Trading stocks simply isn’t for everyone. Some people can stand the volatility and the pressure that comes with it, and some people can’t. Even among the few who can handle the heat, fewer yet will ultimately be successful doing it. While no exact rules can dictate what makes a lucrative stock trader, those Wall Street sages who are legends for making killer winnings in a short amount of time all have a few characteristics in common.
1. Successful stock traders can fight their instincts and act counter-intuitively.
2. Successful traders maintain a regimented system that’s as easy and efficient as possible. It rarely makes a difference which system you use – technical analysis versus fundamentals or value versus quality, for example – as long as you adhere to it. A successful trader knows the benefits, as well as the shortcomings, of their system and executes trades based solely upon the system. “The secret to success is consistency of purpose.” This means, you must create separate tactics for establishing positions and closing them.
3. Successful traders calculate risk and make decisions that lower their risk exposure. Successful traders abhor losing money and manage their losses before they become too great, even if that entails throwing in the towel and acknowledging they made an incorrect call.
4. However, successful traders are not afraid of mistakes or taking chances. Successful traders have what Native Americans refer to as, “sovereignty,” which is the right and capability to do the wrong thing. Essentially, sovereignty is the courage to make your own mistakes, for it’s from our greatest failures that we learn the most.
5. Successful traders are not embarrassed or afraid of taking losses. In fact, they expect them and know that an important part of trading is limiting losses and preserving capital.
6. Successful traders master how to analyze stocks. Many traders only use one form of analysis or seek research from one source, but comparing various reports and charts can give you a better picture.
7. Successful traders lead balanced lives. The rush that a homerun trade can produce is addictive, but a successful trader knows when to walk away – and more importantly, has something to walk toward, whether that is family, friends or hobbies.
8. A successful trader cultivates patience. This means letting profitable positions run their course, but it also means that when the market turns against them, they have the patience to try again and approach the market resiliently, courageously and with confidence.
9. A successful trader has a strong drive for success. Trading requires steady efforts, not haphazard positions established cavalierly. Determination to succeed can make all of the difference when the market is tumultuous because many people abandon ship.
10. A successful trader has discipline. That means reviewing markets and researching trades even if he isn’t in the mood. Discipline also means holding to your strategy – not buying or selling positions because everyone else is doing it.
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11. A successful trader understands the tactical differences between defensive and offensive behavior, and when each is best used. First, preserve capital, then profit.
12. Successful traders remain as emotionally detached as possible – this means ignoring rumors or Wall Street hearsay. They resist the temptation to join the crowd. Stop loss limits can help traders stay objective by preserving profits and ensuring that profit comes off of the table. While you may miss the rush of the lowest entry points and the highest selling points, stop losses let you sleep at night and live your life without being glued to the computer screen.
13. A successful trader knows himself and is very objective about his strengths and weaknesses. Know how to combat your weakness and implement strategies that capitalize on your strengths.
14. A successful trader knows their portfolio. Never let a trade slip through the cracks – keep detailed records and review your holdings often.
15. A successful trader sticks to the rules – the rules they set for themselves. When markets are moving swiftly, it’s easy to lose your head. So, formulate a plan outside of the heat of the moment and stick to it to ensure trading success.
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