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14 Habits of Successful Traders Who Invest In the Stock Market

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The idea of trading in the stock market is exciting. The idea of making a living day trading has an obvious appeal. One could even be forgiven for hoping to generate an immense amount of wealth this way. 

But according to VantagePoint, only a very small percentage of traders are actually successful. What is it that sets the highly successful traders apart from the crowd?

The difference is in the habits of successful traders. Turning these concepts into your own trading habits could put you on the path to be the center of the next article about the at-home trader who made it big in the market. 

The Habits of Successful Traders Who Invest In the Stock Market

Successful trading is the result of a mix of hard work and good habits. Here are some of the most important habits of some of the most successful traders on Wall Street.

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1. Test Your Trading Strategy

Most big-time traders don’t just think of a strategy and deploy it in the market. They test it first to make sure they’re not set up for big losses. There are two ways the elite in the trading community test their strategies:

Stock Market Simulators

Successful trades take advantage of stock market simulators. Simulators mimic the real-world trading environment, but let users trade with fake, digital cash. If a simulated trade goes wrong, there’s no real loss to speak of. 

Using these simulators, the best traders tweak and refine their strategies before risking any real money on them. 

Backtesting

Backtesting is a process that gives you the ability to see what the past performance of your strategy would have been. There are several tools online that offer backtesting capabilities, but keep in mind that past performance isn’t always indicative of future results. 

2. Stick to Your Trading Plan

Great traders have a well-defined trading plan that’s centered around the balance between risk and reward. This trading plan will outline the exact types of stocks the trader is interested in, the signals they’ll use to determine when to buy and when to sell, and methods for risk management. 

3. Don’t Give Into Emotion

Human beings are emotional creatures, and trading has a tendency to be an emotional process — especially for new traders. Unfortunately, emotional investing has the potential to lead to significant losses in the market. 

In order to be a successful trader, you’ll need to be able to check your emotions at the door and make well-thought-out trading decisions rather than emotional, knee-jerk reactions. 

4. Do Your Due Diligence

Some of the most successful stock traders consider fundamental research as well as technical analysis when making their moves. By looking into what’s causing the movement on the stock chart, a well-informed trader is better equipped to understand the price movement and predict its direction ahead. 

Although some only focus on technical indicators, traders with the best understanding of the asset as a whole tend to be the most successful. Therefore, mixing fundamental and technical analysis into your trading plan will give you a better shot at success.  

5. Keep a Trading Journal

The best traders may not have the best memories, but they don’t need them. The most successful guys and gals in the market keep a trading journal to track their progress. 

Over time, this journal will prove to be invaluable.  

As you begin to track and review your trades, you’ll realize that specific patterns start to emerge. This gives you the ability to tweak your trading strategy to focus only on the types of trades that have been most successful for you in the past. 

All you need to do is make a journal to capture the data from each trade. List when the trade was made, why the trade was made, and percentage profits or losses. Then, once per week, kick back and read your journal to get a sense of what you could be doing differently to generate larger returns in the market. 

6. Use Stop-Losses

Trading is an attempt at predicting the future price of a stock, and nobody is 100% accurate when predicting price movements. That’s why it’s crucial to take steps toward risk management. 

One of the best options for doing so is using a stop-loss. 

The stop-loss is an order type that sets a floor on your trade. If the trade falls to a predetermined loss, the stop-loss turns into a market order, and the trader exits the position. This limits potential losses. 

The most successful traders take advantage of this tool knowing that nobody is right all the time, and it’s important to have a safety net when they’re wrong. 

7. Keep the Pulse of the Market

Unlike buy-and-hold investing, trading isn’t a set-it-and-forget-it prospect. It’s an active process that requires the trader to constantly pay attention to open trades and look for new, quality trades to exploit. 

The most successful players in the stock market pay close attention to what’s going on in market news and on the trading chart to find the best opportunities. 

Because the market is a big place and it can be hard to keep tabs on all the potential trades out there, many traders use a stock screener to flag opportunities that fit their criteria.

8. Take Advantage of Technology & Tools

The process of trading has evolved into a highly technical one, and if your process doesn’t evolve with it, you’re not going to be very successful. 

The traders making the most money in the market have a toolbox of cutting-edge technology that helps shape their activities in the market. Some tools used by the most profitable market participants include:

  • Trade Ideas. Trade Ideas is a trading platform driven by an artificial intelligence created to exploit trends in the market. The platform finds signals and can even automate the trading process for you. 
  • Motley Fool Options. Motley Fool Options is a signal service for those interested in trading stock options. The service teaches traders complex strategies and solid risk management techniques. 
  • HALO Global. HALO Global is a stock screener on steroids. Using this tool, traders find the exact types of opportunities they’re looking for across global markets in the blink of an eye. 

These are just three of the many tools the most successful stock traders might use to find and exploit trading ideas. There’s a long list of other tools out there. The key is finding the options that give you the info and tools you need to execute your trading strategy. 

9. Treat Trading Like a Business

The most successful players in financial markets don’t just trade for an hour or two per week, nor do they sporadically access their trading accounts when they feel like it. 

No, the most successful in the trading arena treat their trading like a business they run. 

Serious traders have strict daily routines that govern when they’ll start trading for the day, when they’ll take their breaks, and when they’ll call it a day. They tend to follow these routines to the letter. 

Like with a business, traders may retain some of the earnings generated from trading — perhaps all the earnings in the beginning — to fuel future growth. 

10. Don’t Take Losing Trades Too Hard

You don’t have a crystal ball that can tell you the future, and no trading strategy is going to be right 100% of the time. No matter how good you are, no matter how much due diligence you do, you’re going to make a losing trade from time to time. 

Losing trades are OK.

Of course, losing money is never fun, but the positive trades you make should offset the losses from trades that end in the red. 

Don’t let a loss get you down and out or affect your trading day. Instead, move on with your day as if the loss never happened, learn from any mistakes, and you’ll likely find that profits are ahead. 

11. Never Stop Learning

Nobody knows everything there is to know about trading or financial markets. The most successful traders are always interested in learning new ways to get a leg up in the market and expand their skills. Some of the best ways to keep up with the new trends in the market include:

  • Listen to Podcasts. There are several free podcasts centered around the trading process. They discuss everything from new trading strategies to trading psychology, and no matter how experienced you are, you’re likely to learn something from time to time by listening in. Some of my favorite podcasts include “Chat With Traders,” “Fast Money” from CNBC, and “Trading Justice.”
  • Consider a Trading Course. There are countless trading courses online developed by various experts with their own unique concepts. Some of these courses are even free. Take the time to enroll in a course or two; you might be surprised at the strategies and concepts you pick up. 
  • Read. There are many books that can take your trading performance to the next level. A few popular titles include “Trading for Dummies,” “12 Months to $1 Million,” and “High Probability Trading Strategies: Entry to Exit Tactics for the Forex, Futures, and Stock Markets.”

12. Limit Position Sizes

Professional traders never put all their eggs into one basket. Although they may only have a couple of trades or even a single trade open at any given time, they’re not risking the boat in an attempt to catch a fish. 

The most successful market participants are thoughtful about the amount of money they risk on each trade, generally only risking a maximum of 5% of their portfolio’s value in any position. This way, even if the stock were to fall to zero, the trader never loses more than 5% of their overall portfolio’s value. 

Your risk tolerance should be considered when considering maximum position sizes. Traders who are extremely tolerant of risk could limit positions to 7.5%, while those with only a moderate risk tolerance may be more comfortable setting the maximum position size to 2.5% of their portfolio values. 

13. Get a Detailed Understanding of Technical Analysis

Trading is an extremely technical process that requires the trader to use charts and technical indicators to determine entry and exit points for each and every trade. Therefore, if you want to become the best of the best in the world of trading, you’re going to have to become a technical analysis guru. 

Take the time to brush up on your knowledge of technical indicators, the different types of trading charts and when to use them, and the tools that bring simplicity to the technical analysis process. 

14. Know When to Walk Away

Even professional traders have a bad day from time to time, and the emotions involved with taking losses in the market often exacerbate those bad days. That’s why the best traders know when it’s time to walk away. 

When a trading day just isn’t going how it should and you start to feel fear or greed setting in, turn off the computer and walk away, avoiding emotional reactions that could devastate your returns. 

Sometimes traders stop trading for a half hour and take a walk. In other cases, taking a whole day off may be in order. Regardless, traders who make the most money in the market know when they need a break. 

Final Word

Being a successful trader is far from impossible. The key is forming solid trading habits, keeping emotions out of the equation, and taking trading as seriously as you would a business. Successful traders analyze every opportunity and strike when their research suggests it’s time. 

Consider the habits above in your trading process and you’ll be making winning trades in no time. 

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