What are the qualities of a good trader? Look for these three things. 

Trading is arguably an interesting art whose success depends more on a trader’s decisions than hard work. Below are three things that a trader should know if indeed he or she wants to succeed in trading.

Psychology

Understand it is a long game

The trading journey takes time to polish and perfect. It is common practice in new and mid-level traders to rush the process. When the process is rushed, it is most likely that a trader will make costly mistakes. It is therefore important for a trader to learn, unlearn and relearn trading skills that will eventually lead to success.

Winner’s vs losers

Don’t let your wins cloud your logical reasoning. Wins tend to make a trader feel that he or she can outsmart the market, which is quite dangerous. When wins are made, it is good for a trader to stop at a set percentage and safeguard his or her gains. Chasing more wins leads to overtrading which statically works against a trader’s success rate and leads to undesired losses.

Don’t let your losses make you emotional, know when to stop and revert. Losses are part of the trading game. Fortunately, losses should be considered as a cost towards gains. How does one achieve this? A trader should always ensure that his or her losses are minimal and that gains made outweigh the downsides. The Risk versus Reward section explains this at a deeper breadth.

Don’t fight the market

The markets are not to be fought, rather, a trader should approach the markets as a business. A trader should know when to trade and when not to.

Consistency

A trader should be consistent enough with his psychology aspect and make sure that he or she is always in the best mental state to trade. This helps in avoiding irrational decisions which sets up a trader for success.

Patience and confidence

A trader should be patient enough for his or her set ups to form. The trader should further be confident enough to execute trades when a set up forms. Importantly, a trader should be patient enough to let winners run and confident to cut losses early on invalidated setups.

Strategy

Interrogate your system

A system is a key proponent of trading success. A trader should have a rules based system that provides for trade entry and exit parameters.

Back test

Traders are required to back test their systems to help determine their effectiveness towards profitability. Simulators are the best tools that provide historic data for testing a trader’s strategy.

Forward test

Back testing is not enough. The system should also be tested in real market conditions. The Demo options that most broker’s offer are a good resource. Also, when convinced that your strategy is working, it is prudent enough to open a live account with an amount that you can afford to lose. This helps you understand your system which includes your psychology in real market conditions.

Don’t jump from one system to another, instead focus on your system’s flaws and make it work for you and let it be in sync with your personality. Jumping from one system to another affects your probability of being successful because you are hardly building on your strengths or weakness. You will ideally be avoiding your experience and running to the next promising system which wastes your time and potential.

Cognitively, let your trading system fit to your strategy. For instance, if you are a patient person, swing trading or intraday trading would work well with you. If you are an impatient person, scalping would work well with you. However, it is good to note, passive forms or trading tend to be more successful compared to active ones.

Risk to Reward

Always ensure you have a positive risk to reward ratio. Anything from 1:1 onwards is a good risk to reward ratio. Also, it important for a trader to be realistic with the gains he or she expects from the markets. One of the best ways to do this, is to take partial profits on trades that have a good risk reward ratio.

Traders should avoid negative risk reward ratios because the losses compound and negatively affect a trader’s trading capital.