Under the right circumstances, day trading is a viable career option with plenty of built-in advantages. Most day traders work from home and don't report to anyone but themselves (if they don't decide to open their own office and be the manager).
Even better, successful traders can earn enough to live comfortable, even affluent lifestyles during their ample downtime. However, this line of work isn't for everyone.
Successful day traders need to be self-motivated, disciplined, levelheaded and financially independent. If you're thinking about pursuing a career in day trading, compare your own personality profile against this list of key characteristics and personality traits.
» Related: 5 essential skills for new traders!
What makes a good trader?
In this article, we will look at nine of the top qualities that all successful traders have. By successful, we mean traders who have a long track record of success in the market. As you will find out, only a small portion of traders succeed in the long term,
Also, by successful traders, we mean people who have mastered their trading techniques and strategies. For example, this can include someone who is an expert in a strategy like trend following and trading reversals.
Also, These are people who enjoy doing what they do no matter their outcome. They will always be happy regardless of their daily or weekly performance.
How to be a good day trader
Before we look at the qualities that make a good trader, let us touch briefly about the process of being one.
First, it starts with interest in the financial market. If you don’t find things like stocks and currencies fun, then being a trader is not for you. You need to find fun in what you do.
» Related: How to Become a Successful Trader Starting Small
Second, you need to learn about how the market works. This does not necessarily mean that you should go to school to learn about trading. You can use the free or premium materials that are available in the internet.
Third, you should come up with a good trading strategy. This is an important process where you apply the strategies that you have learned to the market. For example, you can learn to use price action and technical analysis. You can also be a trader who relies on the news to open trades.
Fourth, you should experiment with this strategy to see its results. Fortunately, many brokers provide a demo account that you can use to do this. A demo account uses real data and fake cash. After seeing that your trading strategy is working, you can move to the next stage and open a real account.
Qualities of a good trader
Since day traders (or, bette, individual trader) work from home, they need to be motivated to work for their own financial and personal betterment. If you thrive in a regimented office setting, you might struggle with the self-starting nature of this business.
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The market can change in a matter of seconds, so good day traders need to be vigilant, quick-witted and decisive. Talented day traders draw on past experiences to read new situations quickly and react appropriately. There's little room for second-guessing here.
This is just one of the many soft skills you must master to have a successful day trader career.
You should be strategic
We have seen many successful traders. We have also seen many who are not as successful. Being strategic is a very important trait that you should have. In this, you should take decisions after considering the bigger picture.
For example, if you are short crude oil, you should have reasons why you think that crude oil will drop. It is wrong to place a trade without having solid reasons. This is in fact, one of the top reasons why most new traders fall.
As a trader, it is very important to be inquisitive for every decision that you do. This means that you should always ask questions about different scenarios before you open a trade. The idea here is to examine different scenarios before you make decisions.
For example, if you believe that the dollar will strengthen, take time to ask different questions about other issues that may lead the dollar up. Also, ask yourself different questions about the worst-case scenario for your trade.
» Related: How to Analyze Stocks
Persistence and discipline
Since day traders don't have hard-nosed bosses telling them what to do at all times, they need to stay on task during trading sessions and commit to intensive after-hours research and preparation sessions. Once they settle upon a profitable strategy, they stick with it until it no longer works.
And if you are not disciplined?
You will not abide to the rules of the game when things are not going your way. For example, if you have a trade open and its making losses, you might be tempted to adjust the stop loss hoping that it will reverse. Doing this will lead to huge losses.
Patience is a very important quality that you must have. Without patience, you have no chance of succeeding as a trader. This is simply because thesis takes time before they are actualized.
For example, you can open a trade expecting that your thesis will work out within a few hours. A few hours later, the thesis fails to play out. Therefore, you need to be patient and wait until your thesis works out if you really believe in it.
This also plays out if you are a new person with interests in trading. Most new traders start out thinking they will succeed no matter what. They don’t take time to learn how to trade. At the end, most of them end up discouraged after losing all of their money.
» Related: How to start small and become successful
Interest and inclination
Good day traders exhibit enthusiasm for the financial markets long before they decide to go into business for themselves. If you're naturally inclined to follow stocks, bonds, commodities and other securities, you'll fit in as a day trader. If you're not particularly interested in finance or business, you may struggle out of the gate.
Experience and familiarity
Traders who are naturally inclined to follow the markets begin with a sizable advantage, but there's also something to be said for hard-won experience.
If you've ever worked in a financial capacity, you'll have an instinctive fluency with the forces that drive the market's movements. Better yet, you'll be familiar with the trading platforms and systems that modern traders use.
The best day traders persistently pursue profitable trading strategies, but few if any find success immediately. Before you get into your short-term trading groove, you must be willing to try multiple strategies in succession. You'll improve by sticking with what works and discarding what doesn't.
Once you have refined your ideal strategy, don't stop testing anyway (better in a demo mode), to have more opportunities to use as needed.
Familiarity with technology
You don't have to be a programming whiz, but short-term trading demands at least some familiarity with advanced trading and computing systems. More importantly, it requires a willingness to try out new platforms and systems as they become available.
Be a (bit) risk taker
One of the most prominent qualities of all entrepreneurs is risk taking. To succeed, most of them leave their well-paying jobs to start a business they are unsure of succeeding (but you could also start part-time). They sell their belongings to invest in their dreams. Some, take huge loans backed up by their houses or cars.
As a trader, you need to be a risk taker too. You should be ready to take huge risks hoping that they will succeed. You should be ready to deposit funds in your account and hope that it won’t be lost. Without taking such risks, you don’t have the ability to succeed.
Day traders don't have to be fabulously wealthy. However, they do need to have an adequate financial safety net that allows them to trade with money that they can afford to lose.
If you're living paycheck to paycheck, build up some savings before beginning your day trading adventure. Once you start, keep an additional reserve in the event that you decide to move on.
» Related: Money management strategies
While day traders need to be self-motivated, disciplined and rational, they're rarely total loners. Since their day-to-day existence is so stressful, the most successful traders tend to have strong networks of family and friends (and coworkers) to keep them in touch with the outside world.
Most are also avid hobbyists who spend their free time on fulfilling projects or adventures.
Summarizing in one post all the qualities that can help you to be a better trader would be impossible, also because many of them are subjective. Even those on our list can not and should not apply to everyone, but we consider them among the most important.
The one that will help you the most is undoubtedly experience, which will help you make some of these things that may seem complex at first glance look natural.
External Useful Resources
- 6 Traits You Need to Develop as a Day Trader - The Balance