7 Habits Of A Successful Trader

If you have a desire to master money-making as a trader in the stock market, and you have gained the knowledge of a proven system, all you need to do is follow the rules.

Apply the rules, gain experience, get some coaching to learn from your results – you’ll be well on your way to being a successful trader.

Here I like to share with you my take on what makes a successful trader:

 1.   Have realistic expectations

Huge percentage gains have high risk. 1,000%+ windfalls every now and again is not the path to success – such trades are very risky. Look to trade in a consistent way to yield frequent, consistent profits.  Instead, a 10% move on the stock in the US is a realistic, achievable result, and can yield you a 100% return on your investment capital through options.

2.  Have a Trading Plan

Use a clear system of strategies and trading rules that is structured, consistent and proven. Stack up the probabilities in your favor by having a plan and using it every time you place a trade. Have a watch list of stocks of about 20-25 that you work with – review the position of each stock in the basket of stocks each trading day. Also, avoid trying to “cherry pick” the top and the bottom of a stock’s movements – that can be very uncertain. Instead, look for the more identifiable 10% “middle” moves of a stock that can produce a 100% profit on the options.

3.  Ignore hot tips

Know what the company does, understand the numbers, and make an informed decision. Don’t go into a stock just because it seems like everybody else is and you feel you don’t want to be left behind – that’s “following the followers”, who are often wrong.

4.  Have trades in several industries in different stocks

Having your entire investment capital in the market in just a few stocks in the same industry can be a recipe for disaster – one trade or the industry going the wrong way can wipe you out.

5.  Understand the risks associated with options trading

Approximately 70% of options trades lose money! That’s because many options traders do not use a proven, low-risk system to deliver them solid profits consistently. They let their human emotions get in the way. Learn how to eliminate the risky trades first before settling on the potentially good ones. Don’t just put some money in the market when it opens and hope some of it comes back. You can overturn the overall statistics and have 70% of your trades or better go your way and deliver you success if you follow a proven trading system.

6. Use a “Stop Loss”

A small percentage of your trades will go against you, even when you follow all the rules. Nobody will ever be 100% accurate. A Stop Loss is a live, working order that will trigger if the trade goes against you, leaving you with the majority of the capital you placed in the trade. It’s one of the methods for managing risk, like a safety net – if the trade goes against you, be out of it as soon as possible with the minimum loss. Automate your trades – don’t let your emotions make you hesitate.  Prepare for a potential loss before you go into a trade. If you focus only on potential profits, your results will be weak. You need to assess your potential losses first, and your account will grow.

7.  Automate your profits with a “Sell Stop”

Success in trading is not based on your ability to watch the stock market for several hours each trading day. Similarly to a Stop Loss, calculate and set a “Sell Stop” at your target price so that your position is automatically sold for you at your anticipated profit level without you having to be in front of a computer. This means you only need to monitor the market for 20-30 minutes a day most days, adjust your stops if necessary, then switch off your computer. The best strategy is a hands-off one so that you’re not concerned with moment-to-moment fluctuations that can stir up your emotions and end up making loss-making decisions. Make money while you’re asleep!

Even after sequential gains, Smart Traders avoid the temptation to violate the rules – the very formula that delivered them their success.

Some people feel so “bullet-proof” after early success that they start to cut corners with their trading plan. For instance, they put their entire investment capital on the line in a risky trade without stops – this often leads to an absolute disaster by losing all their money.

Panicking about losing your money is also an unreasonable extreme – have a healthy respect and aversion for losing money, so that you are more inclined to be cautious in your trading style.

Be self-disciplined so that you continue to follow the rules no matter what.