Sunday, 17 May 2015

7 Habits of Highly Profitable Traders

There are a record number of people wanting to make money trading. The technology we have today makes it relatively easy to do. Anybody can master the mechanics. But, what is not always easy to control is the “mind game” aspect of trading. 

Don’t underestimate the importance of having the proper mental approach to trading. Go beyond just wanting to know “how to do it” to realizing that you have to be mentally ready for it.

The proper mind set that I'm speaking of here is the result of self-discipline and habit. Without exception, all consistently profitable traders have it. Some developed it the hard way, and for some it came easy. But none of them started trading, and went on to have success, without having these 7 habits drilled into them one way or the other. 

It takes 21 days to break an old habit or start a new one, or so the story goes. But, keep this in mind as you read on. 

Before you can develop these 7 habits you must first understand the Trader' s Mentality. The trader's mentality is to look at the stock market, and other markets, as a profit-generating phenomenon in motion. It’s a happening. They don’t have an investment mentality. They don’t read company profiles, look at charts, read about management, study product development, study the competition, look at the P/E ratio, the company's balance sheet, press releases, earnings history, etc., etc., etc., before they trade. They don’t do any of that, plain and simple.

They just do it. If they did any of those things, they wouldn't have any time left over to do any trading. 

After an investor has done all this homework, they like to watch the stock for awhile to "make sure it's good", whatever that's suppose to mean. Don’t get me wrong. There’s nothing wrong with the "buy-and-fold" approach to investing, but none of the things you do before you "invest" will help you one iota before you "trade". 

There is no guarantee that investing for the "long term" will pay off bigger than day trading or swing trading for the short term. Investing for the "long term" is just easier. You buy a stock you like and take a 20-year nap. 

Traders simply look for potential price movement. Traders realize they don't make a dime studying balance sheets and P/E ratios. Their focus is on making small, consistent trading profits with as little risk as possible. Short-term traders like day traders and swing traders look for moves they can make in the here and now. The trader's focus is on "what's happening now and how can I profit from it" as opposed to the investors focus of "how will a company's stock price rise over time." 

Now that you fully understand the trader's mentality, let’s take a peek at those 7 habits …

Quote for the day

"Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes." - George Soros