Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do – Pele
Trading consistently is tough. It challenges you in ways you’ve not likely been tested before.
So, what separates the successful traders from the pack?
It boils down to clear planning, correct education and unwavering grit. Devoid of these three elements, aspiring traders will struggle and possibly throw in the towel.
Define success
Success means the achievement of desired visions and planned goals.
The dictionary definition:
The accomplishment of an aim or purpose.
Or
The attainment of fame, wealth, or social status.
With respect to trading, success is expressed in several forms and will be trader dependent.
Identifying and visualising goals is paramount to success.
An example of a realistic and attainable goal in trading is achieving a positive return on investment (ROI) each year. For some, an annual return of 10% is a realistic target and defines success; others may set goals based on daily, weekly, monthly or even quarterly status.
Success in trading can also be defined as having the discipline to adhere to a trading plan’s rules. Not adhering to the risk profile, or not respecting the strategy’s rules of engagement can end an account. Regardless of whether the week, or even month, finished in negative territory, rules should be followed. Continued devotion should, if trading a back-tested strategy with positive expectancy, eventually lure the account back into green terrain.
Successful traders know that following the trading strategy’s rules is a prerequisite to consistent profits.
Expectations
A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business – Van k. Tharp
Those who have decided to give the trading profession a go often possess the innocence of excitement only paralleled by watching a child getting candy. However, the opening high diminishes after a few months after realising the complexity of educational and psychological challenges that come with trading.
Trading is a serious business, be it a part-time endeavour or as one’s full-time occupation. Successful traders view trading as a business, with detailed strategies, firm money management and strict risk control.
By having reasonable expectations, you eliminate thoughts of what to expect, thus removing focus off the emotional risks in being right. Problems arise when traders become infatuated with profits or being right, often leading to costly mistakes. This is primarily the rationale behind setting realistic and measured goals.
Attempting to double your account each week is chancy, and attempting this feat will increase risk exponentially.
By way of an example, take a trader with an account of $1,000 and a risk profile of $200 each trade. Granted, doubling the account is possible by employing these metrics, but long term, the likelihood of the account receiving a margin call is high. This is not a realistic expectation for long-term success. The flip side of this is a more conservative trader risking only $20 on each trade using a $1,000 account, though targeting $100 per week, that’s 5%. Long term, this is an unlikely feat.
So, what’s the answer? Take a giant step back and trade an account size that allows the desired gain to be achieved in a safe and controlled manner. A trader looking for an extra $2-3,000 each year, assuming a conservative risk profile, can trade comfortably with a $10,000 account. With the right mindset and strategy, achieving 20%, or $2,000, is certainly feasible.
Successful traders are grounded, and understand that setting ridiculously high expectations adds unnecessary pressure.
Learn new skills
In almost every endeavour, new skills are required. Learning new skills is often intimidating. Vast gaps in your understanding are evident and often you’re unable to pin-point a beginning.
Trading success incorporates numerous skills, each feeding off each other to create consistency.
- Analytical skills are necessary to navigate the markets and locate high-probability trading opportunities. Most retail trading decisions are based off technical analysis. Successful (technical) traders have developed an ‘eye’ for the charts, which, for many of us, can take years to achieve.
- Discipline and patience are two inner traits efficient traders possess. Having the discipline to not deviate from the trading strategy and remain focused on the task at hand is crucial. Most lack patience in everyday life, while in trading it can be financially disastrous. Patience is required to go through the learning curve. Patience is required to wait for a trade to align with the strategy’s rules of engagement. Patience is required when in a trade. Patience is a key component.
- Learning to keep a trading journal. While an impactful tool used to analyse mistakes and trading performance, many are guilty of not keeping a trading journal. Doing so, however, tracks experiences in the market, helping to address any psychological/market-based issues you may need to improve on. Successful traders know trading is a continual evolution, and improvement is based on not repeating the same mistakes. The learning never stops. Markets are dynamic and alive.
- Mastery of one’s mind is probably the most important skill a successful trader develops. The human’s randomness/probability compass is turned upside down for the hunter-gatherer part of our brain. The emotional aspect of this industry is, undeniably, the toughest hurdle between aspiring traders and consistent success. A lot of educators unfortunately fail to address this section fully.
This is by no means an exhaustive list but it does highlight some of the most important skills needed to accomplish success.
Being wrong and losing money
How many of us like admitting we’re wrong? Couple this emotion with losing money and you have yourself a double whammy of hurt.
However, it is simply not a matter of pain and distress. Losses/being wrong tend to be the catalyst behind financially fatal mistakes – think revenge trading. This can exacerbate losses, creating a malicious spiral in which the trader’s account becomes out of control.
Successful traders are cognisant of this hazard. A loss, if the trading strategy’s rules are followed, is simply that – a loss. They know losing trades are an inevitable expense, akin to rent or returned goods, if you owned a shop.
Becoming a consistently successful trader
Reaching a level of proficiency will not happen overnight. Patience and plenty of resolve is necessary.
Profitable trading will take time, study and practice.
To get started, select one method and master this. Jumping from method to method wastes time and energy, and will likely end with you throwing in the towel and becoming another losing statistic. If the method you focus on continues to fail after 2-3 months on simulated trading, then consider moving on. But give it a chance to work. Remember, one, two or even three consecutive losses mean absolutely nothing considering you’ll likely be taking at least 50 trades in any given year.
In addition to the above, work on yourself. Understand your psychological makeup. Successful traders know themselves. They know what makes them tick. You may find the following link useful; it displays five must-read trading psychology books: https://www.icmarkets.com/blog/trading-psychology-books/. The game of trading, 90% of the time, is overcoming the mental obstacles that occur during your trading day.
Trading successfully is possible. Like most things, it all depends on how much you want it.
Notes:
https://www.lexico.com/en/definition/success
