Common Traits Of Successful Traders

Despite the great differences in style and philosophy among traders, those who succeed share certain characteristics. The following list really represents the foundation upon which the rest of trading is built.

Adequate capitalization. Rarely mentioned (and not a character trait per se), it is the prerequisite that renders trading skills academic. Trading is about surviving numerous losses to benefit from the (usually) less frequent, but more sizable, winners. Without adequate capitalization, the best trading strategy in the world is worthless—like putting a Ferrari in the hands of a five-year-old. The reason most new traders fail is the same reason most new businesses in any area fail: lack of money. Winning traders treat trading like a business—requiring time, effort, and enough money to stay afloat until your "company" is paying for itself.

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A goal and a plan. Whether they use a strictly mechanical trading system or a set of general trading principles, successful traders have concrete trading goals and logical plans (based on observations of market behavior) to reach them. They are realists; they do not wish or hope for trades to go their way, expect trading to be painless, or look for instant success or overnight millions. Through long study of the markets, they develop an idea of what is possible, establish reasonable trading goals, and implement a plan to achieve them.

Attention to risk control and money management. Even the most successful traders usually have more losing trades than winning trades. The key is to manage losses, so small ones do not become big ones. Any trader will tell you his risk control (stops, etc.) and money management strategies (i.e., deciding how many shares or contracts to commit to a particular trade) are more important than the actual buy and sell signals he uses.

The ability to accept losses. Having winning trades is easy. Part of being a market realist is understanding that losses are part of the game. You will not reap the benefits of the winners until you have mastered the art of accepting the losers. This is really the ability to admit when you are wrong, to get out of a trade without bruising your ego or destroying your confidence.

Patience and perseverance. One top commodity trading advisor (CTA) who trades hundred of millions of dollars in the futures markets weathered five straight losing years before he finally turned himself into a profitable trader (and that was after spending several years as only a moderately successful stock investor). Another successful trader spent the better part of 15 years researching, testing, and occasionally trading before putting a mechanical trading system to work in the markets. When he did, though, he turned less than $100,000 dollars into more than $1,000,000 in a year.