15 characteristics of a successful trader

 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.