Winning traders regularly review and evaluate their trading performance. They understand that trading is a skill that is only mastered through rigorous practice over time.
Winning traders are flexible. They aren’t ego-invested in their trades. They are able to always view the market objectively and easily cast aside trade ideas that aren’t working.
Winning traders do not hesitate to risk money when they see a genuine profit opportunity based on their market analysis and trading strategy. However, they do not risk money recklessly. Always aware of the possibility of being wrong, they practice strict risk management by putting small limits on their losses.
Understanding that the Market can’t be Predicted
Winning traders are aware of, and accept, the fact that the market is ultimately unpredictable, that there is no surefire market analysis technique or strategy that will infallibly predict price movements. Because they are keenly aware of this fact, they carefully watch for signs that their analysis is mistaken, and if they see such signs, they quickly adjust their trading position.
In contrast, losing traders, once they have put a trade on, tend to only look for market action that confirms that they are right, and minimize or rationalize away any market action that seems to contradict their analysis. Thus, they often end up staying in losing trades too long and taking unnecessarily large losses.
Self-discipline is critical to winning trading. Unfortunately, self-discipline is typically the hardest discipline to come by. Most of us do a better job of abiding by the rules imposed on us from outside ourselves, e.g., a “No Parking” sign, than we do of abiding by the rules we create for ourselves. Our attitude tends to be one more of, “Well, I made the rule, so I’m free to break it”. While that’s technically true, but it’s not an attitude that will serve you well in trading.
- Continuous Learning:
- Winning traders prioritize education as a lifelong journey. They read financial news, research reports, and economic calendars to stay informed about market-moving events.
- They might also engage in self-study, take online courses, or attend webinars and workshops to keep up with evolving trading techniques and market trends.
- Discipline:
- Successful traders follow a meticulously crafted trading plan that includes predefined entry and exit criteria.
- They set specific risk limits for each trade, often risking no more than 1-2% of their total capital on a single trade.
- Emotional discipline is equally crucial. They don’t let fear or overconfidence dictate their actions, maintaining a cool, rational mindset even in turbulent markets.
- Risk Management:
- Winning traders calculate risk before entering a trade. They consider factors such as stop-loss placement, position size, and potential reward.
- Diversification is a fundamental aspect of their risk management strategy. They avoid putting all their capital into one asset or market, reducing exposure to any single risk.
- Patience:
- They understand that markets have cycles and that not every day or week will yield profits. Winning traders wait for high-probability setups and don’t force trades when conditions aren’t favorable.
- They have a long-term perspective, aiming for consistent gains over time rather than seeking quick riches.
- Planning and Strategy:
- Trading strategies can vary widely, from technical analysis to fundamental analysis or a combination of both. Winning traders choose a strategy that suits their personality and risk tolerance and then stick to it.
- They backtest their strategies using historical data to validate their effectiveness before risking real capital.
- Emotional Control:
- Winning traders use techniques like mindfulness and meditation to maintain emotional balance.
- They accept losses as part of the game and don’t dwell on them, focusing on the next opportunity instead.
- Adaptability:
- Markets evolve, and winning traders adjust their strategies accordingly. They may tweak their parameters, incorporate new indicators, or explore different asset classes to stay competitive.
- However, they do this methodically, with a plan in mind, rather than impulsively changing strategies.
- Record Keeping:
- A detailed trading journal is their best friend. It includes trade entries, exits, reasons behind decisions, and post-trade analysis.
- They use this journal to identify patterns of success and failure and continuously refine their approach.
- Capital Preservation:
- Winning traders never risk their entire capital on a single trade. They understand that preserving capital is essential to remaining in the game.
- They have a clear stop-loss strategy and adhere to it rigorously.
- Self-Reflection:
- They regularly review their trading journal to identify areas for improvement.
- Seeking feedback from mentors or peers is another way they gain insight into their trading performance.
- Stress Management:
- Stress can lead to poor decision-making. Winning traders engage in activities like regular exercise, deep breathing exercises, and relaxation techniques to manage stress effectively.
- Consistency:
- They maintain consistency in their trading approach, avoiding the temptation to chase after the latest “hot” strategy or asset.
- Consistency allows them to assess the effectiveness of their strategy over time accurately.
- Position Sizing:
- They calculate position sizes based on the percentage of capital at risk, the distance to the stop-loss, and the volatility of the asset.
- This meticulous approach to position sizing helps them manage risk and protect their capital.
In summary, winning traders combine a solid foundation of knowledge, unwavering discipline, and a well-thought-out trading plan with emotional control and a commitment to continuous improvement. These habits help them navigate the complexities of the financial markets and achieve consistent success over the long term.