Trading is about more than just knowing how markets work and finding the optimal moving average for your trading. It calls for a unique set of skills and goes beyond simply wanting to make fast money. You need emotional control, discipline, adaptability, and a few other important qualities which are generally not taught in school or required in your normal day-to-day job. This is what makes it challenging for the average trader to thrive in this field.
In this article, we're going to explore the seven most crucial skills that every aspiring trader needs to develop. We'll show you how lacking these skills can cause problems and, more importantly, we'll provide you with practical tips to improve each one. Our aim is to help you steer clear of the common pitfalls that often trap new traders in a never-ending cycle of frustration and trading losses.
So, whether you're just starting out or looking to refine your trading abilities, this article is here to support you on your journey.
Patience
In trading, there are three levels of patience:
First, you need to be patient when waiting for your trades. Many traders suffer from FOMO (the fear of missing out). They often break their trading rules and jump into trades too early, without getting the necessary validation from their trading strategy and rules.
Waiting for trades and making sure that your trades meet all your criteria is essential. Impulsive trading must be avoided. Having a trade checklist that lists all your entry criteria can help traders make better decisions.
Second, a trader needs to be patient when in a trade. Maximizing winning trading opportunities and holding on to profitable trades long enough differentiates the winning from the losing traders. Many losing traders cut their winning trades too early because they fear giving back profits. When you cut your winning trades short, trading profitably is nearly impossible when your losses, which will occur inevitably, eat up all your profits. Having an exit plan and backtesting your exit strategy can be hugely beneficial to help you gain confidence in your rules.
Finally, a trader needs to be patient when growing their trading account. Impatient traders take too much risk when they are trying to grow their trading capital too quickly. Managing your risk and taking a reasonable position size is a cornerstone of professional and profitable trading.
Curiosity
Good traders are curious and they are constantly trying to improve their way of trading. Curiosity does not mean, however, jumping from trading strategy to trading strategy, system-hopping, and trading without any consistency.
A curious trader is always looking for ways to get better. A curious trader is continuously challenging his current trading approach. Curious traders spend a lot of time backtesting new trading rules, or pouring over their trading journal, trying to find ways to improve their edge.
Curiosity leads traders to ask questions, but it also makes them want to find the answers to the questions.
Humility
Good traders do not get their ego involved in their trading and they have no need to prove themselves.
Especially in times of social media, many people feel the need to show off to prove themselves. As a trader, arrogance and an unhealthy ego are two character traits that will make it almost impossible to succeed in this business.
I speak from experience and I recorded a video about my journey dealing with an unhealthy ego and how I overcame it.
As a humble trader, you understand that you cannot force your success. You have to go with the flow. You don´t force the market to do what you want it to do – you can merely respond to what the market is doing and you have to fully accept this fact.
And, finally, you also have to accept that being wrong is a normal part of trading. Humble traders can take losses effectively because they understand that losses cannot be avoided. A loss also doesn’t mean that you are a bad trader. A single trade outcome is not important and you cannot let your ego get attached to the outcome of your trades.
Self-awareness
A self-aware trader is able to look at himself and his approach to trading objectively. Self-aware traders usually have a good understanding of their strengths and weaknesses and are then able to build their trading strategy around their personal profile.
Keeping a trading journal and constantly reviewing your trades can help you improve your self-awareness by actively confronting and reliving your trading behavior to spot weaknesses and understand where you are leaving money on the table.
When going through your past trades, here are some helpful questions to ask:
- What could I have done better with this trade?
- Did I break my trading rules?
- Have I repeated harmful trading behavior?
- Did I exit the trade optimally?
- How did I feel about my trade? Was I trading emotionally?
Those questions are a great starting point for your review process, and they help you develop better self-awareness over time.
Flexibility
Many traders “get married to their trades” which means that after they have done their chart analysis and come to a conclusion about the price action, they have a hard time letting go of the specific trade idea. What then happens is that they end up forcing trades, jumping into trades too soon, and also not being able to see contradictory trading signals that would invalidate their trade idea.
Furthermore, a trader that is “married to his trade” will often also mismanage the trade after he has taken it. Typically, traders then hold onto losses too long and overlook trading signals to exit their trade optimally.
In the end, such traders do not stick to their trading plan and simply get too attached to their trades.
Good traders are able to look at their charts and their trades objectively and make objectively optimal trading decisions that are grounded in their trading plan. Creating a trading plan before you take a trade and knowing when to get out in advance can help traders make better trading decisions and trade less impulsively.
Emotional control
Not giving in to your impulses and always making objective trading decisions are essential to trading success.
Traders who are driven by their emotions trade recklessly, break their trading rules, cannot handle losses effectively, and typically also do not apply sound risk management principles.
Traders must be able to control their emotions and resist the urge to trade impulsively. Having well-defined trading rules and regularly backtesting your trading strategy to understand what to expect from your trading can make a huge difference here.
The clearer you are about your approach to trading, the less impulsive a trader usually is. You should have clear rules for your trade entries, trade exits, trade management, and for your risk management. Write down your trading rules and then backtest them as often as you can. Collect data for each backtest and then evaluate your performance. This will help you build confidence and improve your pattern recognition.
Discipline
Discipline is the glue that holds everything together in your trading. Being a disciplined trader means that you do the things that you know you should be doing, whether you feel like doing them or not.
Undoubtedly, backtesting and journaling your trades are two of the most important and beneficial activities you can do for your trading. But most traders do not put in the time and avoid engaging in those activities. Traders procrastinate, come up with excuses, and simply don´t take their trading seriously enough to set aside time for dedicated practice.
The disciplined trader, however, knows about their importance and although he doesn’t always feel like doing another backtest or logging his trades in his trading journal, he does it anyway because he knows that without it, success in trading is not possible.
As a true professional, there is no room for excuses. Professionals do the things that they know they should be doing, regardless of how they feel.
