What do Successful Day Traders have in Common?

When asked about the attributes of successful day traders, most experts come up with lists that include self-discipline; the abilities to maintain control of ego and to accept loss; a flexible, agile mind; patience; and a passion for the market. And although these traits will not necessarily guarantee your success as a trader, without them, you're virtually assured of never becoming successful in the trading markets. Let's take a brief look at each trait.

Self-discipline

The one trait that's most often mentioned by traders themselves as being the single most essential ingredient of successful trading is self-discipline. It is the one common trait exhibited by every good trader, and it's the catchphrase of every tutorial and seminar you'll ever take on the subject and every day trading book you'll likely ever read.

What exactly is self-discipline? It's defined as "training to act in accordance with rules" and "a regimen that develops or improves a skill." In trading, you must first discipline yourself to learn everything you need to know about trading and the markets; then you must discipline yourself to create your own rules and trading plan; and on a daily basis you must discipline yourself to follow the rules that you've set forth in your plan.

Mercifully for all of humanity, self-discipline is not a talent; it can be learned by anyone. It's a process of learning how to take conscious control of your actions, of operating outside your belief system in order to effect change upon a belief that may be standing between you and your goal. In a very real sense, self-discipline is like a muscle – the more you use it, the stronger it gets. Learning self-discipline should be the main goal in your endeavor to becoming a successful trader.

Master your ego

When it comes to trading, your ego can quickly become your own worst enemy. The reason is that it can prevent you from taking responsibility for a losing trade. Most people don't like to admit that they're wrong about something (and many have a distaste for admitting being wrong about anything), and an oversized and unmanaged ego can compel one to great lengths in order to keep from admitting an error. Nevertheless, it must be realized that being wrong is part of the trading game. (This holds true for all types of investing; for no experienced investor of any longevity has ever been right with each and every decision.) Even successful traders are wrong 50, 60, 70, or even 80 percent of the time. They can be wrong most of the time and still be successful because they keep their losses small and they let their profits run.

But in order to do this you must be able to control your ego and take responsibility for your trades. When a trade turns bad, you can't blame it on the market, because is the market is necessarily neutral. And you can't blame it on the company whose stock you bought, because the company has no direct control over stock prices. Nor can you blame it on the head trader or mentor whose advice you took. If you let someone else call your shots for you, then you've handed over your control to them. So who's left? A quick trip to the nearest mirror will answer that question rather succinctly. You are responsible for your own trades – you, and you alone.

Taking responsibility for successful trades is not difficult at all. But admitting to a bad trade goes against the grain. However, to keep a small loss from growing into a big one, you have to be able to admit when you're wrong, and pull the plug. Cutting losses short is one of the surest earmarks of successful traders.

It's often difficult to give up on a trade because of our perception of the market's endless potential for gain. If our stock (or currency, commodity, or whatever's being traded) is down a point or two, there's always the possibility that it will not only reverse its direction and recover those points but that it'll also increase beyond our break-even point and turn our loss into a profit. Thus, we hold out hope, because it could happen. In this manner so many H&P traders are born – hoping and praying that the trade will somehow turn around. It only takes a small dose of pragmatism injected here to come back to the realization that there will be other opportunities. And as long as we cling to that H&P mindset, our money remains unavailable for of those other opportunities when they avail themselves.

But winning can also be a dangerous event if you give way to your ego. You've heard the old saying, "Success breeds success." Winning builds upon itself; that's what we've all been taught. And in most areas of life, it's a great philosophy to have; but in trading, it's not necessarily true. A big win can give you a false sense of power over the market, a feeling of omnipotence. It can make you feel as if you've beat the market, which puts you in an adversarial frame of mind, so that winning again – and, ultimately, being right again – becomes your goal. But remember, you won't beat the odds; and no matter how successful you become, it's very likely that you'll be making many more losing trades than winning ones.

Controlling your ego is probably one of the hardest things that you will ever have to do, but to become a successful trader you must set yourself to do it. One method of controlling it is to learn to keep an open mind, to be flexible and let the market lead the way.

Keep an open mind

An open mind – which is synonymous with mental flexibility – is a common strong point of successful traders. To more clearly illustrate this quality, let's take a look at two different traders.

Trader Jim has an open, flexible mind. He approaches the market each day free of any and all expectations. He observes various market indicators to get a feel for what the market might do today. He keeps abreast of the news and tunes in to any speech that the powers that be might be making, but his whole direction is wrapped up in the attitude of 'let's wait and see what the market does.' And when the market invariably leads the way, he follows. If it heads down, and the security that he's trading trends downward, he goes short. If it trends upward, he goes long. If he can't discern any trend at all, he stays on the sidelines and waits for a trend to appear. When he makes a trade, she sets his stops and lets his profits run. If the security reverses and triggers a stop, he exits the trade without compunction and waits for the next setup. Jim doesn't really care about being personally right or wrong, and things aren't clouded or jaded for him. He moves into and out of market positions with ease and without remorse, cutting any losses short to make himself both mentally and physically available to grasp the next opportunity that comes along.

Trader Tom, on the other hand, has a closed, rigid mind with opinions about the market that may as well be chiseled in stone. He's already decided that the big speech will have a negative impact on the market, so he sits on the sidelines. He remains there as the market climbs (because it has already discounted the speech's negative comments in a minor correction the day before, but Tom didn't know that because he doesn't really keep a watchful eye). When he finally decides to jump on the bandwagon of his favorite stock, which is trending unmistakably upward, he sells on a minor downtick after a one-point gain because he still believes the market is headed for a fall and so misses the subsequent five-point rise in the stock. When the stock tops out and heads down on an intraday swing, he doesn't even think of shorting it because he believes that the only way to trade is to go long. And what does he do on a losing trade? He hangs on to it, of course, while his losses mount because he 'knows' that the stock will finally recover and give him back all his losses and more.

Mental flexibility allows you to see the market clearly and go where it takes you. It keeps you from trying to control the market (because you can't) or second-guess it (ditto, again!). Mental flexibility arises from a thorough understanding of the markets, which you get can only obtain with much study and practice, and from letting go of your assumptions and beliefs about the market and instead go where the market takes you. Relinquishing ourselves in that fashion is not an easy thing to do, however. By nature we typically trade our beliefs about the market, and once we've made up our minds about those beliefs, we're not likely to change them. Getting rid of those biases and letting go of the assumptions and beliefs that bound the mind are two important steps on the road to successful trading.

Mental Agility

An agile mind is closely akin to an open and flexible mind, but it's not the same thing. You may be open and flexible but still require a lot of pondering and thoughtful reflection to arrive at a decision. This might make you a shrewd investor but a terrible day trader. A day trader must be able to absorb and quickly analyze an abundance of rapidly changing data.

Can a person develop mental agility? Perhaps not. The best day traders seem to have come from careers that required quick, flexible minds. These people are used to thinking on their feet and responding quickly to the changing conditions around them, such as pilots or salespeople. Doctors, according to one professional trader, make the worst traders. Although a doctor must have an open mind to let the patient's symptoms lead the way, they are generally so accustomed to being right that they find it immensely difficult to admit to being wrong.

Patience

Patience is one of the less heralded qualities of a successful trader; indeed, it's probably one of mankind's most underrated virtues. It creates the ability to wait for the most opportune circumstances before you act. Patience allows you to refrain from overtrading. It's not easily developed, but at the same time it's not really a matter of 'either you have it or you don't,' either. A well-thought-out trading plan – along with the discipline to follow it – can greatly facilitate its development.

A passion for the market

Having a passion for the market – indeed, a love of the game itself – is also ingrained in the makeup of successful traders. They're very keen for and enjoy greatly what they do and can't imagine doing anything else. This type of passion might appear to be in direct conflict with self-discipline, but upon closer examination it's quite the contrary. Passion shows itself to be the fuel that propels the trader to learn the market inside and out. It's the energy that they draw on to effect the mental changes necessary to become a great at what they do. And it spawns the resilience necessary to recover from losses and, more importantly, to learn from them.

To be a successful trader, you're going to need practical knowledge of the markets and a well-thought-out trading plan, but the psychological demands of trading should be explored before you make any commitment to a career in day trading. Preparing yourself for these psychological challenges is the most important thing that you can do. It should indeed take precedence over market insight, trading styles, finding currencies or stocks, or memorizing trading rules.

As a matter of fact, trading rules are simply meaningless platitudes unless you have a grasp of the psychology behind them. Transforming the atmosphere of your mind regarding trading can be done concurrently with studying the nuts and bolts of trading. Just don't neglect it or you may end up in the 80 percent losing arena of failed traders. Because developing the right mental attitude is of paramount importance in your journey toward highly becoming a successful day trader.