Based on my experience, trading the financial markets, I have identified five characteristics that differentiate professional traders from new traders. Generally speaking, professional traders typically do the following:
- Keep a record of all trades Successful traders are continuously looking to enhance their market edge. A trading journal allows a trader to analyse all winning and losing trades away from the heat of the moment and evaluate the trade setup with a clear mind. This ongoing self improvement process helps successful traders eliminate anything that is not adding money to their trading account.
- Never chase a trade – Professional traders know exactly what it takes for them to enter a trade and only pull the trigger when this happens. Chasing a trade on the basis that the market is moving quickly in a certain direction is highly unlikely to provide a statistical edge over time. Whenever we enter a trade we are competing with highly motivated individuals and institutions who are in the business to take our money this is the reality of trading. Bearing this in mind and in order to mitigate against unnecessary losing trades – we need to find a system with a statistical edge and stick to our plan.
- Only trade the markets when you are in the right frame of mind for the job at hand – The market will always be there to tomorrow so if you are feeling anything less than 100 percent are you acting in your best interest by risking your capital? Illness and personal problems should be dealt with away from the markets when ever possible.
- Testing new trading strategies – Trading of the financial markets allows an opportunity not present in many other business ventures. We can test our trading strategies before committing real money. Other businesses do not always have this luxury and often need to commit to inventory in order to gauge the profit potential. I always test new trading strategies on a demo account in parallel with my live trading activities. Once a system has proved its worth a percentage of the trading account can be assigned as appropriate.
- Keep in touch with the markets – Any break form the trading should be followed by a period of time to get back into the “dance of the markets”. The market is a fickle place that is driven by sentiment and it is essential that we as traders are in tune with what is actually moving the market. Even purely technical traders need to have an understanding of what news the market is sensitive to at any given time in order to mange risk appropriately around economic data releases.