10 Habits of Successful Traders

Many people dream of earning a living from online trading, some with a view to improve their daily living conditions, and others with a view to achieve true financial independence.

No matter how small or ambitious your goals, there are qualities and behavioral patterns that all successful traders share.

With this in mind, let us share with you the 10 habits of successful traders.

1. Identify trading opportunities

First, you’ll need to spot a good trading opportunity. As it’s impossible to predict short term changes in prices, traders turn to technical analysis and/or fundamental analysis to form an opinion.

For example, a trader may decide to open a long position in a stock that has hit its 200-day moving average, if he or she expects the stock’s fundamentals to improve.

The 200-day moving average represents a stock’s average closing price in the last 200 trading sessions, and is often seen as a good entry point.

2. Manage your risks

Improvisation is not an option when your money is at stake. It’s important to ask yourself what could go wrong with your trade, no matter how bullish you are about your investment decision.

You should also define upfront an amount of money that you are willing to lose should the markets move against you.

In a bear market, when downward moves are more likely than up moves, most traders prefer to set a stop limit close to their entry point to limit their losses.

You’ll also need to manage leverage carefully, as leverage increases the ups and downs in your portfolio’s value.

Experienced traders are generally comfortable operating through high-leverage forex brokers, but beginners should act with caution, and use little to no leverage, especially when markets are volatile.

3. Assess your performance

It’s natural for human beings to make mistakes. But you’ll need to assess your trading performance in a critical manner, if you are to correct them.

This is easier said than done, as your emotions may get in the way of rational investment decisions.

For example, you may ultimately wish to remain in a losing trade longer than you otherwise should, in the hope of recouping your losses.

4. Create an investment plan

That’s why it’s helpful to maintain a trading journal where you record your investment case, your target profit as well as the maximum loss you’re willing to sustain.

Some of the best traders remain invested as long as their investment case holds true, regardless of short term fluctuations in share prices.

However, you should also be willing to close your position, even if this means crystalizing a loss, if the reasons that underpinned your investment decision no longer hold true.

5. Find a broker you can trust

It’s also important to find a broker that’s on your side. Some brokers charge exorbitant fees to open and close positions.

Others may charge surprising high rates on interest on any amounts you borrow, whether you go long or short.

Always take time to compare brokers’ fees and commissions in detail, as these will make a material difference to your bottom line.

You should also consider where and how your broker is regulated. Brokers regulated in the EU, UK and other developed markets usually offer strong investor protections.

However, this isn’t always the case with offshore brokers.

These words of caution also apply to those looking to buy Bitcoin or other cryptocurrencies.

FTX’s fall from grace, and the failure of several crypto lending and borrowing ventures is a reminder that your money is at risk.

6. Be persistent

Practice makes perfect. This is also true when it comes to trading.

Be persistent in everything you do, follow developments in the financial markets attentively, and hone your skills through personal readings or courses.

With so much information available at the click of a mouse, it’s important to avoid information overload. Be selective about who you follow and the blogs you read.

7. Don’t trade for the sake of trading

A successful trader doesn’t trade without a clear strategy.

In a bear market, the best strategy may be to lie flat (in other words, do nothing), or short the market based on a combination of technical and fundamental analysis.

Whereas in a bull market, the best strategy may be to buy the dips, and remain invested.

8. Look for asymmetric traders

Successful traders look for trades with strong risk-reward ratios.

These are also known as trades with asymmetric returns: these are trades with small and limited risks that can be quantified upfront, with huge upside potential.

For example, traders betting against the peg of the Hong Kong dollar to the US Dollar face limited downside if they are wrong, as the exchange rate is floored, but significantly larger upside if the peg breaks.

9. Control your emotions

Try to keep a cool head when trading the markets.

Again, this is easier said than done. But you can help keep your emotions at bay by investing only a small amount of your capital in each trade, typically between 1% and 2.5% depending on your conviction level.

From experience, we know that this will help you sleep better at night.

10. Patience is a virtue

Markets can change in fast and unpredictable ways. When this happens, it isn’t advisable to make decisions on the spur of the moment.

Instead, let the trading session play out as reversals can happen either part-way, or later in the trading day.

If the markets experience a sustained downtrend, remember that oversold market conditions are usually followed by overbought rallies.

In other words, it can help to have a long-term perspective on the market. Learn more about the differences between trading and investing.

Conclusion

Although making a living from investments is something that many people want to do, it doesn’t happen overnight.

However, we know from experience that these habits can make a meaningful difference to your returns when you combine them with expert knowledge.

So, if your dream truly is to become a successful trader, set time aside to learn these skills and put them into practice, to build your future successes.

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