2 Key Traits of Successful Traders

10/08/2015 6:00 am EST

Focus: STRATEGIES

Citing a number of sources for support, Brett Steenbarger, PhD, of BrettSteenbarger.com, emphasizes the importance of passion and persistence in trading and illustrates that extraordinary efforts in the service of extraordinary tasks can actually be energizing, allowing traders to sustain seeming career-ending setbacks and come back stronger and wiser.

What makes a successful trader or investor?

One of the valuable contributions of Jack Schwager’s classic Market Wizards is its attempt to identify the factors that contribute to the success of elite money managers. Interestingly, Schwager found that the wizards were not those who were always right in their views. Rather, they were quick to recognize when they were wrong and liquidate their positions. The remedy for losing, he noted, is not to try harder, but to step back and regain perspective. To no small extent, what makes a market wizard is the ability to be wrong and flexibly deal with those situations.

Many of the wizards, Schwager found, experienced debilitating losses early in their careers. They succeeded by learning from those blowups and on many occasions were transformed by the harrowing drawdowns. In their excellent book Momo Traders, Brady Dahl and Nate Michaud describe ten highly successful day traders and examine what makes them tick. Two of those top traders are ones I’ve had the pleasure of getting to know personally: Bao Nguyen and Gregg Sciabica.

Interestingly, both began their trading careers with an early passion for trading that led them to exhaustively research winning strategies. Both also blew up after initial success, losing a large portion of their capital. Despite the massive setback, they persisted in their interest and ultimately became better—and more prudent—traders as a result.

I find it significant that Schwager, studying money managers, and Dahl and Michaud, studying day traders both arrived at a two-part formula for success in markets: passion and persistence.

An excellent article from Michelle McQuaid takes a look at mental toughness and evidence that the ability to withstand negative emotional experience is an essential component of success. She cites the work of Emilia Lahti, who has examined the Finnish characteristic known as “sisu.” Lahti describes it as an action mindset in the face of adversity, a kind of second wind of consciousness that enables us to draw upon resources when we are put to the test. McQuaid quotes Lahti: “Sisu isn’t so much about achievement, but more about immersing yourself in an experience with every fiber of your being and not giving up.”

The work on resilience and sisu helps us understand that it is precisely the drive of elite traders that allows for immersing themselves with every fiber of their being and thereby accessing that second wind of consciousness. In other words, passion fuels persistence: we are mentally tough when we are emotionally committed. Ordinary efforts expended on ordinary tasks exhaust us after a time. Extraordinary efforts in the service of extraordinary tasks actually energize us, allowing us to sustain seeming career-ending setbacks and come back stronger and wiser.

One implication of this line of reasoning is that we can best identify what we are meant to be doing in life by reverse-engineering our experiences of sisu. Those occasions in which we immerse ourselves and refuse to give up in the face of adversity can only occur if we have found the passion worthy of persistence. All of us, at times, have experienced mental toughness: that is when we’re at our strongest, most aligned with our strengths and interests. In those moments of passion and persistence we find our path.

Courtesy of forbes.com.

By Brett Steenbarger, PhD, of BrettSteenbarger.com

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