The 5 habits of successful prop traders! Only 5? Well, no, but there are the imperative and most common ones. One of the fascinating things about working in the financial markets is that there are always opportunities to make money. And, because of the vast number of instruments and markets that exist, there will always be different ways to make money.
This is especially true for prop traders who are only limited by their imagination and creativity. For example, a prop trader might trade equities, fixed income, currencies, or commodities. Or they might focus on technical trading strategies such as trend-following or mean reversion.
If you asked a group of prop traders how they make money, you’d get many answers. However, there are some common characteristics that all successful prop traders possess. Here are five habits to consider if you aim to be among the best:
Trading a strict and disciplined trading system.
Creating and trading a strict and disciplined system is the only way to achieve consistent profits over time. You can avoid mistakes that could cost you your account by eliminating emotion. All winning traders have a trading system, whether they realize it, or not!
While many losing traders do not have a system of rules in place, many do have a system but fail to follow it. It is very important to stick with your system through thick and thin. If you find yourself deviating from your rules, then perhaps you should reevaluate your current strategy or create new rules that better fit the way you want to trade.
Wake up early.
Waking up early is tough, especially when you’re a night person. But here’s a little secret: it will make you more productive than any other habits combined. If you are one of the first to wake up, most likely, you will be one of the first to get ready for work. That gives you a jump start on everybody who sleeps in and then has their day interrupted by their morning routines.
Being an early bird also helps because successful prop traders have to research trends as soon as possible to predict which currencies or stocks might move that day. They need to know what’s happening around the world before trading starts at 9:30 am EST, which means waking up by 7 am at the latest. The sooner they can read about news events and analyze charts: the better informed their trades would be.
You don’t have to become a morning person overnight, but if you can make just one small change in your routine, like going to bed 15 minutes earlier or turning off your phone after 10 pm -it could pay huge dividends for your trading career!
Analyze charts and market conditions.
Your analysis should be based on a combination of fundamental and technical analysis. Fundamental analysis is the study of economic, social, and political factors that affect the price of financial instruments.
Technical analysis uses data from market activity, such as past prices and volume, to anticipate future market moves. It’s all about recognizing patterns in currency prices so you can make educated guesses about where the market will go next.
It would help if you used various charts and indicators for your analysis. Charts are graphs that display the historical price movements of a security or other data. Many types of charts are available, including bar charts, candlesticks, and line graphs.
Follow the trend.
Trading with the trend is a strategy that many traders follow. It is popular because you’re trading in the direction of momentum, which has a high probability of working out for you. However, trends can also be short-term or long-term, so before you start trading with the trend, consider whether you’re looking at a short-term or long-term time frame and trade accordingly. You can use indicators such as MACD to determine if there’s an uptrend or downtrend on a particular currency when you look at its chart.
Following trends is such a key part of trading that it’s hard to overstate how important a habit is for beginners and seasoned traders alike.
For example, if a trader is looking at a weekly chart and sees that the price is far above the moving average, it indicates that the asset could be overbought and could reverse to the downside. However, if you look at a daily chart and see that price has dipped below the moving average but has now bounced back above it, you could consider that a buy signal because the price has moved with the trend again.
Real-time news sources.
While watching the news can be a great way to get a sense of how the market operates, following it closely and using it as your only source of information can be dangerous. Trading requires that you think critically about each piece of information you receive.
You should also diversify your sources. The BEST souces I use for live coverage is Bloomberg, check them out! A good trader will use multiple news sources and opinions to make an informed decision, rather than relying on only one perspective. If a story seems pertinent to trading, try researching it online or asking other people in your network what they think about it. The more voices you hear on a subject, the better equipped you’ll be to form an accurate opinion based on your findings.
Aggressively manage risk.
The most important aspect of a successful trading career is managing risk effectively. This includes limiting your losses, locking in profits, and understanding how much you’re willing to lose on each trade. That doesn’t mean you should “play it safe” and never take any risks — quite the opposite. Successful traders know that taking risks is part of the game, but they do it intelligently.
Good prop traders can identify risks before they materialize into losses. They know exactly how much risk they can take on at any one time so that they don’t get burnt by volatility. They do this by always keeping an eye on their key performance indicators (KPIs), such as profit and loss, costs, expected value, and win ratio — over different periods (like individual trades and monthly periods) so that they can adjust accordingly while there is still time to act.
That is it for this article, thank you so much for reading it, please give your feedback via the comment section below. Also, check out our next recommended article here: The top prop traders of 2022 and how they make money!
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