20 Habits Of Wealthy Traders

In the March 2012 issue of Trader’s Magazine there is an article on page 6 by Tim Bourquin. He has interviewed a lot of very profitable traders. He compiled a list of 20 “habits” of what he thinks those traders have in common. I’m the guy who questions everything, and I’m profitable for the 11th consecutive year so I feel I’m entitled to have an opinion, so I wanted to check if I have those habits myself. Bourquin’s statements are in bold:

1. Wealthy traders are patient with winning trades and enormously impatient with losing trades. Yes, I often fell prone to that. I tend to hope too much when things are going bad. I have time stops, but tend to close positions/strategies too early when having a nice gain. Too often I hold on to exit time when losing. I’m constantly working on that bad habit.

2. Wealthy traders realise that making money is more important than being right. Yes, but always hard to realise a loss.

3. Wealthy traders view technical analysis as a picture of where traders are lining up to buy and sell. Disagree, I have never found any evidence that this actually is true.

4. Before they eneter every trade they know where they will exit for either a profit or loss. Disagree, I use time stops. I have never in my testing found any value whatsoever in using targets or stop-loss.

5. They approach trade number 5 with the same conviction as the previous four losing trades. Yes, agree, but noe easy as confidence drops the more losers I have.

6. Wealthy traders use “naked” charts. Yes, I use no traditional indicators. I only use price action.

7. Wealthy traders are comfortable making decisions with incomplete information. Yes, very true. I try to make my trading as simple as possible. I avoid reading news.The only newspaper I read is The Economist. Except from that I only read football/soccer news and investment blogs on the internet.

8. Wealthy traders stopped trying to pick tops and bottoms long ago. Yes. However, I trend mostly mean reversion and buy weakness and sell strength.

9. Wealthy traders do not think of the market as “expensive” or “cheap”. Yes, as for daytrades, but also see my comments in point 8.

10. Wealthy traders are aggressive with size when they are doing well and modest when they are not. Totally disagree. I find the opposite, probably because of changing market cycles in the market. And besides, it does not matter. If you have a system, trade normally no matter what.It’s about trading your edge.

11. Wealthy traders realise the market will be open tomorrow. Yes, know when to trade and not to trade. Never force trades. Overtrading is an account killer.

12. Wealthy traders never add to a losing position, ever. Well, I always do. Why? Because I never pick bottoms or top, see point 8. I scale in and out. Whether this is adding to a losing position, might be questioned.

13. Wealthy traders judge their trading success on anything but money. Yes, but money is just a byproduct of what you do. A mean of keeping score. As for myself, the more I think about money, the worse I perform. Just focus on building strategies and executing them properly. But that is easier said than done.

14. Wealthy traders read about mobs, riots and human psychology. Yes, human psychology is very important. I provide liquidity and buy on weakness and sell on strength. When there is panicking, you can be sure there is money to be made for those who can withstand a drawdown (impossible to pick bottoms).

15. Wealthy traders see themselves as market makers. I can’t agree more! I make my money by providing liquidity.

16. Wealthy traders practice reading the right side of the chart, not the left. Well, after habit number 15 this is almost garbage. If you provide liquidity, I can’t see any value in looking at chart patterns.

17. Wealthy traders have an “edge” in the markets. So true, find an edge and trade it as many times over as you can.

18. Wealthy traders determine position size based on risk, not round numbers. Yes. I set position size according to each stocks volatility.

19. Wealthy traders buy strong markets and sell weak markets. Totally disagree. But it all depends on the character of the intrument you’re trading. You can’t trade OBX (Norway’s stock index) the same way as you trade SPY. Trading OBX this habit is true, but looking at SPY I disagree. So this habit does not make any sense to me.

20. Wealthy traders play the reaction , not the news. It all depends. I trade on news in certain stocks. You can find many twists.

This was all 20 habits. As you can see, I disagree with some of them. It’s very hard to make general assumptions about trading. There are no hard rules. Feel free to post any comments!