Six Traits Of Successful Forex Traders

The question that most seasoned Forex traders have to contend with is: What makes a good trader? Answering this in detail is not easy. If at all, are there any common traits that distinguish successful Forex traders from the rest?

To make a good trader, you might think, it would be enough to learn the basics of Forex and avoid cognitive biases. As you know, human beings are bad at statistics. We evolved to be better at survival and reproduction, not to become good statisticians. The result is that although we are largely risk averse, our common sense approach sometimes makes us blind to certain risks. And we make irrational choices when emotionally disturbed. Both these shortcomings hurt us very badly as traders.

The following are some of the common traits of successful Forex traders. However, as any good trader would be quick to point out, while it’s very easy to summarize the mistakes of bad traders, it’s not as easy to summarize what makes good traders so successful. Look at these traits as the most essential qualities a trader should have.

 

HOLD REALISTIC EXPECTATIONS

Good traders know that Forex is not a get-rich-quick scheme. While a lot of people see a sprint in Forex, they see it as a marathon with small rewards accumulating as the race goes on.

They realize very soon that Forex is a very big market with a lot of players. They know that the market, in general, is much smarter than you are, so betting against it may not be a good idea. They don’t start trading with the goal of becoming a millionaire overnight. 

 

HAVE CLEAR GOALS, COMPATIBLE STRATEGY & CONSISTENCY

Good traders have a clear idea of what they want to achieve from trading. After a few weeks of experimenting with a demo account, they’ll have decided on a trading strategy they think is compatible with their goals. Each method requires a different approach and each style has a different risk profile. Every method has an approach that should go with it for it to be successful.

 

Good traders have clear goals and they choose the most appropriate strategy that fits their goals and personality type. They know what information they need to make decisions. Some people depend on fundamental analysis while others use technical analysis for the insights. Good traders consistently use the method chosen and stick to their strategy until they find a good reason to revise them.

 

WILLING TO LEARN FROM MISTAKES: CONTINUOUS LEARNERS

Successful traders are good experimenters and fast learners. They want to see what works and what doesn’t at the earliest stage as possible. They would rather like to err very early and learn from those mistakes than make a costly mistake down the road. They wouldn’t want to put off any shocks for later.

A few really bad trades would be enough to wipe out a few years’ worth of earnings. Similarly, a few extremely good trades could more than compensate for a series of small losses. Good traders know this and think it worthwhile to experiment as a beginner and learn from every one of those mistakes.

 

MAINTAIN TRADING DISCIPLINE & EMOTIONAL STABILITY

Good traders have personalized trading strategies that reflect their goals, preferred time horizon and risk tolerance levels. As such, they don’t have any incentive to deviate from their plans without any good reason. Theirs are personalized plans and they update them as they learn more. They know they’ve no use with someone else’s advice as their goals and risk tolerance levels differ. They devise a good strategy and stick to it.

What enables them to stick to their strategy is trading discipline, which is mostly emotional stability. Many traders compound losses by refusing to exit positions that were clearly going in the wrong direction because they were too attached to them. 

 

ADAPT TO CHANGING MARKETS

Good traders do not look for a magic bullet strategy that will work for all markets. They know there cannot be such a strategy in a market that’s constantly evolving. In such a market, it’s not very easy to predict moves with perfect accuracy, so yesterday’s success is no guarantee that your strategy will make you profits today. The only way to succeed is to be able to adapt to changing markets.

A good trader keeps his head above water regardless of the market conditions. What enables them to achieve this is their ability to adapt to changing markets and the willingness to revise goals and strategies. Good traders acquire the skills to quickly adapt to changing markets.

 

MANAGE RISK

Effective risk management is one of the traits that distinguish good traders from the rest because you can be a very skilled trader in every other respect and still be financially ruined by poor risk management.

Successful traders believe their primary task is to protect what they already have. They diversify their strategies and currency pairs. Good traders use only a small portion of their account for high-risk trades and manage most of their funds more conservatively. This ensures rare and hence difficult-to-predict events won’t ruin their trading accounts. They use stop losses and constantly keep a watch on how much of their trading capital is at risk at any point. They review risk/reward ratios before pouring more money into a portfolio.

 

SUMMARY: IT’S LARGELY A PERSONAL JOURNEY

The above traits of successful traders are sure to guide any beginner to better trading outcomes. But you should consider them not as the ultimate recipe for success in Forex trading. Rather, they are the essential rules to follow. They are the best practices to keep you on track for long enough so that you can experiment with various strategies, learn good risk management practices, learn to be emotionally stable while taking decisions and learn to be adaptive and quick to respond to changing markets.

Successful traders, when asked to define what makes a good trader, refuse to present any grand ideas. This is because trading Forex is mostly a personal journey of learning by trial and error. You’ll need to make that journey alone. This is why trading is one of the most independent of all careers. Sticking to the basics makes you ready for that journey.

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