Day trading is not just about finding a strategy, practicing it, and then making oodles of money. Day traders develop certain traits, which in turn allow them to implement a strategy effectively in all market conditions. When someone starts trading, it's unlikely they will possess all these traits. They may be strong in one, two, three, or even four of them, but might need to work on the other traits. That's good news. It means successful traders aren't born; they develop through arduous work that includes these traits.
- Successful day trading usually requires a lot of hard work to develop the necessary skills.
- Many day traders have some natural traits to get started but will have to work at others.
- Successful traders develop discipline, patience, adaptability, mental toughness, independence, and forward thinking.
1. Day Trader Discipline
Discipline is a key trait every trader needs. The market gives you infinite opportunities to trade. You can trade thousands of different products every second of the day, yet very few of those seconds provide great trading opportunities. If a strategy provides about five trades a day, and stop losses and targets are automatically set for each trade. There are only about five seconds of actual trading activity during the day. Every other second is a chance to mess up those five trades, taking more trades than you should, getting distracted or skipping trades, prematurely exiting the trades you are in, or holding trades too long.
That doesn't mean your trades only last five seconds. Five seconds of activity means it only takes one second to place an entry order, and then you need to sit on your hands again. If you adjust your stops and targets, this may take another second.
The bottom line, though, is that your actual trading time is minuscule each day, even if you're an active day trader. The rest of the time, you need to sit there, disciplined, waiting for trade signals. When a trade signal occurs, you need to act without hesitation, following your trading plan.
Traders require the discipline to do nothing when there are no opportunities present but must still stay alert for potential opportunities. Then, they need the discipline to act instantaneously when trading opportunities occur. Once in a trade, traders require discipline to follow their trade plans.
Patience is related to discipline. As discussed above, day trading (and trading of all types) requires a lot of waiting. When a trader is entering or exiting the market at inopportune times, they will often say, "My timing is off." One could also say, "My patience is off." Jumping into, or out of, trades too early or too late is a rampant problem among new traders.
They simply haven't developed their patience enough to wait for the great entry and exit. This trait goes hand in hand with discipline, and you need to be patient until there is a call to action, then you need to have enough discipline to act without hesitation.
Traders require patience in waiting for their ideal entry and exit points—based on their strategy—but when the moment calls for it, they need to act swiftly. There is a constant seesaw between prolonged periods of patience, followed by split-seconds of action, which are then followed by patience, and so on.
You will never see two trading days that are exactly alike. This constant difference poses a problem when someone only looks at textbook examples of a strategy. When they go to implement it, everything looks different than it did in the example. Maybe there is more volatility, less volatility, a stronger (or weaker) trend, or a range.
Successful traders implement their strategies in all types of market conditions and know when they shouldn't use their strategies—for example, during a range if they use a trend following strategy. This need for quick changes requires mental flexibility. A trader must be able to look at the price action of each day and determine the best way to implement (or not implement) their strategies, based on the conditions that are present that day.
Traders must be able to implement their strategies in real time, in all market conditions, and know when to stay away. Not adapting to current market conditions will often result in a swift drawdown of capital.
4. Mental Toughness
You could also think of this as being thick-skinned. The market will constantly throw losing trades at you, and you need to bounce back. If you feel discouraged every time you lose a trade, or your strategy fails to produce the result you expect, your life will be miserable. Losing trades are constant; most successful day traders will have losing trades every day.
The difference between a successful trader and an unsuccessful one is that most successful traders win slightly more on their winners than they lose on their losers and typically win slightly more often than they lose. If your wins are much bigger than your losses, you may only need to win 30% or 40% of your trades.
Other traders may win 60% or 70% of their trades, but their wins may be equivalent to, or only slightly larger than, their losses. In either case, losing trades happen. Daily profits can still occur despite those losses, but only if the losing trades don't discourage you. If losing trades cause you to lose focus, you're more likely to miss (or skip) the next trade, which could be a winner.
Losing streaks also occur. Traders must stay focused and rational through a losing streak and not let the loss of capital affect their judgment—which will make matters worse. It requires mental toughness to stay focused on executing your trading plan and realize when the market isn't providing you with good opportunities for your strategy.
A trader must withstand a continual barrage of punches from the market. Losses are a fact of trading, but it's how we act after some tough trades that make all the difference. After taking losses, move on, and continue following your trading plan. If you are following your plan, but you just keep losing, market conditions likely aren't right for your strategy. In that case, walk away until they are. Sometimes being mentally tough means making the hard choice of not trading.
Initially, you'll likely get some help with your trading, whether it's from reading articles or books, watching trading videos, or receiving mentoring. Ultimately, though, it's you who will place your trades and determine your success.
Eventually, traders must develop a sense of independence, no longer relying on others. Most traders choose this path because they find it to be the most profitable. Once you have a trading method that works for you, you don't want other people's opinions. You do what works for you, and that is that.
Other traders must learn independence the hard way. They bounce from mentor to mentor, or trading book to trading book, always feeling like they are missing something. Or the service they subscribe to shuts down, and now they have no idea how to trade because they relied too heavily on someone else. If you develop independence, taking responsibility early on for your education, profits, and losses, you won't have these problems down the road.
Independence isn't taking on the world alone. Get help whenever you need it. Independence is just developing a trading style that works for you (whether someone else helps you or not). Independence is about working to build a personal toolbox, so you can remedy your trading, instead of relying on others (who may not always be there when you need them).
If you are just beginning your trading journey, start developing your independence now. Take the information others to offer, analyze it for yourself, make it your own, and master it. That way, you don't need to rely on them anymore.
6. Forward-Thinking Trading
Day traders can't be stuck in the past. While day traders use data from the past to help them make trading decisions, they must be able to apply that knowledge in real-time. Like a chess master, traders are always planning their next moves, calculating what they will do based on what their opponent (the market) does.
As discussed in the adaptability section, the markets are not static. We can't say we will buy at a certain price in five minutes, and then ignore all the price information that occurs during those five minutes. Day traders are constantly planning their next action, based on new price information they receive every second. They consider different scenarios that could play out and then plan out how they will implement their trading plan (entries, stop loss, targets, trade management, position size) under each of those various conditions.
Talk yourself through what needs to happen for you to enter a trade. This self-talk will keep you focused on the price action, as well as reiterate your strategy within your mind. As a trade approaches, consider what could happen while you are in the trade (doesn't move, moves a lot or little, moves quickly for or against you, moves slowly for or against you), and how that will affect your psychology and trade.
Go through what you will do in each scenario so that you can quickly navigate the changing market conditions. That is forward thinking, and with practice, it can become almost instantaneous.
Forward-thinking traders know what they will do, no matter what happens. It allows you to act decisively, without hesitation. Have a defined set of protocols to use in rare but inevitable events, like losing your quote feed, for example. Forward thinking takes practice and consumes a lot of mental energy at first, but the more you practice it, the quicker and easier it becomes.
The Final Word on Day Trading Traits
Most day traders aren't born with all these traits, rather they possess a few and must work rigorously on the others. You can learn these traits, which is a positive thing because it means successful day trading is determined by you and not necessarily your genes. Some of us are prone to certain weaknesses, but we can offset these with strengths, which can help us mitigate the damage of our weaker qualities.
Take a personal inventory of what qualities you need to work on and what your strengths are. Ideally, take this inventory based on trading experience, since trading tends to expose vulnerabilities and strengths we didn't know we had. The personal inventory requires looking at your discipline, patience, adaptability, mental toughness, independence, and forward-thinking.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.