First off, let me emphasize that by professional traders I mean people who actually trade, have done so successfully for years or even decades and have the track-records to prove it. Your run-of-the-mill internet marketer selling trading courses, indicators or seminars obviously doesn’t fit the bill.
Many people would be inclined to say that intelligence is a key difference. After all, the finance industry attracts some of the brightest minds that come out of universities every year, right ? I’ll show you a Market Wizard’s answer to that:
How important is intelligence in trading?
I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstandingly intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important – William Eckhardt in New Market Wizards
There you have it, emotional makeup. Also known as discipline or self-control. These might just sound as overused words for people familiar with trading books/articles. So to better explain their meaning I’ll make an analogy to fitness, an activity similar in many ways to trading.
If you think about it, assuming you’re overweight and want to get a lean body: in theory it is not a difficult process (with very few exceptions where genetics or medical problems play a major part). You just have to keep a negative balance between your food intake (which should have the right mix of carbohydrates, proteins and fats) and your energy expenditure. Add a few sessions of cardio and weightlifting per week and that’s about it.
Why do we have then so many people that jump from one magic diet to another, buy the latest ‘slim in 7 days’ DVD or hire personal trainers and still don’t manage to achieve medium and long term results ? Because of lack of self-control. Sooner or later they lose the discipline to watch their diet and exercise. On the other hand, the fitness professional sticks to his or her plan week in and week out.
Back to trading now: let’s assume you have developed a strategy with an edge and that it fits who you are. By the way, this is an ongoing process, not something you do today and you’re set for life – one of the reasons why buying robots and automatic systems to get rich is just a mirage.
Will you be disciplined enough to stick to it ? Or will you just give it up in the middle of a draw-down in search for something different ? Will you have the self control to follow your plan every day and every week ? Like for instance, doing the chart analysis required, respecting the risk management rules, doing research and so on. Or will you just do everything on a whim ?
The way your trading activity answers these questions will be a clear indication of the path you’re on.