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These are the things I think it takes to be a winning trader:
1) Edge. This is where most search in the quest for riches, and it is
an indespensible part of the equation. Trading is a negative sum game
because the traders support a massive industry of brokers, runners,
exchange employees etc. with their commissions and fees. Throw in the
other costs (quotes, phone bills, data service etc.) and the resulting
'house take' is extensive. In a zero sum game all the money that the
losers lose is put in a 'pot' and split between the winners. In
trading, much like pari-mutual wagering, the money goes into a pool, but
not all of the pool is returned to the winners. All the brokers,
runners, exchange employees etc. take out their cut and the rest is
returned to the winners. There are as many methods to derive this edge
as there are winning traders.
2) Consistency. One can extract an amazing amount of money with a small
edge over the market applied again and again. This does not mean one
must have a mechanical trading system. A fundamental trader can use a
consistant thought pattern or group of theories to arrive at market
analysis. A discretionary trader can be consistant in his/her decision
making process.
3) Prudence. Losing streaks can always be longer and worse than
expected; nonetheless, an edge will eventually make one a winner over
time. Therefore, the only way to lose in the long run is to be forced
to stop playing, and the fastest way to be forced to stop playing is to
run out of money. The preservation of capital is of utmost importance
and must be addressed before any trade is entered.
4) Discipline. Human nature and conditioning wire us to be losers in
the market at a greater than random pace. One must remove as much
emotion as possible from the decision making process.
5) Patience. Lettin move after move go while waiting for the proper set
up is the epitome of good trading. This also relates to prudence in
regards to postion size. If one is starting with a small account, one
must be prepared to trade small lots in involitile markets until the
account is large enough to take on more risk.
6) Flexibility. There is someone somewhere doing things a better way
and a still better way will be discovered sometime, probably soon. One
must keep an open mind for there is no existence without change. One is
either growing or decaying.
7) Confidence. This is probably an end result of the above; however,
once gained it is indespensible when the inevitable losing streak
begins.
These seven things are all intertwined. It takes patience, flexibility,
discipline etc. to develop a trading edge. The edge will help one stay
patient, prudent, consistant etc. while trading. They build on each
other and in turn allow the other parts to grow.
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