Five things that Separate a Successful Trader from others

Trading is one thing that fascinates the majority of people out there who are looking to make money. Every other person gets involved in the stock market one way or the other to make money, some as investors and some as traders.

As achievable it may seem, if you have tried your hand in trading, you already know that it isn’t that easy. The thing that looks so straightforward when we are sitting at hand looking at charts, becomes near to impossible when we are trading. In the end, Stock Market leaves a vast majority of participants dissatisfied and feeling betrayed.
The question that arises in most people’s minds is, “What are the factors that separate the consistently winning traders from not so consistent traders? Is it the more market knowledge or are they just really gifted?”
The market generates information that is neither bullish nor bearish. It is we who perceive the information in a certain way, which is either bullish or bearish. It is certainly easy to presume that the successful traders look at more and more market variables than an average person. This thinking gives birth to the idea that you need to learn more and more about the markets to be successful. Is it? The answer is straight and big NO. Experience and market knowledge can certainly contribute to better performance but it will not make you a consistent trader. Instead, you will be surprised to know that one of the best analysts in the world often come among the worst traders.
It is not the outcome of your prediction that defines you as a trader.
Now when we have this metaphor of MORE ANALYSIS, BETTER RESULTS out of our way, let’s dig deep into what makes a trader consistently profitable.

• Successful traders don’t know what is going to happen next: As discussed earlier, most of the people, after trying their hand in the stock market for a while, start believing that they don’t know enough about the market to be successful. Almost all of the traders in the world, in their early days, have tried telling themselves why their trade didn’t work out, ‘Oh I should have looked at RSI, it is bearish’. What happens next? In the next trade, they look at RSI, but the trade still doesn’t work out, ‘Oh! this time, I should have looked at 50MA, it was working as a resistance’. This thing goes on for a while until the trader gets frustrated and decides to find the answer on the internet or in the books or simply decides to leave the trading altogether.

You see, the problem, in this case, is that the Trader believes that there is a way that he could exactly predict the next market move which in itself is a big cause that 95% traders never become successful in the market. The best traders in the world don’t know what is going to happen next. Not just this, instead they fully accept the fact that they can’t predict the next market movement. What they assume that they can do is to predict the next PROBABLE move. This is what trading is all about.
Every trader has its way of predicting the next probable market move, but it still will just be PROBABLE, not certain in anyways. To be a consistently successful trader, you too will have to accept the fact that you can’t predict the market move, you just can anticipate a probable move. So, when a trade goes against you, you just look at your trading plan to see if you have worked according to it, if Yes, then it doesn’t matter what was the outcome of that trade. You have got to follow your trading plan, that’s it.

• Having an objective point of View: Have you ever looked at a chart and said that it seems to be going up, and it does go up when you just sit at hand and see the market go your way? Or have you ever looked at someone else’s trade and say, this should work only if it does this and it does do what you said it would? But when you trade, do you always find yourself in dilemma to either trade or not, or if you should ignore the trade, should you exit the trade now?

You see when you were anticipating the probable move of the price of the stock in which you were not involved with your money, you were right for the most part. You see when the price isn’t going in the probable direction when you were not holding the stock. So, where does this power to anticipate the probable move go when you are thinking of taking the trade or in the trade? The answer is fairly simple, you don’t have an OBJECTIVE point of view when you are in the trade.
We have humans have an emotional response to every situation we find ourselves in. Let’s take some examples when a person experiences a series of winning trades, he/she forgets the chances of what can happen and as a result, becomes reckless towards the analysis or the risk on the trade assuming that everything will work out in his favor. Or, when a person desperately hunts for an opportunity to trade, it may find an opportunity where it isn’t present. A person who has bought the shares in anticipation of an up-move may get easily scared of a small dip in price and exit the trade early, seeing the trade working out in the end.
Different emotions distort your OBJECTIVE point of view in different ways. To perform well in the market, you always have to keep your emotions in check. The ability to perceive information in the way the market provides it is a defining factor that will make you close to being a successful trader.

• Patience: It may sound lame and you may want to skip this part of the article because you know what patience means and you have always heard of patience pays off and everything. But are you sure that you know what it means to be patient in trading? There are many different scenarios where you have to be patient. First and foremost, while learning to trade. While learning to trade, you have to give yourself time to not just read the concepts from a book but to put the knowledge that you have gained on a test run. Trading, like everything else, is much more than just the theoretical concept. Instead, you may think that this statement is a bit over-do, you will have to keep looking at the same chart patterns on the real charts until you have seen thousands and thousands of examples of the same pattern and thousands of ways it can react to almost the same information or the chart pattern and you will have to do it with every single chart pattern you learn about.

Secondly, you will have to keep patience while looking for a trading opportunity. Depending on the trading style you choose, the time between the opportunities may vary. I am a swing trader and I trade chart patterns. In which you have to keep patience until a real pattern appears which meets the criteria that I have set for it, and it may take some serious time. Jumping on the gun early is one of the trading errors which occurs due to a point of view that is distorted by emotions. Jumping in the trade early is an error that occurs when you are afraid that you may lose a valuable opportunity and so you want to capitalize on the opportunity as soon as possible. Result? Another losing trade because of an unobjective point of view. Third, where practicing patience is the most difficult, when you are in a trade and it is going your way but suddenly price starts retracing, you are afraid that it might eat all your earnings and hence, rather than just looking at the movement objectively and keeping patience you exit the trade. The next thing you see is the price reaching your target with ease and earning you a big chunk of money.
I think a single question that Traders should ask themselves before taking the trade and will make a huge impact on their trading is “Are you taking this trade because you want to trade or you want to take this trade because there is an opportunity?”

• Consistently profitable traders have a profitable trading plan in place: Almost all of us assume that we have a plan for trading, but do we? The trading plan doesn’t have to be a tricky set of rules. But it should contain some real crucial information that will guide you in trading. It guides you to the opportunity where it is present and will let you sit at hand when it isn’t. A trading plan will help you set a profit target and an SL. It will guide you while in the trade. So, the question is, do you have such a plan in place which does this and more?

If you have spent some time looking at charts, you must have seen some opportunities that may have compelled you to enter the trade. But not every opportunity is worth taking the risk. You see, trading is a game of probabilities. So, our only focus should be to take opportunities that have a higher probability of working out. For example, I trade ‘Chart Patterns’ most often and I have been in markets for quite some time now so, I see chart patterns all over the place, but do I take them all? No. I only take high probability trades, which again is no guarantee that they will work out, but it doesn’t matter if you have a winning system in place.

• Do your Research well: What general mistake most people do is they think the important part of trading is putting on the trade. But No, it isn’t nearly as important as you may think. The most useful part of trading is research. The hours you spend trying to find an opportunity and refining your trading system define how your trades are going to play out. Do you realize what goes into actually putting on a trade? Nothing much. You just have to put in some numbers on the application provided by your broker and that’s it. Do you think putting the trade price and SL in your broker’s application is going to earn you money? The time you put in after you realize that there may be an opportunity in refining and researching if it is worth the risk is something that decides how your trading performance is going to be. Not just this, successful traders keep tweaking their strategy for better. They don’t waste their time in looking at the price of movement of the stock which they have already taken rather they put in hours and hours of work in backtesting and finding out the situations where their strategy works and doesn’t work very well and this is what separates the successful traders from the rest.

I have written this article after hours and hours of research and realizing the mistakes that I made in my early days of trading. So, if you want to work it out just keep these things in mind and you will save some bumps on your way up. HAPPY TRADING.