the desired outcome requires patience more often than we like to admit.
Hence, patience is one of the vital traits of a profitable trader.
Courage
When it’s not moving, it’s not moving!
But when it does, do you have the courage to go in as you should do?
For instance, many profitable traders build a large account by growing a small one using volume adjusted to the size of the account.
However, as the account grows bigger and bigger, many tend to reduce the size of a trade, instead of keeping the percentage-wise approach.
Hence, courage is a trait of a profitable trader.
Stick to the trading plan and have the courage to execute it!
Available Time
This is something that many don’t consider, but profitable traders have time to watch markets.
Trading only a couple of hours a day after the regular day job doesn’t work in the long run.
Regardless of the trading strategy, you must find the time to follow and trade the markets.
That’s a requirement, not an option!
Conclusion
All of the above are in vain without a sound money management system.
Risk management is crucial for profitable trading.
It often makes the difference between losing or winning, despite a very good trading strategy.
If all the ten traits of a profitable trader come to support the planning and execution of a strict money management system, the trader has nothing to fear.
He or she is ready to take advantage of the market moves.