15 characteristics of a successful trader
What's inside:
Successful traders usually share a particular set of traits. Learn more about those traits in this guide including:
Staying flexible
Being prepared
Protecting your profit
Managing risk
Excerpt
Successful currency traders have a specific plan of attack for each position including size, entry point, stop loss exit, and take profit exit.
Contents
1 13 characteristics of a successful trader
Tip 1. Stick to your plan
2 Tip 2. Anticipate different outcomes
Tip 3. Stay flexibile
3 Tip 4. Be prepared
4 Tip 5. Keep up to date with the technicals
Tip 6. Identify the market environment
5 Tip 7. Focus, focus, focus
Tip 8. Protect your profit
6 Tip 9. Don’t forget your stop loss
Tip 10. Watch other markets
7 Tip 11. Keep a track record of your trades
Tip 12. Avoid getting emotional
8 Tip 13. Risk only a small percentage of capital on each trade
Foreign exchange and other leveraged trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk
Foreign exchange and other leveraged trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk
13 characteristics of a successful trader
We believe that successful traders often have a set of unique
characteristics or traits that set them apart from the crowd. In
our view, if you can borrow some of these behaviors and use
them in conjunction with your other knowledge, then you may
increase your chance of making a successful trade.
To make it easy for you we have come up with 13 characteristics
that we think everyone should follow:
1 STICK TO YOUR PLAN
No successful trader will last very long without a well-conceived
game plan for each trade. Successful currency traders have a
specific plan of attack for each position, including position size,
entry point, stop-loss exit, and take-profit exit.
Successful traders stay flexible with their take profits, sometimes
settling for less if they judge that’s all they can take out of the
market at the moment, other times extending their profit targets
if market developments are shifting in their favor. But they do not
move their stop-loss orders from the original setting unless it’s in
favor of the position to lock in profits.
1
Foreign exchange and other leveraged trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk
ANTICIPATE DIFFERENT OUTCOMES
Trading can be similar to chess, in which the best players are
thinking several moves ahead of their opponents. Successful
forex traders look ahead to future events and consider how much
the market has (or has not) priced in an expected outcome. They
also consider the likely reactions if the event matches – or fails to
match – those expectations, and then construct trading strategies
around those possible outcomes. While the rest of the market is
trying to figure out what to make of the event, checking charts
and redrawing trend lines, the forward-looking trader has a game
plan already in place and is ready to trade.
2
3 STAY FLEXIBLE
Successful currency traders resist getting emotionally attached to
positions. They recognize that it’s not about being right or wrong: it’s
about making profits and minimizing losses. They adapt to incoming
news and information, and quickly abandon an open position if events
run counter to it instead of waiting for price action to take them out
of their trade. At the same time, they’re alert to fresh opportunities
that may develop in the market and are prepared to react. To be
prepared, they must keep sufficient margin available for additional
positions.
Successful currency traders are always prepared, at least as much as
possible in a market that’s open 24 hours a day, five days a week and
subject to random events from half a world away. To stay on top of
their game, successful currency traders are prepared for:
. Upcoming economic data releases in the next week to
two weeks: Know what the prior report indicated and
what’s expected in the upcoming report.
. Scheduled speakers: Find out who’s speaking (central
bankers or finance officials), what they’ve said in the
past, and what they’re likely to say this time.
. Central bank interest rate setting meetings and
announcement times: Know when they’re scheduled
and what decision the market is expecting.
. Important gatherings of financial leaders, such as
G20 meetings or monthly get-togethers of Eurozone
finance ministers: Get a sense of whether currencies
are on the agenda and what actions are expected.
. Liquidity conditions: Stay aware of the different
time periods, such as end of month, market closings
or holidays, and time of day (for example, European
close, option expirations, or daily fixings, when market
liquidity may be affected).
. Unexpected events: Use rate alerts to stay on top of
price movements outside expected ranges. Follow up
on alerts to check for significant news and to assess
potential trading opportunities.
4 BE PREPARED
Successful currency traders are able to assess whether the market
is trending or likely to remain confined to ranges. If they think the
market is trending, they aim to go with the flow more often than
against it. When the short-term trend is higher, they’re looking for
levels to get long at, and vice versa when the direction is down.
At the same time, they’re aware that trends pause and frequently
correct. So they’re also attempting to actively take profit and
minimize loss at key technical points as the larger trend unfolds.
If the environment favors range trading, successful currency
traders are able to switch gears and become contrarians, selling
near the top of the range when everyone else is buying, or buying
near the bottom of the range when everyone else is selling.
Just as important, when they’re in range-trading mode, they’ve
defined an ultimate point when the range is broken. If that point
is hit, they adapt accordingly without any remorse, possibly even
reversing.
KEEP UP TO DATE WITH THE TECHNICALS
Even if they’re not pursuing a technical-based trading strategy
themselves, successful currency traders are still aware of important
technical levels in the currency pairs they’re trading. For instance,
they know the key Fibonacci retracement levels, where various
moving averages are, important short- and long-term trend lines,
and major recent highs and lows (see tip 11).
5
6 IDENTIFY THE MARKET ENVIRONMENT
FOCUS, FOCUS, FOCUS
PROTECT YOUR PROFITS
7
8
Many successful forex traders focus on only one or two currency
pairs for most of their trading. Doing so enables them to get a
better feel for those markets in terms of price levels and price
behavior. It also narrows the amount of information and data
they need to monitor. Above all, they recognize that different
currency pairs have different trading characteristics, and they’re
able to adjust their tactics from one pair to the next.
Successful traders attempt to take profit and minimize losses
regularly, whether it’s a partial take profit (reducing the size
of a winning position), modifying a stop order, or squaring
up completely and stepping back after a profitable market
movement. Above all, when a trade is profitable or risk has
been minimized, successful traders focus on keeping what
they’ve made rather than risking it to make slightly more.
DON’T FORGET YOUR STOP LOSS
WATCH OTHER MARKETS
9
10
All successful traders lose money from time to time. What
makes them successful in the long run is that they actively
manage their risk and protect their profits. The absolute
key is to have a stop loss in place at all times to prevent an
everyday losing trade from becoming an account killer. Keep
in mind, however, that placing stop and limit orders may not
necessarily limit your risk for losses.
Currencies don’t trade in a vacuum, and smart traders keep an
eye on other major financial markets as a matter of routine. The
primary markets they focus on are benchmark bond yields of
the major currencies (U.S., German, UK, and Japanese ten-year
government notes), oil, gold, and major global stock indexes.
On an intraday basis, they look to these other markets for
confirmation of short-term U.S. dollar directional bias. For
example, if the dollar is moving higher, U.S. ten-year yields are
rising, and gold is falling, it’s confirmation from other markets in
favor of the dollar’s move higher. If yields are flat or down and
gold is higher, the dollar’s move up may be only short lived. On a
longer-term basis, currency traders analyze those other markets
for significant technical levels and overall directional trends, just
as they do the currencies.
11
12
KEEP A TRACK RECORD OF YOUR TRADES
AVOID GETTING EMOTIONAL
At the end of each month, quarter, or year, your trading account
will be in one of three situations: your trades either made a
profit over that period, were roughly breakeven, or lost money.
Regardless of which category you fall into, the key to improving
your results in the next period is to keep and review a track
record of your trades. For instance, if you find you’ve lost money
trading around the US Non-Farm Payroll report in ten of the
twelve months, you could theoretically improve your results by
avoiding trading during that time period next year.
The greatest enemy to successful trading is not other
traders, central banks, or your broker: it’s yourself. Many
novice traders have a tendency to stray from their carefullydesigned trading plan when they get elated after a series
of successful trades or depressed after a losing streak.
Especially in trading, strong emotions can sabotage rational
analysis and lead to poor results. Successful traders know
how to manage their emotions, including taking a day or two
off when they get too high or low, so that they can stay at
the top of their trading game.
RISK ONLY A SMALL PERCENTAGE
OF CAPITAL ON EACH TRADE
13
The best laid schemes of mice and men often go awry, and the same
could be said about traders. No matter how strong an individual
trade setup looks, successful traders will only risk a small percentage
of their overall account on it. While it may be exhilarating to place
a trade with the potential to double your account value, it’s never
advisable to risk losing your entire account equity. Limiting the
amount of risk on each trade allows winning traders to let the law of
large numbers work in their favor.
