I'm often asked if everyone can be a winning trader or investor. My answer is no. Some people just do not have the emotional makeup to be successful and are not willing to do the hard work of changing.
An undisciplined and impatient person is very unlikely to have sustained success in the stock market. They will have to work hard to change these qualities that are hardwired into us to a great degree, but it can be done with persistence over a period of time.
Developing an effective trading or investment style is not that difficult. There are thousands of books that will provide you with a framework and methodology for making money in the market.
The hard part is the actual execution of a trading plan. Consistently doing what you know you should be doing for a very long period of time is how you build great wealth in the stock market.
Here are the 10 personality characteristics that will make you a winner:
1. Discipline. In recent columns, I have discussed how knowing what to do and actually doing it are two very different things. The biggest mistake that most investors and traders make is a failure to act when they know they should act. There are hundreds of things that lead to a lack of discipline, and they have to be addressed every day to succeed.
2. Patience. No matter what style of trading you use or the time frames employed, it is necessary to cultivate patience while waiting for conditions to develop. As Jesse Livermore once said "it was never my thinking that made the big money for me. It was always my sitting." However, patience can easily be misused as an excuse for lack of discipline and inaction. Even if you trade in extremely short time frames, you still have to be able to sit and wait for a trade to work the way it should.
3. Persistence. Great trading and investing is a daily slog. If you do the right things day after day over the course of many years, then you will be successful. It is necessary to deal with the misery of bear markets that may last years because they are inevitably followed by the glory of bull markets. Just keep on plugging away in a disciplined manner, and the positive results will eventually come.
4. Confidence. If you want to make money, you can't trade scared. You have to be willing to be aggressive when the right conditions are in place. You have to believe that you are making the right move and be able to withstand doubts and uncertainty that will always arise. A great trader has the confidence to press their bets when conditions align.
5. Humility. If you aren't already a humble person, the market will eventually find a way to humble you. Great traders have many losing trades, and they will make mistakes quite often. Rather than deny that fact, it is necessary to embrace it and recognize that we are at the mercy of the stock market gods. We will learn humility on a regular basis if we trade the market, so we might as well embrace it rather than fight it.
6. Positive Thinking. Great traders are positive thinkers. That doesn't mean that they are perma-bulls. It means that they are always optimistic that they will find another great opportunity. The great thing about the stock market is that if you are patient and keep looking, you will find another opportunity. Bear markets are just the setup for the next round of profitable trades. Positive thinking is what keeps us motivated and prepares us for the necessary action.
7. Objectivity. There are two sides to every trade. Great traders recognize that there is no such thing as a sure thing in the stock market. There is always someone very smart with plenty of capital on the other side, and we need to appreciate their thinking when we evaluate a trade.
8. Self-awareness. To trade effectively, it is extremely important to be aware of the emotions that you are feeling. Are you feeling scared? Are you greedy? Are you impatient and uncertain? If you can't see these emotions in yourself, then you won't be able to address them.
9. Curiosity and Innovation. Great traders are always looking for new ideas and new approaches. Markets are always changing, and if you want an edge, it is important to look at how the environment is shifting and how new approaches may yield better results. Great traders never stop learning and are fascinated by what the market offers.
10. Balance. All the characteristics discussed above have to be balanced. We need to be both patient and aggressive, humble and confident, and positive and objective. Only when we have the right balance of these characteristics will we be able to really excel.
Trading and investing can be one of the most satisfying monetary actions in life, but if it was simple and easy, it would not be so potentially lucrative. It is because it is hard and demands so much of us that we can become wealthy if we do it right.