Developing the Psychology of a Successful Trader
Trading has an appeal to people from all walks of life.
Becoming a successful forex trader does not require advanced degrees in economics or business, and a large number of the most successful traders tend to be self-taught.
Nevertheless, certain personality types seem to be better suited than others when it comes to the dynamics and stress involved in trading.
Basically, not everyone can feel comfortable putting their or other people’s money at risk on a daily basis, regardless of the potential returns.
Dr. Van K. Tharp — a prominent psychologist, author and trading coach conducted in depth research and studies of a large number of traders with different success rates. He determined that most traders tend to fit into several particular personality types through which they can be defined as individuals and as traders.
Dr. Tharp coaches many professional traders and is one of the foremost authorities on trading psychology and trading personalities. His website offers a free online personality test where traders can determine which psychological trading profile most closely fits their own personality.
Psychological Trader Profiles
Dr. Van K. Tharp identified fifteen psychological trader profiles and classified them into three categories according to the statistical probability of success for each group.
He identified certain personal and psychological characteristics that are distinctive among successful traders and then created psychological tests based on which a trader profile can be accurately evaluated.
The 15 psychological trader profiles along with their respective probabilities of success are listed below:
High Probability for Success Good Chance of Success with Some Work
- Planning Trader
- Strategic Trader
Possibility of Success with Hard Work
- Fun Loving Trader
- Artistic Trader
- Supportive Trader
Key Elements in the Successful Trading Psychology
As was mentioned above, Dr. Tharp identified several key traits that are found in successful traders.
Some people have developed these traits naturally while others may have to work harder to attain them. Nevertheless, in his studies, Dr. Tharp repeatedly found and showed that there are certain characteristics that profitable traders share and that unsuccessful traders also tend to have some particular personality traits in common.
The three key psychological elements that all great traders share, according to Dr. Tharp, consist of:
- The ability to see the big picture and to be able to make connections in order to recognize new possibilities;
- The ability to make decisions based on logic and analysis; and
- The ability to be orderly, decisive and be able to do things sequentially.
In addition, the one common thread that runs through each of the personalities which have the potential for successful trading consists of the ability to act in a practical, decisive and realistic manner when involved in a trading situation.
In essence, by cultivating and combining the best of the aforementioned traits identified as beneficial, the trader will tend to build a personality which will then make the right trading decisions most of the time.
Keeping a trading journal is also a great method for obtaining the necessary feedback from your trading activities to allow you to change for the better. In fact, keeping a trading journal is beneficial for senior and professional traders, and it’s a must for developing traders.
Successful Traders Devise a Plan and Stick to it
In terms of a brief recipe for success when trading, the successful trader will not only have a succinct and profitable trading plan, but will also need to cultivate the discipline to execute the trading plan as close to the rules as possible.
If these two key elements for successful trading are not practical for some reason, then a trader probably needs to consider either changing their style or financing others to trade for them to achieve better results.