Last Updated on December 26, 2021 by Oddmund Groette
What can we learn from the 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 many profitable traders. He compiled a list of 20 “habits” of what he thinks those traders have in common.
This article contains 20 habits of wealthy and successful traders. I disagree with several of the habits. Let’s take them one by one and see if they make sense.
I’ve had a reasonably successful trading career myself, and I like to question everything, so I feel entitled to have an opinion about what are the habits to become a successful trader.
I went through all of Bourquin’s habits to see if I agree or disagree. Bourquin’s statements are in bold, my comments are after Bourquin’s:
20 habits of wealthy traders
1. Wealthy traders are patient with winning trades and enormously impatient with losing trades. This depends on your trading style and your personality. Yes, it’s important to let your profits run and admit defeat when the conditions for the trade have changed. Most traders tend to hope when things are not going as planned. 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 realize that making money is more important than being right. Money is a way of keeping score. If you can detach from money, then you are on the right path.
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. I have yet to know a trader that has been consistently successful by using classical technical analysis. Perhaps I’m just not mingling with successful technical traders, but my experience indicates a quantitative approach is a much better method of getting an edge in the markets.
4. Before they enter every trade they know where they will exit for either a profit or loss. Disagree. I have yet to find a strategy that improves the result with a stop-loss. I rather use time stops and less size to adjust for losing trades. 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, the best traders think in probabilities and are detached from money.
6. Wealthy traders use “naked” charts. Yes, I use no traditional indicators. I only use price action and quantified strategies and systems.
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 the news. The only newspaper I read is The Economist. It’s paramount that trading is kept as simple as possible.
8. Wealthy traders stopped trying to pick tops and bottoms long ago. Yes. However, I trade 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 day trades, 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 realize 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, money is a byproduct of what you do. A means 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. I like to use numbers, and I quantify my strategies.
18. Wealthy traders determine position size based on risk, not round numbers. Yes. I set position size according to each stock’s volatility and my overall account.
19. Wealthy traders buy strong markets and sell weak markets. Totally disagree. But it all depends on the character of the instrument 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.
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! The habits of wealthy traders are not universal.