A quick distinction: We’re talking about trading in this post, which isn’t the same as investing. A trader’s concern is with trends in the market as well as a particular stock’s behavior, which is a different framework than the one used by investors, who are concerned with identifying stocks that will outperform the market and profiting from dividends or holding stocks over the long-term and selling for a profit large enough to justify the time.
Characteristics of Successful Day Traders
- They are capable changing their mind, and doing so quickly.
- They can multitask effectively.
- They are intuitive.
- They are emotionally disciplined.
- They don’t trade in negative emotional states.
- They understand what a healthy level of self-congratulation is.
You might not be all of those things, but none of these are beyond learning and developing in yourself. The internet is filthy with people doling out advice about categories of self-development like intuition and multitasking. Some are good, some are moronic, and some are just people for whom blogging about success from their parents’ basement is the only therapy they can afford.
Some of these things will come naturally with experience, but again, it’s best to be conscious of these things and work on them the way you would develop any other skill, by breaking down the process into its component parts and exercising each piece individually and concentrating on the elements that are working (or not) and tackling those that aren’t head on. Develop your sense of the market and then of certain stocks in particular. First learn to see events as they are, and then craft an approach for examining successes and failures.
We’re sure you’re eager to get into the details of trading and build your understanding and buy a tiny boat with barely any jewels in it just to tell your friends you have one, but it’s incredibly important to emphasize that a good trader stays focused on the longer game, and the longer game is all about mentality. Mentality is paramount. It is what separates success stories from failures.
Here’s what some of the greatest traders of all time have had to say about the importance of the mental and emotional components of trading:
Jesse Livermore. Shorted the Wall St. crash of 1929 and made $100 million.
“Emotional control is the most essential factor in playing the market. Never lose control of your emotions when the market moves against you. Don’t get too confident over your wins or too despondent over your losses.”
George Soros. Shorted $10b-worth of British pounds and made $1b.
“I’m only rich because I know when I’m wrong…I basically have survived by recognizing my mistakes.”
“Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes.”
Richard Dennis. A commodities speculator who turned a $1,600 loan into $200 million in ten years.
“The key is consistency and discipline. Almost anybody can make up a list of rules that are 80% as good as what we taught. What they can’t do is give people the confidence to stick to those rules even when things are going bad.”
“When you have a destabilizing loss, get out, go home, take a nap, do something, but put a little time between that and your next decision.”
Paul Tudor Jones. Tripled his money by predicting Black Monday in 1987 and shorting it.
“The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.”
“At the end of the day, the most important thing is how good are you at risk control.”
“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.”
“Failure was a key element to my life’s journey.”
“Where you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt.”
John Paulson. An investor worth who was worth $8.6b in 2016.
“Our goal is not to outperform all the time – that’s not possible. We want to outperform over time.”
David Tepper. Personally made $4b in 2009 running a hedge fund.
“I’m rubbing your balls for good luck!”
Thanks, David, and good luck. A spirit of generosity never hurts.
To be capable of the kind of depth and detachment of focus necessary to succeed at the highest rate takes time. No one is is a natural, so remain conscious of developing the ability to focus as a primary goal and you will do well.
Take responsibility for your mistakes. Learn from them. Your mistakes are particular to you and your ability to identify and understand them as quickly as possible defines the individual path to succeeding that you need to take.
Two key principles of good day trading
- Protect your principal. When you’re trading, it’s easy to get swept up in the moment and forget that at the end of the day, the only thing that matters is the dollar amount in your account.
- Trade well, not to win. By the end of this course, you’ll have a picture of what the fundamentals of sound trade planning and execution look like, but your mentality and behavior should reflect the reality that planning and execution are the only things that matter. You won’t always win; you only need to win more than you lose. Understand what is working and what isn’t, and success will follow.