What do all successful traders have in common?

Seth FreudbergGeneral Comments, Options Education, Seth Freudberg's Blogs, SMB Fundamentals, Trading Psychology16 Comments

In the summer of 2010,  I traveled to Manhattan from my home in Philadelphia to meet with Roy Davis of  SMB Capital for the purpose of checking out  SMB’s    intraday  equities training program. While I am an income options spread trader myself,  my premise was that  intraday equities trading and options income trading  were not at all mutually exclusive  and that I could enhance my overall trading skills by becoming proficient at day trading.

In addition to meeting extensively with Roy that day,  I also had the opportunity to chat with Mike  Bellafiore  and  Gman.  While I had alot of questions about the nature of the day trading   program, I found myself very curious to see how each of them would answer the following question: What do you think are the top three characteristics  of a successful day trader?  I was really interested to see if those same traits translated easily over to options trading (which they did by the way).  I thought their respective  answers were very helpful.

Roy felt that successful traders:  1)  are very solid with what he called the “basics” (tape reading, execution,  preparation for the trading day),  2) have discovered  the trades that fit their  personality and became excellent at those and    3)  realize that  successful trading is about pulling a small bucket of  profit water out of the market well  multiple times  (in other words they are not greedy).

Mike’s top 3 were:   1) a passion for trading,  2) the willingness to admit you are wrong in your bias and to change your bias or terminate a losing trade and  3) to work really hard to become better each day.

Gman  (who had actually had a  list of 7 characteristics  which were really interesting, but I’ll share his top 3):   1) hard work and preparation,  2) an ability to recognize what trades truly  work  for you and to STICK with them and  3) calmness in the midst of market volatility.

Unglamorous as it may sound,  it  looks like the  clear winner is hard work and  learning the basics. Should this be that big  of a surprise?  Wasn’t it Thomas Edison who said ” genius is 1% inspiration and 99% perspiration”?  But it is interesting to note that two of the three put a very high premium on recognizing your trading strengths and focusing on those  types of  trades primarily.

I’d love to know what the rest of you think.   Think of the best trader that you know–what do you think makes him or her successful?

16 Comments on “What do all successful traders have in common?”

  1. ultimately, what’s separates the 1% or less of traders who can trade consistently profitable and become rich doing so, is experience combined with talent and discipline. Anybody can learn technical analysis, execution, instrument characteristics, The Greeks, how it all ties in together, etc. BUT, that’s not enough to make money, day in day out, month in month out, year in year out. Anybody can have a good day, but maintaining a positive win/loss ratio on a constant basis takes more than just hard work and a willingness to admit to be wrong. In my opinion, it’s at least 50% talent. And this is not what trading educators want to make you believe. Plus, intra day trading has become very challenging in the last few years due to dominance of trading algorithms run by large funds and banks. Locals who have been successful in the past are now finding it very challenging to compete. So, picking a higher time frame as well as instruments, like options, which cannot be easily dominated by trading robots are the way forward in my opinion.

  2. 1 They find out the right thing to do.
    2 They do it.
    3 oops, that’s only two.

  3. Good article Seth. It is definitely about hard work and discipline. It’s also about talent and creativity. I think this was the exact debate that Richard Dennis and William Eckhardt (two Market Wizards) were having when they created the Turtles. Dennis believed that traders were born, not made, Eckhardt believed the opposite. They interviewed, hired and trained a handful of traders. I believe only a few had any previous market experience. Perhaps none of them did. It’s all documented in a couple of books. Some of those went on to become great traders, others didn’t. Whatever separates great traders or performers from the pack, I think a lot of “perspiration” is involved. I think it was Gladwell’s book, “Outliers” that talked about the amount of practice that was behind some of the world’s greatest performers, artists, etc. I may be wrong, but I think he said the Beatles had played something like 10000 hours together before they hit America. Or maybe he said that 10000 hours was the floor in terms of practice needed to become competent. Either way, I think it takes a TON of talent and a ton of hard work to get to where you want to get.

  4. Learning to lose is, in my opinion, critical. I, being one who hates to lose, still struggle with this but we’re playing a game of probabilities and losing is part of the game. Every trade is not going to be a winner and learning to accept this and take a loss is a must. Otherwise, you won’t be playing the “game” very long.

  5. Great Article! Knowing the basics, a passion for your activity, hard work, preparation, and working hard to become better each day? Hmmm…Isn’t that what all successful people, in any endeavor, have in common? 🙂 The sooner we realize this, the sooner we will be successful at whatever we do!

  6. 1. Being disciplined to manage risk =’s your best friend.
    2. As Gman siad, calm in a storm, prepared to take action with steady mental state.

  7. Yes Bob, I think that the point about discipline is critical–in fact that was one of Mike’s top three. I’ve always said that, in most months, options spread traders will make money so the key to success is controlling the loss size in a losing month. That takes discipline and humility. Check your ego at the door…..

  8. Yes AJB, in fact Bella has written about this extensively–the crucial role that purposeful practice plays in success.

  9. I agree–find out what works for you and do it. It’s pretty straightforward.

  10. Theta, I think that the SMB intraday equities traders would tell you that they have developed effective techniques to both tackle and take advantage of the proliferation of algo programs. You might want to write to Mike Bellafiore or Gman to get some more insight into this issue.

  11. Obviously there’s going to be a lot of overlap with respect to what people consider the “best attributes” in traders, but I’ll throw in some extras that can be viewed as standalone traits or derivatives of others already mentioned:

    1. A great trader puts in the work outside market hours. Imagine Brian Urlacher trying to figure out the Colts’ offensive scheme in the middle of the game– it doesn’t work. The same thing happens in trading– many new traders try and figure out their strategies during the 6.5 hour live-fire sessions on the weekdays. Trader development significantly slows when there’s a crapton of red/green flashy lights on the screen; it’s best to set aside a few hours outside of RTH to review and plan for the next day.

    2. High self-efficacy. This essentially means that you believe that any subject you take on can be learned. @stockbee is great at describing this psychological component of our trading in many, many posts: http://bit.ly/hd1rBX

    3. Dedication to something outside of trading. This is needed both to keep you sane and help your trader development. If you can take on something that has measurable goals that you can track yourself against, it will help you develop cross-discipline strengths. I tend to suggest physical activities such as powerlifting or running, but it can also be chess, piano, go, skeet shooting, etc.

  12. 1. Iron control. You can’t lose discipline.
    2. Knowing what makes your trade setup work and what makes it fail.
    3. Knowing when time is right is more important than knowing when price is right.

  13. Apart from what has been already discussed, I think another hey characteristic is knowing when to take a loss (and keeping losses small). Here is a video in which Howard Lederer makes a parallel between good traders and good poker players http://www.youtube.com/user/TrendFollowing#p/u/14/qcPD9AmVdl0. His main idea is that the best poker players are not the ones that win the most hands; so the most successful players maximize their gains but minimize their losses (so they lose frequently – a lot of hands). I know a trader that has a win rate of 40%, but these gains (40%) are really very big. He literally “milks” all he can from a good trade (pyramides gains a lot – very aggressive with gains), but he also has a lot of losses (60%; but small losses in terms on $). So, I think a key characteristic of being a successful trader is maximizing your gains (“milk” all there is from a a good trade).

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