Habits Of Rich, Wealthy, And Successful Traders
Last Updated on January 30, 2023
What can we learn from the habits of rich and wealthy traders (rich people trading strategies)? 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” that he thinks those traders have in common.
This article contains 20 habits of rich, 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 is true. I have yet to know a trader that has been consistently successful in 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 instead 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, I agree; the best traders think in probabilities and are detached from money. However, most traders can’t trade a strategy with a low win rate.
6. Wealthy traders use “naked” charts. Yes, I use no traditional indicators. I only use price action and quantified strategies and systems. However, as I noted earlier, I have yet to see a wealthy trader using classical chart analysis.
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. And besides, it does not matter. If you have a system, trade normally no matter what. It’s about trading your edge consistently – not about upping or lowering size based on “feelings”.
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 tops, 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 or inefficiency and trade it as many times over as you can. I like to use numbers, and I quantify my strategies. There is no holy grail in trading, only trading as many edges and strategies as you can.
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 specific stocks. You can find many twists.
As you can see, I’m afraid I have to disagree with some of them. It’s very hard to make general assumptions about trading. There are no hard rules! The habits of rich and wealthy traders are not universal. Find your own way and methods!
If your strategies comes from rules in quantitative testing; how much of your profit on average comes from your own qualitative decisions(meaning something not included in the testing)?
If little, what use does one have for “soft” (qualitative) habits, as most of the above?
To be honest, the discretionary trading is negative. I have statistics on my trading vs. my strictly quantitative rules. Over the years I could have made a lot more trading strictly mechanical. My “overruling” is of absolutely no value.
That’s very interesting; all that experience in the markets does not help. This would mean, I take it, that developing strategies is all that counts. Maybe some time you could write an article here about HOW one should conduct this work; how to observe the markets to get ideas, where to search(in data, through colleagues, formus, books, etc.). How the creative process work and the combination of experience/creativity/analytical skills/theory that makes one able to develop new strategies.
Yes, that might be an idea. I’ll have it in the back of my head!
You have to think about experience in the markets a different way. While discretionary trading might not be profitable for many, it is the experience gained through such an endeavor that enables knowledge.
Without experience in the markets, it is very difficult to come up with mechanical trading rules that 1) make sense, 2) have defined risk and 3) make money.
In 2011, I wondered how much money my discretionary trading had cost. I knew it cost but I couldn’t quantified. It stroke me as an evidence: I looked at each single historical trade one by one and analysed the P&L relative to my model signals. I split the difference between the theorical and the actuel P&L by entry, exit and size. I was shocked by the divergence: I was so bad at trading and I wasted so much. Since then, I monitor this cost every day. I made huge progress: in 2013, my discretionary trading made lilliputian money. But hey, it is so much better than losing!