Profile of a good trader
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What is a good trader?
Psychology in trading plays a key role in a trader's success. The hardest part of trading is not to find a trading strategy but to know how to apply it sustainably over time. You can have the best trading strategy in the world, you will not win in the long run if you are not able to follow it.
To increase your chances of success in trading, you must have certain qualities. Of course, I’m going to describe the perfect trader profile and no one is perfect. The question is whether you are able to take it upon yourself to channel your emotions. Trading is a psychological battle with yourself.
If you are looking for excitement in trading, then you would be better off going to a casino. Trading is repetitive, often frustrating and requires work.
Here is a list of the main qualities of a good trader:
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Not giving in easily to emotions
: The majority of individual traders lose out in the financial markets due to poor emotion management. Their emotions take control of their trading and the trader's decisions become irrational. If you give in to your emotions, you will lose all your capital. That’s a fact. Your emotions will push you to take positions that do not follow your trading plan, increase your risk, no longer place stop losses, in short, all the things you shouldn't do.It is always easier to say it than to do it. We must not forget that we are humans and that emotions are part of our lives. We can't deny them. That is why it is so important to follow the money management (risk management) rules exactly. This will enable you to channel your emotions. Money management will prohibit you, for example, from taking a position beyond a certain level of loss, thus preventing you from losing all your capital in one day due to a psychological breakdown.
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Patience
: A good trader must know how to wait for opportunities that his trading strategy gives him. He must not open a position outside his trading plan. Wanting to constantly be in position is a mistake. Similarly, if you see some relevant analysis, do not follow it blindly if it does not comply with your position entry rules. There are always opportunities, you will always have the opportunity to open a position. If you miss one, it doesn't matter.Patience also enables us to accept that trading is not a way to earn money quickly, it is a school of small profits. This is the mistake of many novice traders who see financial markets as a way to make a fortune in a few days/weeks. No, trading will not lead you to fortune. You must expect a return in relation to your initial investment. That's why you have to think in terms of percentages and not money. If you earn €100 over the year after depositing €1,000, that's a good result. Making 10% in a year on an investment, a lot of people would like to make that return. If trading is not your main activity, it should be considered as additional income. If this is your main activity, you should see it as a source of variable pay, which depends on your monthly profitability. After that, the better a trader you are, the higher your profitability is, but if your aim is to make 100% in the year, move on, trading is not for you.
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Experienced
: Becoming a trader requires work! You don't become a good trader in one day, you need to work at it. First of all, there is a long and tedious learning phase of trading. It is important to learn the various elements of trading (chart patterns, the main technical indicators and Japanese candlesticks, etc.) to establish a trading strategy. You must also fully understand how all the financial products you use operate. You need to know the risks involved. For all these reasons, it is better to open a demo account.Experience is also about getting to know yourself. During your training on a demo account, you will go through different psychological stages. Analyse your reactions following a losing trade as well as on the winning trades. This will help you to determine if you are more of a trend trader, against the trend trader, scalper (scalping) or a swing trader (swing trading). It is important to define yourself as a trader (what type of trader you are) before you start using a real account.
Finally, during your training, you also gain market experience. You learn to know more about the instruments you are trading (their volatilities, their reactions to this or that economic announcement) and to analyse them better. You become more precise in your analyses, you learn to ignore certain signals and have confidence in your analyses, and you also learn how to do your analysis more quickly.
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Disciplined
: To be a good trader it is important to know how to follow a lot of rules. A good trader should only open a position if his trading strategy tells him to, and not follow his market sentiment (feeling). He must take all the signals that his strategy gives him into account, without considering his subjective view of the market.A good trader will also have to comply with a lot of money management rules (position size, risk/return ratio, placement of stop losses, maximum daily loss, etc.). This is a key element to a trader's success in the financial markets.
Discipline enables you not to give in to your emotions, the main cause of loss in trading. Following rules may seem simple at first sight, but it is much more complicated when you go through a loss phase. It's inevitable, all traders have series of losing trades. That is when your discipline is tested. You want to question your trading strategy and money management rules to catch up on your losses as quickly as possible. If you do, sooner or later, you lose all your capital. I'm not saying that you should never question your strategy, obviously if all your trades lose, there is a reason. Know that, if you follow the money management rules, winning one trade out of two is enough to win on the financial markets. That's good, the average number of winning trades in Forex for example is 50%. However, 9/10 of traders lose. I'll let you guess why.
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Stress resistant
: Trading is a stressful activity because it is the market that decides the success of your trade. Even if your scenario comes to fruition, there may be unexpected price movements between your position and exiting the trade. Trading plunges you into phases of waiting, which brings on stress. Generally, few novice traders know how to keep a cool head if they watch real time price movements. It is complicated enough for experienced traders so there's no point in stressing yourself even more. That's why it is important to take breaks from trading, moments when you no longer look at the screen. Stop losses are there to protect you in case of unexpected movements against those foreseen in your scenario.The more stressed you are, the more advisable it is to trade on longer time units. This means that you do not need to look at your screen so often to monitor your trades. Stress is therefore reduced. Many novice traders believe that shorter time units generate more profits. That's not true! The number of trades is higher but various studies show that there is no link between the unit of time used and the results generated.
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Accept losses
: Your analysis can be the best there is, it's the market that decides. The success of your trade is not in your hands, all you can do is simply choose the scenario with the highest probability of happening. Losing trades are an integral part of trading. You cannot win in the financial markets if you do not accept losing. Even the best traders in the world make losing trades. They may have a larger number of losing trades but have a winning strategy because they exploit their winning trades well. To accept losing means not questioning your trading strategy at each losing trade or series of trades.To accept losing is also about taking responsibility for your choices. If you do not accept losing on a trade, it is usually because you have opened a position without a valid reason. Losing, knowing that you haven't made a mistake, is frustrating enough. There is no need to add additional frustration that could lead to anger and irrational decision-making.
There is always frustration in trading. It accumulates incrementally with losing trades but can also happen if you cut a winning position too early. It is rare to be able to buy at the lowest and sell at the highest (or vice versa). If this happens to you, it is due solely to luck. In most cases, you only take part of the movement. You have to accept it and step back. With experience, frustration gradually disappears as you gain confidence in your strategy.
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Modesty
: On the financial markets, it is better to remain modest, whatever your performance. If your performance is very high, it is because your risk is high. Each trader has a different risk aversion. Achieving higher results does not make you a better trader. It's all about the risk taken. It is the return/risk ratio that makes it possible to judge a strategy. A good trader is the one who best exploits this ratio by having a higher result than other traders with equivalent risk.If you talk about your gains, you must also be able to talk about your losses. I advise you not to talk about your earnings, whatever your performance, it adds extra pressure. Effectively, you will want to maintain (or increase) that performance to look good in front of those you have told about your earnings. This often leads to additional risks.
Excessive confidence can make you feel invincible in the financial markets. This usually comes after a series of winning trades. You must keep your feet on the ground or risk taking certain positions under the influence of euphoria. I have told you several times in this article, emotions = danger in trading. Remain humble and leave your ego aside.
Conclusion
Don't try to become the best trader, or even to win in the financial markets. In trading, you have to last above all else, it's a school of small profits. Success requires both gains and losses. It is loss management that often makes the difference between a good and a bad trader. The goal is to find the trading strategy that allows you to control your emotions the best and adapts to your character the best. No strategy is better than any other, what makes it successful or not is you. If it is not adapted to your psychology, you will lose. Getting to know yourself and managing your emotions is the key to success in trading.
