The market is an ever-changing entity, each day presenting us with different and unique scenarios with no two days every the same. Nevertheless, the market is more or less a reflection of people's ideas and attitudes and while it is also true that no two people are alike, each and every one of us has something in common with someone else, whether it be the way we get out of bed in the morning or the foods we prefer to eat. Additionally, we tend to repeat actions such as preferring to brush our teeth at a certain time of day or making sure we try to catch the Thursday night prime time television shows. No matter which angle you look at it from, humans are creatures of habit and this tendency gets reflected in stock movement. It's what makes technical analysis a reliable and profitable way to trade.

Unfortunately, technical analysis is not always cut and dry. The same core pattern does not work the same in every market environment. For instance, one of the setups I often look for on a daily chart is a 3-5 day pullback in an uptrending stock for buying opportunities. Where newer traders tend to get in trouble, however, is taking such a setup to mean that every time an uptrending stock pulls back 3-5 days and then breaks the previous day's highs that that means they enter long. In reality, there are always exceptions and it's learning what these are that can be the dividing line between those traders who are successful and those who fail. In this example, how a stocks pulls back in a primary uptrend as well as overall market conditions will greatly influence whether taking such a pullback as a long is really worth the risk to reward. In some cases it is not.

The ability to adjust to changing market circumstances is just one of the traits of a successful trader. In truth though, there are quite a few. Something that I've found helpful is taking the time to look at other successful traders and trying to identify characteristics that may have contributed to their success. In addition to being able to adapt there are about 8 more things I have observed which include the following:

1. They stay neutral;
2. They have a business plan;
3. They keep a journal;
4. They focus on 1 to 3 techniques that suit them well;
5. They are great money managers;
6. They are comfortable with risk and uncertainty;
7. They accept personal responsibility for all of their trading action;
8. They use risk capital to trade.


1. Staying Neutral

You're probably wondering away just what do I mean by that? You know the guys you see where if they take a loss of $100 the whole world sucks and if they make $1000 they are on top of the world? Well, they definitely are not neutral. They let the market control their emotions. The professionals don't let the day to day oscillations in their accounts phase them. The results in one week don't matter much, and the results even in a month. It's just a small blip of time in their career, so the day to day oscillations don't really matter. It's the average over time which is important. With great traders, it's hard to tell their good days from their bad days as their attitude remains for the most part unchanged. They don't go touting to every message board and chatroom they can find how they just doubled their account and should be worshipped for their success. Nor do they whine about how the market makers or specialists have it out for them and they can never catch a break. While no one is a robot, completely devoid of emotional response, successful traders generally have learned to control the swings, thus leading to more objective trading.

2. Have a Business Plan

Next, successful traders have a business plan. Trading is a business and it should be treated as such. Would you open a restaurant with out a plan? No, or at least I hope you wouldn't or you're not liable to get very far. Restaurant owners need to have a plan. What type of food to serve, start up costs, hours, etc. are just a few of the questions they must address from the start. Trading should be looked at in much the same way. Trading is also a business and you need a plan. In your business plan you should list any number of things:

When you will work?
What techniques you will focus on?
What your expenses will be?
What is your max. loss?
What are your objectives?etc...

Make it as comprehensive as possible. It will help you out more than you might think.

3. Keep a Journal

So many times I will call a person that tells me they have been having a hard time and one of the first questions I ask them is" What have you been trading?" If they can't tell me that, it's hard to move forward. It's hard for me and it's hard for them. Keep a journal of all the trades you take. Include the time you got in, out, the prices, why you took the trade, what was going on in the market, how did the stock act, what did you do well, what could you have done better, etc... It seems like a lot but once you get into it, it's really very easy and just becomes second nature. Read this a few times a month and just look at what you are doing and have been doing. It will really key you in on your weak areas. It let's you know what you need to work on and, just as importantly, it will let you know what you are good at. So, keep a journal.

4. Focus on 1-3 Techniques that Work Well

Another trait of great traders is that they usually focus on just a few techniques, usually 1 to 3.

The reason for this is simple: The jack of all trades, master of none is usually a low paid unskilled worker. Put another way, examine college students. What kind of people major in general studies? Unless they go on to focus on a specific occupation in graduate school or law school, etc., well-paying jobs will be hard to find for most upon graduation. Instead, for those who focus their studies in one field, and more specially, one subdivision of that field, demand for their skills will be much higher. If you focus on just a few techniques, it allows you to really become an expert on the technique you are using. Great traders have one to three things that work and they use them over and over and over and over again for as long as they are profitable.

5. Being a Great Money Manager

Great traders are also great risk managers. They respect the risks they are taking and on each trade they risk a small amount of capital. Usually this is 1/4% to 1% per position (and no more than 2%). The idea is that you can't trade tomorrow if you blow out today and if you can't trade you won't be a great trader now will you? Great traders protect their accounts. It's their baby. Each position is so small they don't really give a damn what happens with it. It's just a nick... win, lose, or draw. So, if they have a 200K account and are risking 1/4% on each trade, that means if they take a stop they are out $500. That's a very small amount of money compared to the account. It doesn't matter too much if they take a stop. One or even a series of stops won't be the end of their career.

Now, not all traders have this large of an account, but the basic principal is the same no matter what size of account you have. Mathematically speaking, 2% is the most you can risk and still be able to survive the strings of stops that can and often will occur on occasion. So if you have a 25K account and you risk 2%, you can also risk $500 a trade. Once your account is larger, however, it is advisable to risk less and with experience, you can also learn which types of situations can allow for greater risk compared to others.

6. Being Comfortable with Risk and Uncertainty

The sixth trait of great traders is that they are comfortable with risk. Let's face it, trading is certainly risky and if you are afraid of the risk you won't last. If you are afraid you will lose money, then I can almost say with certainty that you will. They are comfortable trading a pattern that is not a 100% sure thing because none of them are. They go into an individual trade not knowing what the end result will be. Many new traders have a terrible time with this: the uncertainty of a trade, but you must over come it. Many new traders allow themselves to be frozen with fear over the risks and uncertainties of trading. Great traders get beyond it.

7. Accepting Personal Responsibility

Great traders accept personal responsibility for everything they do, even to an extreme. If I loan you $100 and you never pay me back, yes you're a jerk, but I'm also an idiot because there is something I should've been able to pick up and if I didn't know you well enough, I shouldn't have loaned you money. I loaned the money. I made a choice and now I am paying for it, so it's on me. The same deal goes in a trade. I don't care who may have told you ABC or whatever was a great buy, whether you heard it in a chatroom, message board, the Wall Street Journal, CNBC or just from your local mailman. No one holds a gun to your head while you are trading, telling you what you have to take or not take. You're the one pulling the trigger. Great traders know that all trades they take, good or bad, it's on them.

8. Using Risk Capital to Trade

Finally, great traders use risk capital. This should be obvious. They trade with money they can lose. So, if I had a 150K trading account and tomorrow I do something where I completely mess up and I loose it all, of course I won't be happy, but I won't be on food stamps either. It's not all the money I have in the world. This frees your mind up. It lets you trade and not worry. You just focus on trading correctly. They say scared money never wins, well, I have yet to see a person who had no other job or source of income, thus needing to live off their 5K trading account,make it... sorry. So trade with risk capital, not student loan money, not the rent, not the food... You get the picture. It makes life easier.

My hope today is that by reading through some of these characteristics, you can help keep yourself on track for success. It is said that the majority of successful people in the world became such by following in the footsteps of others, their mentors. Even if you do not have one specific person in mind, familiarizing oneself with the traits of those how have succeeding before you is a rewarding experience.