One of the best features of financial markets is the diversity in which participants can succeed. And while there is much debate over which strategy works the best, a better approach is to determine which works the best for you. Because if you aren’t aligned philosophically with an investment strategy, it will always feel like a left shoe on a right foot.
One such strategy is day trading, and despite what you may hear from the naysayers, it’s absolutely possible to achieve success trading stocks. It’s just really hard to do it consistently. So, let’s discuss five key traits that you’ll need to master before taking the plunge into the hyper-competitive world of day trading.
The first is discipline. Traders are process-driven and methodical, and they almost never shoot from the hip. They stick to what works for them and will only adjust their repertoire after intense analysis and testing. They don’t throw in the towel after a cold streak, nor do they relax after big wins. Traders keep trading - no matter what.
This discipline necessitates treating their craft like a business rather than a hobby. It’s no different than how a professional athlete views their sport relative to someone who does it for fun. They also invest considerable time and money into risk controls, technology, data, analytics, and access to news flow.
The second skill is suppressing all emotion. Successful traders rarely panic or ride waves of euphoria. Nor do they don’t waste time agonizing over past mistakes. Emotions are viruses, so successful ones do whatever they can to keep a clear head through all markets because traders keep trading – no matter what.
The third is patience. Think of traders as predators and financial markets as jungles. The predators that live the longest know when to strike but also when to pass because some risks are not worth taking.
It could be the size of the prey or those funny looking spots on its back that serve as a warning. Traders take these cues seriously and would rather wait for the next meal to walk by than to risk severe indigestion. If they can’t find what they’re looking for, rather than roll over and die, they look for meals elsewhere because traders keep trading – no matter what.
The fourth is passion. Successful traders work just as hard off the court as on. They do painfully boring administrative tasks like maintaining logs that chronicle every single trade. These are then analyzed repeatedly to look for ways to improve their processes. They wake up before the sun rises and work late. This love for the game keeps them focused during the good times and motivated through the bad times because traders keep trading – no matter what.
And while it may sound a bit cliché, money is rarely the primary motivator. Successful traders are intensely competitive people, and what drives them more often than not is winning more than adding another comma to their bank accounts.
The fifth is an edge. Successful traders see things that others do not or cannot. It could be a pattern in stock prices or the ability to interpret news differently. They also do whatever they can to keep their edge. It’s no different than Google encrypting their source code or Coca Cola patenting its formulas for sodas (unrelated, soccer star Cristiano Ronaldo snub sees Coca-Cola market value fall by $4bn). But they also have the wherewithal to walk away from an edge the second they realize it’s gone. Success in financial markets attracts competitors, and very few trading strategies work forever.
Lastly, when traders lose their edge, they don’t cry or throw in the towel. They go looking for their next edge because traders keep trading - no matter what.
The Bottom Line
There are no educational requirements or professional certifications required to trade stocks. Nor are apprenticeships, clerkships, or residencies necessary to open a trading account. To the contrary, brokers have made it so easy to trade that anyone with a bank account and a phone can be up and running in minutes.
Brokers also pay A-list celebrities to appear in Super Bowl commercials that aim to empower you to take control of your financial future. Why mess around with that 9-to-5 job bookended with a murderous commute only to answer to a boss you hate? Wouldn’t it be more enjoyable to watch your kids grow up, stress free, as you trade from the comfort of your own home?
There’s just one tiny little problem with this fantasy world. Low barriers to entry attract competition. If it’s easy for you to get started, then it’s just as easy for everyone else to do the same. That’s why you need to ask yourself if you have the ability and willingness to succeed as a trader. In all my years in this business, I can count on one hand the number of people I’ve met who have what it takes.
And you know what? I’m not one of them. I’ve learned over the years that I just don’t enjoy trading. Sure, it’s fun to speculate and make some money every now and then, but to do it day in and day out? No interest.
But I don’t view my lack of passion as a hurdle to achieving my goals. To the contrary, I consider it invaluable because it keeps me focused on what I love to do the most, which is to think long term and invest in the companies and industries that are changing the world.
The bottom line is that it’s pretty easy to pick up a basketball and step on the court, but very few have what it takes to make basketball a career. Trading stocks is no different, so if you lack any of these traits or the endurance to keep trading - no matter what – then it’s best to find another path to achieve your financial goals.
Brian Malizia, President
Mike Sorrentino, CFA
This material has been prepared for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. This material is not intended to provide, and should not be relied on for tax, legal, investment, accounting, or other financial advice. You should consult your own tax, legal, financial, and accounting advisors before engaging in any transaction. Asset allocation and diversification do not guarantee a profit or protect against a loss. All references to potential future developments or outcomes are strictly our views and opinions and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in various economies and investment markets. Past performance is not necessarily indicative of future performance.