There are many individuals looking to cash in and join the ranks of master traders, but very few make it or even come close to earning what they believed they would. This is partially due to the fact that they don’t possess the proper skills that will allow them to prosper in the industry.
One of the prerequisites of becoming a master trader is an adequate education in fundamental economics, financial markets, and technical analysis. However, there are many well-informed, well-educated, very intelligent individuals who don’t qualify as master traders. Few have mastered the art of trading, but the critical difference between winning traders and losing traders is more dependent on acquiring the essential skills that will be discussed in this article.
Is Math A Required Skill to be a Good Trader?
There is no way of getting around the basic math that is required from traders. You need to minimally understand some basic math because you will be using addition, subtraction, multiplication and division for everything you do in regards to trading or investing in the market. Even if this means you carry a calculator with you everywhere you go, if you want to be a trader you must get used to it.
Fundamental and Financial Analyst Skills
One skill every trader needs is the ability to analyze data quickly. There is a lot of math involved in trading, but a lot of it is represented through charts with indicators and patterns from technical analysis. Therefore, traders need to develop their analytical skills so they can recognize trends. There are certain trends that show up in a chart that will allow you to predict, with a certain level of accuracy, where the market is going and how long it will take to get there. Once you master this, it will be easier to apply probability and statistics and feel more confident about trades you place. This unquestionably requires constant focus and analysis of the markets day after day and every moment of the trading hour.
Focus is a skill that cannot be overlooked as a trader especially since so much can fall under this category. For starters since there is so much financial information out there, traders need to be able to hone in on the important, actionable data that will affect their trades. Focus on the types of instruments you are trading and deepen your understanding of a specific sector, industry or currency so you can use it as a competitive advantage against less specialized traders.
Hand in hand with focus goes control. As a trader you must control your emotions and stick to a trading plan and strategy. This is especially important in managing risk by using stop losses or taking profits at set points. Many strategies are designed so the trader loses a little in bad trades and systematically gains more on good trades. When traders start to get emotional about their trades, whether good or bad, strategy goes out the window.
Moreover, losing streaks also occur. Traders must stay focused and rational through a losing streak and not let the loss of capital affect their judgment which will only make matters worse. This not only requires focus, but thick skin to stay focused on executing your trading plan and realize when the market is not providing you with good opportunities for your strategy.
Furthermore, focusing on the performance of your strategy instead of individual positions will allow you to achieve the success you want to obtain as a trader. Concentrating on a successful trading strategy and understanding it through and through should be a top priority. The key is to be an expert on one strategy rather than employing multiple methods.
Traders need to be intellectually curious as well as have a continued healthy thirst for information and desire to find all the relevant data that impacts the instruments they trade. Many traders create calendars of economic releases and set announcements that have measurable effects on the financial markets. By staying on top of these information sources, traders are able to react to new information as the market is still digesting it.
One of the most important keys to trading is record keeping. Recording the results of your trades diligently and subsequently improving your strategy is what separates good and bad traders. It is hard to show real progress if you’re not keeping accurate records and adjusting accordingly. That being said, the skill here would be patience, persistence and discipline. Journaling and record keeping is tedious, but is important for your growth as a trader.
You will never see two trading days that are exactly alike. There could be more or less volatility, a stronger or weaker trend or a range.Successful traders implement their strategies in all types of market conditions and know when they shouldn’t use their strategies. The need for quick changes requires mental flexibility and physical adaptability. A trader must be able to look at the price action of each day and determine first if they should implement their strategy and second the best way to implement their strategies if applicable, based on the conditions that are present that day. Traders must be able to implement their strategies in real-time, in all market conditions, and know when to stay away. Not adapting to current market conditions will lead to tremendous losses.
Inevitably, the market will constantly throw losing trades at you, and you need to bounce back not allowing your emotions get in the way. If you feel discouraged every time you lose a trade or your strategy fails to produce the result you expect, your trading life will be miserable. Losing trades are constant, even the most successful day traders will have losing trades every day. However, daily profits can still occur despite these losses, but only if the losing trades don’t discourage you, because if losing trades cause you to lose focus, you’re more likely to miss or skip the next trade, which could be a winner.
Withstanding a continual barrage of punches from the market is necessary as suffering the losses are just a part of the trading culture. Nonetheless, it is how a trader acts after some tough trades that make all the difference. After taking losses, move on, and continue following your trading plan. That being said, sometimes being mentally tough means making the hard choice of not trading.
Initially, you’ll likely get some help with your trading, whether it’s from reading articles or books, watching trading videos, or receiving mentoring. Ultimately, though, it is you who will place your trades and determine your success. Therefore you must be independent and have self confidence if you are getting into trading because at a certain point you can’t rely on others. Most traders choose this path on their own anyway because they find it to be the most profitable. Once you have a trading method that works for you, you don’t want other people’s opinions anyway; you do what works for you, and that’s it.
To clarify, independence isn’t taking on the world alone. It is encouraged to get help whenever you need it. Independence is just developing a trading style that works for you, it’s about working to build a personal toolbox so you can remedy your trading instead of relying on others who may not always be there when you need them. If you are just beginning your trading journey, start developing your independence now. Take the information others offer, analyze it for yourself, make it your own, and master it. That way, you don’t need to rely on them.
Most traders aren’t born with all these traits, rather they possess a few and must work rigorously on the others. The ability to learn these attributes and skills attests to the fact that successful trading is in your hands and is not determined by your genes. Some are prone to certain weaknesses, but these weaknesses can be offset with strengths, which can help mitigate the damage of our weaker qualities. Take a personal inventory of what qualities you have as well as what you need to work on. Understand your strengths and your weaknesses. The personal inventory requires looking at your focus, patience, adaptability, mental-toughness, independence, and analytical skills. Once you do that you’re one step closer.