March 18, 2021

What makes a good day trader

Attributes that Make Good Day Traders

There may not be a universal yardstick to judge what makes a good trader. With 90% of day traders crashing out of the financial market, the ability of a day trader to remain in business and consistently make profits while keeping losses low can be considered a factor for determining who a good day trader is.

However, while continually strategizing, sticking to trading plans, and making money sums up the qualities of a day trader, there is more to becoming a good day trader than meets the eyes.

To become a good trader, there are certain traits one must possess, and these traits will help them strategize and maneuver the market forces effectively regardless of the market conditions.

Bear in mind that one doesn’t develop all of these trading traits overnight. They are developed over time with discipline, patience, hard work and commitment.

Traits of a good trader

1. Discipline

The financial markets, especially stocks, provide day traders with infinite opportunities. There are thousands of products to trade every second of the day, but only a few seconds of trading are profitable. As such, one must be careful not to throw his/her money that catches their eyes.

In trading, it is said that if a strategy can deliver up to five trades per day with stop losses and profit targets, one only has about five seconds to trade until the trading session closes.

Outside of this five seconds, every other second of a chance to mess up the initial five trades. How? You could end up taking more trades than you should (over-trading), you could get distracted and skip trades, exit trades earlier than you should, or hold on to a trade for too long.

If you are still thinking about the five seconds thingy, it is not to say that you have only five seconds to trade. It simply means that the amount of trading time you have is minuscule each day and you should have a culture of discipline to make every second count.

Think about it. It takes a second to enter a trade or place an entry order. Afterward, you would have to sit on your hands and watch things play out. If you have to adjust your stops and targets, that shouldn’t take more than a second as well. You see, that how much time you have to trade each day — very little. You spend most of the day sitting on your hands and waiting for the best trading signal, and this takes discipline.

When you spot an opportunity and you get the signal, you should be able to act without second-guessing yourself or getting cold feet. While you are at it, you must also stick to your trading plan.

One of the best qualities of a good day trader is to be disciplined enough to know when to do nothing or sit on your hands when the market conditions are uncertain or unpredictable.

When the profitable trading opportunities present themselves, you should also be disciplined to act without hesitation — at an instant notice. Lastly, once you have entered into a trade, you must be disciplined to follow through with your trading plan without compromise or losing focus.

2. Patience

It’s almost impossible to discuss the traits of a good trader without mentioning patience. Interestingly, patience and discipline are related.

As we mentioned earlier, day trading involves a lot of waiting and jumping the gun to enter into a trade or close your positions will run your trading account aground in no time. You should know when your timing is off, or patience is off (as traders will say).

Regarding the timing of trades, new traders face one major problem: they are either jumping in and out of trades too early or too late. And that’s is a recipe for blowing your trading account.

To be a good day trader, you must develop the patience to wait for the ideal entry and exit. This patience trait goes hand in hand with discipline because it takes discipline to wait for the right setup or trading signals. A good day trader needs the discipline to sit and watch market forces play out and the discipline to act swiftly without hesitation when opportunities present themselves.

3. Adaptability

No two trading days are alike, and the constant fluctuations and market dynamics pose challenges to traders (especially beginner traders) who only execute their trades based on textbook models.

When such traders are confronted with real-life action, they often become confused and make irrational decisions when implementing their trading plans. Why? Everything looks different from the textbook models, and the trader wouldn’t know what to do when there is less volatility, high volatility, stronger or weaker trends, and when the market is in range.

One of the qualities of a good trader is his ability to implant their trading strategies in all market conditions. A good trader should also know the limitations of their trading plan so they don’t run into problems. For instance, if your strategy works best in a trending market, you should sit out a market that is in a range.

However, the financial markets are unpredictable and won’t always follow a particular pattern. You should analyze price action and find a way of implementing your trading strategy under different market conditions without getting your hands burnt.

The idea is to develop the mental flexibility to adapt to all market conditions and implement your strategy in real-time. The inability of a trader to adapt to the ever-changing market conditions will lead to a quick drawdown of your capital.

4. Mental toughness

Sooner or later, virtually every day trader will realize that trading is not a linear process and no trading strategy wins all the time. It’s not unusual for day traders to think they are thick-skinned until the market throws a couple of bad trades their way and they begin to fidget.

As a day trader trying to rise to the ranks of the elite or pro-traders, you can’t afford to be discouraged or put down because of losing trades or every time your strategy doesn’t yield the results you expect. Doing that will make your trading journey miserable and the chances are that you won’t make it far with such an attitude.

You must always bear in mind that traders will have losing trades. Losses are part of the trading, and you must learn to accept them and keep them low. The difference between successful traders and their unsuccessful counterparts is that the successful ones win more on their winning trades and lossless on losing trades. As good day traders should aspire to have bigger wins and fewer losses. That way, you only need between 30% to 40% of your trades to keep your account up and running.

In conclusion

In addition to mental toughness, adaptability, patience, and discipline, a good day trader should be forward-thinking and learn to be independent when making decisions.

As we mentioned earlier, most traits of a good day trader are not inborn. You must invest time to learn and make it a part of you. To help you get started on gaining these traits, you can start by taking a personal inventory of the qualities you need to work on while also highlighting your strengths.

Trading has a way of making you aware of your vulnerabilities and strengths you may not be aware of. Take note of all the decisions you made while trading, and you will be amazed at how much you will learn about yourself.