Psychological traits of top traders

It stands to reason that not every trading decision can be devoid of emotion. By our very nature, we are driven by our feelings, relying on them, perhaps a little too much sometimes, to make a choice. Top traders usually possess a series of psychological traits to maintain objective reasoning. In this blog, we’ll discuss what some of those traits are and why cultivating them will help you conquer emotional roadblocks.

They’re not impulsive

Successful traders understand the importance of being patient. Their process for making financial decisions is not driven by impulsion or knee-jerk reaction. Instead, it’s based on strategic forms of analysis, be this technical or fundamental. Their trades are calculated, and every outcome is considered a learning opportunity.

They’re resilient

A common psychological trait amongst successful traders is resilience. They know how to roll with the punches and don’t beat themselves up when experiencing losses. They recover quickly from poor trading outcomes as they don’t see failure as a reflection of their skills or trading acumen. Instead, they push emotion aside, and lean into logical reasoning and behaviours to avert further risk.

They maintain emotional discipline

“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading.”These are the words of Victor Sperandeo, a legendary trader and financial commentator based in the US, with 45+ successful years on Wall Street, where he earned the title “Trader Vic” because of his intellectual ability and profitable trading skills.

So while expertise is crucial for obvious reasons, having control over your emotions is probably more important because in those moments when fear, stress, and anxiety take over, not even the most intelligent trader is at risk of taking poor decisions.

Traders are incredibly organised

Being highly organised is one of the most important psychological skills a trader could have. They usually have a strategic trading plan in place and focus on the rules of that plan to avoid falling prey to their emotions. They set realistic goals and design a roadmap to achieve them.

The roadmap is likely to include the level of risk they’re willing to tolerate and the budget they have for executing trades. Their goals are usually measurable and time-oriented, with set milestones that if not reached, are reassessed and adjusted if necessary.

They are continuous learners

Top traders are curious, eager to learn as much as they can to keep ahead of trends and to refine their skills. They invest time into ongoing learning, consuming diverse educational resources like books (physical and e-versions), blogs, videos, podcasts, webinars, etc.

They will attend seminars and engage with trading communities.  More than this, they also monitor the news and track economic releases or events. They do this to build up trading acumen on which they can later rely to make trading decisions, rather than succumb to their emotions when challenges arise.

Interestingly, traders may also choose to compliment their education by making use of a demo trading account. A demo account enables the trader to test a range of trading strategies, regardless of complexity, in a virtual trading environment that simulates real market conditions. They can do this using virtual funds, without putting real money at risk, ensuring peace of mind. They can also use the demo account to hone their technical and fundamental analysis, a core component of trading.

They don’t shy away from making decisions

A top trader is someone who is typically self-assured without being arrogant. They wait for the right opportunity to make gains, are consistent in their behaviour, and display cautious optimism. They understand that they’re just as much at risk as the next trader to incur losses, but have the emotional intelligence to recognise their weaknesses, and instead use data combined with informed intuition to make decisions rather than shy away from them.

They know when to take a break

A skilled trader knows when it’s time to take a breather. They understand the importance of maintaining calm and implement mindfulness strategies to keep level-headed when confronted with losses. This looks different for different traders. It could be stepping away from their trading platform for a little while to allow feelings of panic, fear or stress to subside.

It might be eating healthy or going to the gym to work off the anxiety that comes with dealing with volatile markets. They develop routines and daily habits to improve focus and discipline, and reduce ineffective behavioural patterns.  

They understand the importance of a strategic risk management plan

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have.” These are the words of Paul Tudor Jones, an American billionaire hedge fund manager, known for his macro trades, and probably most famous for shorting the market before the 1987 stock market crash.

While protecting one’s capital is not a psychological trait per se, top traders know that adopting risk management tools are key in managing losses better. These tools typically ensure a more effective control of trading outcomes, reducing feelings of stress or uncertainty, and limit the potential for loss.

They make a concerted effort to overcome cognitive bias

Cognitive bias is an area of behavioural finance theory that has gained attention over recent years. It is an economic theory that seeks to explain irrational financial behaviour. It typically focuses on psychological influences and biases that drive financial decision making. The three most popular cognitive biases are overconfidence bias, self-serving bias and confirmation bias.

Overconfidence involves a false sense of skill, leading traders to overestimate their market prediction abilities. In contrast, top traders remain humble, acknowledging the market’s psychological unpredictability. Self-serving bias attributes success to skill and failure to bad luck, but seasoned traders recognise that human error and limited knowledge play significant roles in adverse outcomes.

Confirmation bias, the psychological tendency to seek data that supports pre-existing beliefs while ignoring contradictory information, can be particularly dangerous in trading. Successful traders, however, consider diverse viewpoints to make balanced decisions.

They don’t let their decisions define them

Top traders are confident as opposed to arrogant. They don’t let their decisions define them, regardless of the outcome. They understand that trading is unpredictable and that no amount of planning or speculation can ensure 100% wins all of the time.

Instead, they tweak strategies that may require tweaking, and change plans that need adjusting based on current market conditions. They don’t wallow in self-pity, and instead look forward with renewed determination.

Trading with IronFX

IronFX is an international broker with clients across the globe. The broker is driven to provide a top-tier trading experience to its traders, one characterised by flexible trading conditions, multiple account types, a wide range of trading instruments from across 6 asset classes (forex, stocks, indices, futures and metals), fast trade execution, seamless withdrawals and deposits, and market access via the MetaTrader 4 (MT4) trading platform, arguably one of the world’s most popular trading systems amongst global traders. The IronFX Academy also offers an abundant source of educational resources to boost one’s skills and acquire fundamental trading insights.

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked in this communication.