A small search on the internet is enough to find dozens of articles that describe the essentials that a trader must have (or if he doesn’t have, make sure to acquire) for a successful course in this demanding “sport” called trading, whether we refer to in forex, or in commodities, in stocks and in general in any asset that is offered for buy or sell through a trading platform. These “guides” can be a relatively good help for those entering the market for the first time because they give an outline of the skills needed to be able to respond successfully or even without major losses at the beginning.
Instead of Introduction: Beware of False Promises by Scammers
What should always be mentioned first when dealing with trading educational content articles is that engaging in it should never be confused with some sort of get-rich-quick and easy-profit scheme.
It is very important and must be repeated again and again because unfortunately even today – almost 15 years after the first appearance of retail trading – there many people are victimized by scammers who advertise unrealistic profits (signal providers, forex robots etc) or sell at high prices “training programs” that can shortcut a beginner to making millions in a few months.
Stay away from anyone who advertises them. You will simply lose your money or at best just your time.
A Realistic Approach
I am coming back to the main topic of the present about the characteristics that a trader should have and we will look at them as briefly as possible with a few additional points (which you will not read elsewhere) and from a realistic view that comes from personal experience. What I must add is that the following are observations with a beginner trader in mind and not a professional (yes, there are such).
Basic Trading Knowledge is Essential
For the new trader knowledge of the basics is therefore essential. Before pressing buy or sell, he must know for example what the leverage mechanism is and how it affects his trade, which multiplies the power of his money in an open position for his benefit (but also for his loss). Also how will protect him the stop loss if the transaction goes against his expectations or what is the risk management for the protection of his capital and quite a few more.
The basic knowledge can be acquired either through courses (physical or online) or through personal study and devoting enough personal time. Most traders today deal almost directly with Technical Analysis as a method of identifying a trade setup and executing it in the market.
Technical and Fundamental Analysis
Technical analysis is attractive and can bring good results under certain conditions and for certain time periods. Its substantive criticism is not the purpose of this article. However, a trader who wants to experiment with it as a resource must know its “basics”: What is and how to identify the Up and Downtrend, what Support and Resistance levels are, what the Time Frames are, who are the most well-known Technical Indicators, Candlestick Pattern and more.
Accordingly whoever chooses Fundamental Analysis the theory says that they should be accustomed to tirelessly reading financial news and related updates on a daily basis. And not just to read (a lot) but to find ways to assimilate what he reads (that is, to study) and to be able to make good use of his study when he judges that it is time to do so.
Patience and Perseverance
Patience and persistence. Concepts related but not identical. Patience has a passive meaning, it means tolerating a situation with the reasonable hope that things will get better while perseverance is an active process in which you need to repeat the same thing until the desired result comes. Certainly virtues that are needed both for a successful trader as well as for any kind of activity where we pursue something in the long term.
Clearly, the trader who rushes to enter the market without having received the necessary “signals” from his strategies has no future in this field. The trader is likened to the hunter or the fisherman who will go out ten times for hunting without any results and only once he will be “lucky” (1). The “objection” I have to the subject of patience is that there must be some limits. It is not for everyone to draw lines on price charts, track statistics and read endless financial analyses.
Balance, the Solution to Everything
Trading is an appropriate way of mental exercise, but if the person involved participates with his own money and not with a demo account, then the risk of addiction is avoided, because trading may not be directly related to gambling (2) but there are aspects that are similar to these two and can lead not only to losing money but also to total loss of property.
So, watch out. Even patience needs balance. If it’s time to stop, we just stop!
Discipline and Self-Concentration
We are disciplined by rules. In rules that have been set by others long ago and generally accepted by 99.99% of people in the market, they are correct and tested. We are also disciplined by rules that we have set ourselves (self-restraint) and we do not actively participate in the market by opening a position because “we thought it was a very good idea” but because this is indicated to us by the system we have developed to give us entry and exit signals. We still discipline to the basic rule of risk management states that each of our new positions cannot exceed 1% to 3% of our available capital at that time.
In the matter of “discipline” there is no asterisk, it is necessary and its importance is decisive. My opinion is that apart from the inherent characteristics of each person that may make it easier or harder for them to follow a set of rules, this is something that anyone can “work on” and improve step by step. Let’s not forget that with trading discipline he can improve other activities in his daily life that can easily lose control.
Yes, there is Disagreement on that too, but…
Of course, there is a disagreement in everything. First the philosophical: Should discipline be a concept objectively accepted everywhere and always? Under any circumstances? Of course not! After all, we know that humanity has suffered brutalities and destructive wars from… disciplined armies but also the complicity of ordinary people who simply “disciplined” themselves to some absurd order or rule. But… But we’re talking about trading here and we’re not having a history lesson, it’s that simple!…
Secondly, there is always someone who, out of great confidence in their knowledge and abilities (or even their successes), will come a moment when they will consciously want to break some rule and behave autonomously, outside the “laws” of the vast majority of traders. This is a rare but real case. But this is something that does not (should) concern a beginner trader, it is -again- so simple!
The Self-Concentration that Everyone lacks!
Experts in human behavior say that our age is plagued by a disease called “lack of concentration.” We are the society of information, networks, computers and smartphones but we are probably not in control since the average person loses concentration tens or even hundreds of times a day due to social network notifications, messages, updates etc etc. The brain is not multitask PC processor (at least in most) and if we have to focus on a specific task or activity to complete it then we should do something to exclude from our environment all the unnecessary stimuli that grab our attention. This applies equally to the trader. Do your best! (3).
Control (or self-control) over our emotions is a controversial story. Beyond the world of trading, many are of the opinion that “you have to let your emotions take over you” or that “the world of emotions is the only real one”. Others say that showing our emotions to an excessive point is a sign of weakness. From one end to the other we will meet many different opinions, almost everyone of us has his own opinion and of course this is something good (probably) and definitely respected.
In an ideal trading environment it is certain that joy, excitement, disappointment do not perfectly fit the trader’s personality. The reason is that our emotions can easily lead us to lose the discipline needed to plan, execute and ultimately take responsibility for a failed or successful trade.
But if that’s the case, why are we talking about the human factor in the trading t? If that’s the case, let’s let trading robots and softwares -that follow standardized procedures- take over all the procedures earlier since there is no possibility that they will lose control from their emotions? The answer is that if truly intelligent software and robots outperformed humans, trading would have already changed. It would not be as we know it today and only the programmers would “command”.
But we have no reason (yet) to believe that things have reached this point. The human factor, with his good and his bad, has the first say in this area as well. And we should accept (even if we call it “weakness”) that both joy and sorrow are in the game. It just takes practice and as good a psychology as possible so that we can control these moments and not let them take the role of the guide in our decisions.
But we have no reason (yet) to believe that things have reached this point. The human factor with its positives and negatives dominates this area as well. And we should accept (even if we call it “weakness”) that both joy and sorrow are in the game. It just takes practice and as good a psychology as possible so that we can control these moments and not let them take the role of the guide in our decisions.
1. Since it has been mentioned I just note that the factor of luck plays no role in trading. In fact, it is a game of chance where everyone involved hopes or believes that they have found an edge that will turn the odds in their favor to make profits from the financial markets over time.
2. Trading and gambling, a painful story… And just by comparing the two, many “serious” traders shudder. And yet the truth lies somewhere in the middle, but that’s another story we’ll tell another time….
3. It may sound counterintuitive but many traders say that listening to relaxing music during action helps them focus…
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