I am often asked whether anyone can learn to be a successful trader. In general, the answer is yes. If you are willing to work at it on a daily basis and never stop learning you will do well, but your ultimate level of success will be highly dependent on your ability to cultivate the right emotional makeup.
With enough effort anyone can memorize a set of rules and develop instinctive responses to a variety of circumstances, but emotions always come into play when actual trades are on the line. You may know what you should do, but actually doing it, and doing it effectively, can be very difficult.
To some degree, good trading requires the suppression of emotions. It is obvious advice, but we shouldn't panic or act impulsively. There should be a clear reason for what we do. Selling into very weak action may make sense and not be panic at all, but we need to be clear about our motivations.
It is not productive to have emotional reactions to every loss and every gain. Gains and losses are just part of the business of trading and both should be taken in stride. One sure sign of an amateur trader is wild celebration after a good gain. Professions act like they have been there before.
Emotions are not the enemy. They just need to be harnessed in the right way. It is extremely important that traders have a positive mindset. They must have confidence that they can find good trades and then be willing to put some money at risk. Trading scared is a sure way to underperform.
Good traders have no fear of bear markets or volatility. They are confident that there is always a potential opportunity around the corner. They hope for the best but are prepared for the worst.
One of the most important emotional skills that exceptional traders develop is the ability to quickly shift from being very patient to being bold and decisive. Most people have great difficulty with this sort of timely transition. Patience creates inertia in most people. They become frozen and don't act when they need to do so. Most of the big losses that market players suffer come from sitting and doing nothing rather than from taking action.
Some traders are addicted to constant action. They have a very hard time waiting for a trade to work or for the right entry points to develop. They want to capture gains on every minor move and end up overtrading.
The emotionally mature trader learns to balance patience with decisive action. They stand aside for long periods of time while they wait for the right conditions to develop. When the time is finally right they make an aggressive move and wait for further developments.
Some of my best trades develop when I identify a stock I like, watch it for a very long time and then finally put money to work when the right conditions develop. There is always a temptation to jump in right away rather than stay patient for better conditions. Big gains come from patience, but they also require strong and decisive action at the right time.
The only way to develop the right emotional state for trading is mindfulness. It is necessary to be very self-aware and to question when you are doing what you are doing. Are your decisions driven by feelings or emotions or by a logical and objective plan?
Developing an effective trading methodology is only half the battle. The other half is effective execution of a trading plan, and you can't do that unless you understand the emotions that drive your actions.