The number one question I get asked when it comes to the stock market is: “What does it take to be a good trader?” There’s no single right answer to this question, but in my mind, the most important trait of a successful trader is the ability to honestly assess strengths and weaknesses. Then he or she trades in a style that complements strengths and minimizes weaknesses.
Sometimes this happens organically, but often it doesn’t. Instead, this discovery process usually requires self-reflection, experimentation, and experience in order to find a combination that lends itself to success.
Baby Steps: Where Do You Start?
The first area I suggest traders focus on is patience. For example, are you patient in finding trade opportunities, or do you constantly need a stream of ideas to consider? How about trade management? Do you have the patience to manage a position to give it room to move, or do you need the conclusion—whether positive or negative—to happen quickly?
If you find that patience is a strength, then you might be better suited applying a swing trading style, where it takes time for setups to present themselves and for trades to reach conclusions. However, if patience is not your strong suit, you might be better off pursuing day trading, where each day offers multiple opportunities and trades are closed daily.
Is Your Life Getting in the Way?
Not all strengths and weaknesses are related to personality traits. These qualities can also be related to the realities of your life, such as how much time you have to devote to markets and trading.
Specifically, are you a full-time trader? Is it your job to track and analyze the markets, or do you have a “day job” that limits the time you can spend trading?
A full-time trader may spend 40 or 60 hours each week following markets, an engagement level that offers more flexibility in trading approaches and lends itself to being more active. A part-time trader who can devote only a few hours per week to the markets needs to be more selective in trade choices and overall strategy.
The key to any self-assessment is to be brutally honest and understand that what you think your strengths and weaknesses are and what they really are may be two completely different things. If you aren’t objective in identifying these good and bad traits, you might end up trading in a style that’s the complete opposite of the way you should be trading.
The importance of this last point cannot be overemphasized. It’s incredibly difficult to analyze our own strengths and weaknesses without bias. This is why it’s often beneficial to engage a trading mentor. An experienced, impartial third party can objectively evaluate your trading and help you to align it with both your character traits and the external factors in your life.