There’s a reason why some people make it in trading while others don’t. It’s not just about their in-depth knowledge of the industry or the connections that they have. After all, while insider trading does happen, it’s illegal and unavailable to the vast majority of traders.
Seeing as how some people consistently outtrade a lot of their peers, it’s safe to assume that some personality types are more likely to be successful in trading. Now, individual differences between traders are huge and important to acknowledge, but there are some traits that just heavily factor into your trading success.
So, instead of naming one personality type that can make it, we’ll focus on personality traits that can drastically increase your success in trading. Here are some of these factors.
Open Mind
In order to be a successful trader, you need to be open-minded. What does this mean? Well, you need to be free of biases and assess realistic information toe. So, what are these biases all about?
In order to control your thought process, you need to understand biases. These are labels that we use in order to rationalize things that don’t necessarily fit into our understanding of the world. One example of this is positive bias. This is a concept where you believe that positive things are more likely to happen (because it’s a comforting set of thoughts).
Then, you have an anchor bias or anchoring. This is a concept where you anchor your thought to a single point in time and hold it as universally true. In trading, you might anchor a stock price on what it was yesterday (or the last time you checked). Then, you’ll assume that this is the default value/state of the stock and ignore (for the most part) all the changes.
Confirmation bias might be the most dangerous of them all. This is where you make a logical conclusion and then cherry-pick facts that support your idea. For instance, if you believe that a stock is going to do well, you might start ignoring all the counterindications and focus only on its positive motto in all, a trader needs to be open-minded to make their gains consistent.
Hard Work
To do business like any other and to make it, you need to invest the hours. People see day trading as a way to supplement their income but to become a success in trading. You need to be ready to invest the hours.
Other than this, you need to understand that your understanding of your trades makes a massive difference in your decision-making. This is why you need to be studious and hard-working. You also need to develop your critical-thinking abilities, so that you can analyze your source material and weed out the non-credible sources.
Speaking of materials and resources, having the right tools for traders can revolutionize your approach to trading. While this is not a personality trait, the willingness to invest in research in trading tools, adapt to more and more features in time, as well as combine different platforms is crucial.
Controlling Your Emotions
If you’re a natural risk-taker, chances are that you won’t do very well in trading. You see, while you do need a certain amount of courage, keep in mind that you’re not here to prove anything or boost your ego with huge risky moves. You’re here to make money.
The reason why a stop order feature exists is that, if you do things right and set your stop loss at 1% and stop gain at 7% of your total net value, you can keep making a profit with as little as 25% successful trades. In the age of automated tools, setting these stop orders and staying clear of temptation is incredibly easy. Still, some people let their ego control their decision-making, which makes them refrain from this move.
Understanding the risk-to-reward ratio is important, but it differs from one trade to another. Becoming a specialist is generally a great idea, so if you’re trading in options, this is what you want to focus on. The more you understand, the less likely you are to make rash decisions.
Remember that your inability to control your emotions might also increase how susceptible you are to the aforementioned biases. No, just because the stock value is falling for too long doesn’t mean that it will soon go back up. This is just what you believe should happen and it’s not based on reality.
Self-Critical
The simplest way to ensure that you fail is to give up too quickly. Now, whether or not you get disappointed mostly depends on how much you expect. If you start believing that you’re the Wolf of Wallstreet on your first week in trading, the sobering experience of a first lost trade might be too much to bear.
You need to prepare yourself for your first mistake and unsuccessful trade, accept it, learn from it, and carry on. By making controlled risks, you’ll never put yourself in a scenario where a single trade can ruin you. This way, it will also be easier to take responsibility if something goes wrong.
It’s also important that you understand the concept of the Dunning-Kruger effect. This is a phenomenon where, due to your lack of experience, you believe that you have reached mastery soon into doing something. As we’ve already mentioned, this is one of the quickest ways to get disappointed in what you’re doing and give it up completely.
Lastly, this will also help you exercise a lot higher level of self-control. Recognizing when it’s too risky to trade or when the risk exceeds the potential reward is only possible if you’re cautious and aware of the lack of information at your disposal.
Wrap Up
In the end, you need to understand that success in trading can’t be attributed to just one thing. In general, you need to keep an open mind, be interested in what you’re doing, and be hard at work. You also need to adopt the mindset that it won’t be easy and it won’t be quick. You need the experience, and you need a system (like a strategy). Believing that one successful trade is going to make you rich is the wrong way to approach this issue as a whole and it may ensure that you give up as soon as you reach your first road bump.