What type of skills does it take to become a successful trader

In the previous blog post, we discussed who you need to become to be a successful trader and investor. Let’s go further and delve into some tactical skills you need to become successful. 

You need to be able to do some basic math

Math is key in this industry.  If you hated math in school it’s time to get over it.  Most of the time when you thought Mrs. Chang was teaching you a bunch of nothing that you would never use someday… well that “someday” happened and that someday is here. You need to understand some basic math because you will be using addition, subtraction, multiplication and division in everything that you do with regards to investing or trading in the stock market.  

There is nothing related to the word “money” that does not have math involved with it. So even if it means carrying a calculator with you everywhere, which is normally on your cell phone, you have to get behind the concept of doing some basic math.

Understand probability and statistics

This one is my favorite.  This is where you go from a gambling stock picker to confident stock trader.

Let’s look at the definition of probability – it is a strong likelihood or possibility that an event will occur.

Now let’s look at the definition of statistics – it is the science that deals with the collection, classification, analysis and interpretation of numerical facts and data by use of mathematical theories of probabilities.  Statistics are especially useful in drawing general conclusions about a set of data from a sample of the data.

When you put probability and statistics together in the stock market, then what we do everyday is go out in the marketplace and look for trades that have a probability (likelihood) of doing what we expect it to do in a given time frame, given some sample data – which is normally price action and data derived from candlestick charts.

Ability to read charts and spot trends

This is one that I teach in my course Foundations of Stock Market Trading.  You need to learn how to read stock charts and spot trends. There are certain trends that show up in a stock chart that will allow you to predict, with a certain level of accuracy, where the stock is going and how long it will take to get there.  Once you master this one, then it is easy to apply the probability and statistics and feel confident about the trade you placed.

Skills You Need Successful TraderCalculate risk versus reward ratios

Do you know what you’re risking for what you are planning to gain? Notice I did not say for what you are “hoping to gain”.  If you mastered reading charts and applying probability and statistics, you should have a solid plan for your trade with well-defined risk/reward ratios.  You should know exactly what you stand to lose in comparison to what you plan to gain and be okay with that level of risk.

Need to have a game plan for every trade

We just mentioned this briefly, but most people do not have a game plan for every trade they enter.  Here is what a game plan should consist of:

  • Defining where support and resistance is
  • Determining your entry and exit price
  • Determining your entry and exit strategy
  • Calculating your risk reward ratio
  • Determining your “I’m wrong level“

These are some of the things it takes to become a successful stock trader. When you mix who you have to become and the tangible skills that it takes, you get a well-rounded picture of how to become a successful trader. If you continue to master these skills, you will be successful.