11 Core Traits of Winning Traders

02/19/2014 8:00 am EST

Focus: STRATEGIES

Sam Seiden

Chief Education, Products and Services Officer, Online Trading Academy

Consistently profitable traders tend to think and behave very differently from those who struggle or eventually fail in the markets, says Sam Seiden of Online Trading Academy, and these are some of the tendencies that help them win.

Want to know if you will be successful even before you dive too deep into the world of trading and spend too much time in front of your computer? The successful trader is wired very differently than the unsuccessful trader.

First of all, we need to define what a successful trader is so we are on the same page. Let's consider a successful trader someone who is active in the markets (five or more trades a month) and makes a consistent, low-risk living over a multi-year period of time.

The successful trader understands that moves in the markets are a result of mass psychology and pure supply and demand. We make money in the markets by being masters of that human psychology and supply and demand.

Winning and losing in the markets is more defined by your mental make-up than your trading style. What is more important than chart reading is to first understand how you think. Instead of focusing on changing your actions if you're having trouble with trading, it's time to notice where those actions come from.

Actions stem from behavioral patterns, and behavioral patterns stem from beliefs. So, it's at the level of beliefs that decisions are made, and moreover, where your ability to differentiate reality from illusion lies.

It's time to start considering where your beliefs about what works and what doesn't in trading come from. In life, which includes trading and investing, most of us tend to repeat the same processes over and over, expecting a different result.

Over my many years in the business of trading, there are some very clear differences between the consistently profitable trader and the consistent losing trader. To have a good idea in advance about whether you can become a consistently profitable trader, take a look at the traits of the two groups below and see which group you fall into.

The Unsuccessful Trader

  1. Tends to follow the crowd. There's safety in numbers
  2. Avoids taking risk unless others are sharing the risk as well
  3. Feels that if others are buying, then it is "OK" for them to buy too
  4. Acts on the advice of so-called "experts" like market "gurus," CNBC, analysts, and brokers
  5. Tends to complicate the trading process and ignore the important simplicity of markets. Do you tend to complicate other things in your life?
  6. Makes the same two mistakes: Buying and selling after a move in price is well underway; and buying into resistance (supply) and selling into support (demand)
  7. Waits to see what others in the group are ordering at a restaurant before they order
  8. Has trouble following simple rules
  9. Lacks self control in regular life situations

NEXT PAGE: The Core Traits of Successful Traders

|pagebreak|

The Successful Trader

       1. Leads the herd

       2. Tunes out all the subjective noise that can get in the way of making proper trading decisions. Doesn't care what others are doing and makes decisions based on a very mechanical and unemotional set of criteria based solely on the laws and principles of supply and demand

    3. Knows how to identify the proper high-profit-margin entry that most people never see

    4. Only buys after a period of selling and into price support (demand). Winners buy fear

    5. Only sells after a period of buying and into price resistance (supply). Winners sell greed

    6. Can identify opportunity before others and execute trading plans mechanically

    7. Follows simple rules

    8. Has strong self control in every part of life

    9. Has the ability to find two sets of ill-informed individuals in any markets and any time frame. First, those willing to sell at a price they know is too cheap, and second, those willing to buy at a price they know is too expensive. They know by objectively assessing supply and demand.

    10. Has the tools, knowledge, and ability to take the proper action when the above two groups appear

    11. Plays the bandwagon correctly. Proper trading is knowing how other market participants think and react when they are correct, and more importantly, when they are wrong. Price patterns on the charts we analyze are thought patterns

    NEXT PAGE: The Final Key: A Proper Entry Point for Each Trade

    |pagebreak|

    Mental Musts.

         1. Confidence

         2. Discipline

         3. Patience


    And How to Get Them

    1. Reduce and eliminate subjective analysis
    2. Learn to fight the urge to do what others are doing and make decisions based on a very mechanical and unemotional set of rules and criteria

    There are certainly more traits in both groups, but I think you get the point. If you find that you are not suited for trading, that's OK. If you think you fall into the successful group, you may want to give it a try.

    Keep in mind, however, that if you don't have self control, for example, you will likely lose your money in the markets to someone who does. I am not trying to scare anyone out of trading, mind you. I simply feel that the industry has the responsibility to be real with people and not disguise risk with the hype of easy wealth from trading the financial markets.

    The Final Key: A Proper Entry Point
    Know where to enter and find support (demand) and resistance (supply). The "smart money" enters here. Your entry must be low risk, and this is the most important part of the trade.

    Next, enter before others-this is how we get paid!

    One of the most important things to understand about proper trading and investing is that the successful market speculator focuses on what is real and they are able to distinguish this versus the many forms of illusion, such as news, opinions, conventional technical and fundamental analysis, and more.

    This is no different than the dance of light and shadow each morning of our lives. If you focus on the shadow, you will see different pictures all the time, however, the object and light that create the shadow never changes. Shadows can really distort reality if you let them. The dance between reality and illusion is the dance of light and shadow.

    Do you know the difference in trading?

    By Sam Seiden, instructor, Online Trading Academy

Related Articles on STRATEGIES