The unpredictable market can make a fool out of anyone. Especially inexperienced traders that lack positive habits and education.
A trader can’t control the market, but he/she can control their actions and reactions.
Unsuccessful traders lack the discipline needed to form a proper routine and stay consistent. Traders that develop good habits simply further their chances of success.
So how do you know which habits are ideal and how to make them routine? Keep reading to find out the 7 habits of successful traders and how you can incorporate them.
1. Make a Trading Plan
If you’re serious about being a trader you need to make a trading plan. Trading with a plan should become part of your routine. If you have no plan you’re likely to make more mistakes. If you plan out your trades you’ll be able to cut out a lot of the emotion that comes with trading. Less emotion means more success and it helps build your discipline.
A trading plan should be set in stone and only adjusted if necessary. Changing market conditions, multiple losses and economic events can be a reason to reevaluate. The plan should revolve around your trading style and goals.
You will want rules in place to enter and exit a position. The rules should keep you from over trading or trading when the conditions aren’t favorable.
A trading plan should include stop losses and profit targets.
If you consistently use a solid trading plan, you’ll see a big difference in your overall success.
2. Constantly Learn and Research
Trading is about learning and improving. Learn from your mistakes, learn from your successes, and learn from others. Study charts, fundamentals, and future catalysts. Watch videos, read books and follow an investing blog.
Keep pumping new information into your brain. The more you learn the more you earn.
Learn from successful traders, they’ll teach you what worked for them. Learn from unsuccessful traders as well, they’ll show you what not to do.
Be wary of those who claim to be making millions and try to sell you something you can get for free. Social media is full of traders showing off their so-called success.
Social media also showcases people losing their life savings on high-risk trades. The dark corner of wallstreetbets on Reddit is an example of this. Learn from their mistakes and realize the difference between gambling and trading.
Constantly learning means you are being consistent. Set some time aside to study. Be practical and precise about it, just like when you are trading. Use the weekends and any free time to research and continue your trading education.
3. Wake Up Early
The early bird gets the worm. This is especially true when it comes to trading. The market opens at 9:30 AM EST that’s 7:30 AM in the west coast. A trader needs to wake up even earlier to digest premarket action, economic events, news and international markets.
This habit will make more of a difference than you think. I’ve personally missed out on many trading opportunities just because I didn’t get out of bed. Stop hitting the snooze button and become a morning person.
The biggest reason why getting up early helps a trader is that you’re able to scan the market conditions beforehand. It gives you time to adjust your trading plan and set goals. You can also squeeze some additional research in before the bell rings.
If you have issues with getting up early, coffee helps. (affiliate link)
4. Be Patient
Patient people are regularly rewarded for their composure. If you lack patience, the market will chew you up and spit you right out. Being impatient will cause you to overtrade, take profit too early and make the wrong moves. Relax, the market isn’t going anywhere and while you’ll need to think on your feet, trading isn’t a race.
New traders tend to struggle with patience. Sitting on your hands while waiting for an opportunity to come along can get boring. If you feel bored, do something else. Use that time to learn and research. With increased knowledge, you’re more likely to find better opportunities.
If you are patient, you won’t force a trade. Forcing a trade almost always ends in a loss. Patience will make you confident in yourself because you’re not desperately trying to make something happen.
If you analyze unsuccessful traders you’ll find their biggest downfall is being impatient. Their losses stem from trying to get rich quick. There isn’t anything wrong with being eager, you’ll just need to channel that energy correctly.
Never forget how important the habit of patience is.
5. Use a Trading Journal
Keep track of your trades, research and ideas with a trading journal. Write things down and go back over it daily. This is very important. It helps you identify what you’re doing right and what you’re doing wrong.
If you can’t recognize what you’re doing wrong or what you’re doing right, you won’t make any progress.
A journal helps traders define their trading style and monitor their growth. It can be as simple as a notebook and pen or as advanced as a profit and loss graphed Excel sheet.
This habit is easy to disregard, many traders think they’ll just remember and keep track in their head. That doesn’t work. I’ve often repeated the same mistakes because I thought I would remember not to do that next time. If you are serious, then take it seriously. Always keep track of your trades and ideas.
A journal is the most underrated tool available for a trader. Make good use of one and it will become your best friend. The more organized you are the higher your chances of success.
6. Set Goals
Successful traders are in the habit of setting goals. They know what they want to get out of trading. Part of monitoring your progress is setting objectives.
Trading goals go further than just profit targets. They should be well defined, achievable and challenging.
Some examples could be:
- Make a side income of $10k a year.
- Make 5% weekly returns selling options.
- Grow my account from $25k to $50k within two years.
- Consistently make $300 a month from trading.
- Get an average of 20% yearly returns.
Not all goals should be about gains either, some other examples could be:
- Only trade a certain sector or stock.
- Research a new trading technique every week.
- Study a stock market term every day.
- Practice drawing support and resistance lines.
If you get into trading without defined aspirations you won’t be telling yourself what you want. Define what your goal is for trading then make more goals to get you there.
7. Manage Risk
It’s easy to get in the habit of thinking about returns and not losses. Successful traders think in percentages and probabilities. They think about the preservation of capital more than they think about returns. Don’t think about how much you can make with a trade, instead consider how much you can lose.
The reward needs to outweigh the risk and you need to prepare for the worst.
Traders that don’t manage risk aren’t traders for very long. They either give up or become desperate gamblers burning their paychecks to get out of a hole. Get in the habit of managing risk and always limit your losses. If you don’t, you’ll put your account in danger of getting wiped out.
If you think in percentages, you’ll be able to manage your risk better. 5%, 10%, 20% how much are you willing to risk? A 5% return is better than a 10% loss right? This is important for small accounts because 5% may not be very much but it is still a decent gain.
Know the amount you are willing to risking with every trade. Don’t only focus on returns or you’ll end up risking more than you should.