Top 5 Habits of a Successful Trader

Becoming a profitable trader doesn’t happen overnight. Instead, it takes years of hard work and dedication to perfect your trade, master your strategies, and develop the right approach that leads to the most desirable outcome.

It also takes time to adopt the necessary habits that can set you on a path to success.

Many of those interested in becoming traders tend to jump straight into strategies, formulas, and trading plans without taking a moment to develop simple, valuable habits that will shape their entire trading careers. Unfortunately, that’s how many of them fail.

If you want to avoid the common pitfalls and increase your chances of success as a trader, you’ll want to follow in the footsteps of the successful traders that came before you.

Take a look at just a few of the most beneficial habits that the best traders stick to.

They set goals!

Setting trading goals isn’t precisely a habit, but sticking to them is, and it’s perhaps the most critical habit you could develop.

With clear goals, you’ll find it easier to develop a robust trading plan, perfect your strategy, and achieve long-term success. First, however, you must have the right goal in mind.

Novice traders tend to be result-driven, setting goals focused on a single outcome, such as “make more money.” While that’s undoubtedly the ultimate goal of every trader out there, it doesn’t help you much to become successful, does it? So how do you achieve that goal? It’s not in your control – markets are hectic and dynamic, you’ll lose money at times, your trading style will fail, and sometimes you’ll be further away from your goal than you’d like.

Instead, you’ll want to set achievable process-oriented goals.

Rather than setting a “make more money” goal, set milestones that you can control. Protect the trading capital, incorporate risk management principles and strategies, and always rely on technical analysis. While these goals, or milestones, won’t always offer immediate results, they will increase your long-term chances of success.

Even if you lose money, you’ll still have made a good trade since you’ve achieved your main milestones and protected your account to the best of your abilities.

On the other hand, it’s a bad trade if you disregard the process, risk your account, and still make money. You’ve only turned a profit because of luck, and luck won’t always be on your side.

They perfect their plans and strategies!

Trading is an art form, and everyone has their unique style and preference for how they trade. However, there are still a few common strategies that most traders rely on, with slight variations.

When you first get into trading, you’ll find an abundance of diverse trading strategies, each seemingly more bulletproof than the last. It could be tempting to go ahead and mix and match them all as the market changes, make split-second decisions to abandon your plan, or just base your actions on your gut feeling. More often than not, these behaviors will result in a negative outcome. Even if you do make a fantastic trade, you can rest assured that it was a coincidence and not the result of a random strategy you happened to be using at that moment.

To be successful, you’ll need to develop and perfect a trading strategy that suits your style, and you’ll need to stick to it.

As a newcomer to the world of trading and investing, you will want to give a few different strategies a try. After all, you won’t know whether an approach suits you unless you’ve tested it out.

However, once you’ve found your preferred style, you’ll be better off focusing on it and investing your energy into perfecting it.

They commit to portfolio diversification!

Regardless of your goals, plans, strategies, and trading styles, there’s one critical thing you’ll need to commit to – portfolio diversification. It’s the only surefire way to minimize risks and make it as a trader. While it won’t always increase your profits or protect you from monetary losses, it will keep your account healthy and maximize your returns.

If you had every last dollar invested in just a single type of security, you’d only make a profit if the stock’s performance is excellent. If it’s not, if the market unexpectedly shifts, you’ll lose everything in an instant.

Through portfolio diversification, you’ll ensure that no matter how the market changes, your account still stays healthy.

However, you’ll need to consider your diversification strategy carefully. Investing in ten different stocks belonging to the same market segment isn’t that different from investing in a single stock. Political changes, environmental factors, and economic trends that impact one type of stock in a segment will likely impact the others.

Therefore, the best approach to portfolio diversification is spreading your investments through different or even opposing segments. Mix traditional and non-traditional assets and explore alternative investment options to improve your chances of success.

They keep a trading journal!

The most profitable traders know that there’s no secret to success. It’s all about learning from your mistakes and perfecting your skills. The best way to do that is by keeping a trading journal.

Many novice traders disregard just how important it is to keep a record of all their previous trades. It seems like a waste of time and energy, and besides, it’s more important to look forward and plan for the next endeavor, isn’t it?

Although there’s nothing you can do to change your past trades or manipulate their outcomes, there’s always something you could learn from them.

Keeping a trading journal and frequently reviewing it will help you:

  • Identify patterns:

Identifying patterns is the most critical skill you could master as a trader. You’ll learn how outside influences affect your securities, how to spot red flags in the market, and even how your behaviors impact your trades. For example, you could notice that you’re displaying fear by exiting most of your trades too soon or that you’re constantly responding to the wrong signals.

  • Enhance your techniques:

Keeping a trading journal allows you to assess your strengths and weaknesses and improve your trading techniques over time. You’ll identify the trading styles that suit you best and catch some of the most common mistakes you’re making – such as letting your emotions get the better of you. Careful introspection is the key to becoming the best trader you can be, and a trading journal can help you on this path.

  • Track your progress:

Perhaps the most critical aspect of your trading journal is that it enables you to notice just how much you’ve evolved. Seeing how far you’ve come can serve as a great source of inspiration and push you to go even further.

They don’t gamble

Last but certainly not least, the most successful traders never gamble.

Although many outsiders see trading as just a more refined form of gambling, the two share few similarities. Traders only take on the risks they’re ready to manage, and they only invest as much as they’re willing to lose. Moreover, they commit to thorough market analysis and careful strategy planning, leaving as few things as possible to fate.

As mentioned, relying on your gut feeling or instinct can only get you so far. Instead, you need to calculate your odds, understand the market, and invest logically and carefully.

Final thoughts

You cannot become a successful trader overnight. You need to work hard, study trends, and get familiar with the markets before you can even hope to turn a profit. But, most importantly, you need to develop the proper habits – set goals, perfect your plan, diversify your portfolio, keep a trading journal, and never gamble.

Read our related blog, Trading Habits to Avoid to Increase Profitability, or learn how to kickstart your trading success with a funded trading account.