As I was searching through my book shelves this week, I stumbled on a classic: The 7 Habits of Highly Effective People.
I love learning about how to be more successful. In fact, I’ve written two books on the subject of being a successful trader. I interviewed 17 different traders to find out how they think and act.
In reviewing Covey’s book, I started thinking about how this would apply to traders. Call it “Eddie Z’s 7 Habits of Highly Successful Traders.”
1. Be Proactive
Covey says to be highly successful you should choose an effective action in any given situation. Successful traders take action even when they are down in a trade. They don’t wait to see how things will play out.
Successful traders realize their capital is best leveraged on the highest value trades. As soon as they realize they’ve picked wrong, they exit quickly and move on.
Taking action works just like compound interest. Covey’s Principle of Proactivity builds over time and strengthens your effectiveness as a trader.
On the other hand, failing to make a timely decision to exit a poor trade is the #1 cause of major drawdowns in your trading account.
2. Begin with the End in Mind
Successful traders know what’s important and what isn’t. They know why they are a trader. They have clear goals and a clear vision for their success. And they have a plan for how to get there.
For my part, I trade stocks exclusively. I focus on finding breakouts with long positions. I generally day trade and sometimes swing trade.
I don’t worry about options or shorts. Successful traders don’t worry about mastering every market and every style of trading.
3. Put First Things First
Successful traders are able to focus their time, energy, and money by working a system. A good trading system provides clear rules for when to enter a trade, when to take a profit, and when to take a loss.
Having a system allows traders to evaluate their investments with clarity, and to keep emotions out of the picture. For example, Warren Buffet never invests in a company if he doesn’t understand what they do. This rule kept him from making bad investments in 2007 and 2008.
4. Think Win-Win
Trading can be a lonely business because it feels like a solo sport. In reality, successful traders tend to work in groups. Unsuccessful traders fly solo out of fear of being vulnerable about their goals, their failures, and their trading strategies.
Every successful trader I’ve talked to isn’t afraid to let others get the credit or share in the reward. They are plugged into a community that serves as their accountability group.
5. Seek First to Understand, Then to Be Understood
Successful traders are faster at problem solving than unsuccessful traders. The way they solve problems fast is to LISTEN, set aside biases, and ask great questions.
Successful traders do as Covey suggests: “eliminate prejudices and the desire to prescribe.”
They don’t assume they have all the answers. Instead, they ask questions of other traders, especially seasoned veterans who have seen a variety of market cycles. (This doesn’t mean they take random trading advice from strangers.)
Successful traders don’t get stuck in a rut by listening to the same talking heads squawk about the market day after day (or by listening to the voices in their own heads). Instead, they seek different opinions and perspectives from people who have different backgrounds than their own.
Many of the best hedge fund traders understand the importance of diverse opinions. Leveraging a diversity of thought is exactly how they spot big moves in stocks and futures before anyone else.
For example, Carl Icahn did extremely well trading Netflix after his son Brett initially brought that idea to him. Later, Carl was the one who wanted to sell it to rebalance their portfolio, even through Brett disagreed. Working together they booked extraordinary profits. They did it by leveraging their two diverse opinions.
7. Sharpen the Saw
This principle is overlooked by all but the most successful traders. And, it’s very important to me personally. Covey suggests you can only maintain your success by renewing yourself mentally and physically.
I’m a life-long learner. I devour a few books every month. I buy training courses to learn new skills. And I seek out mentors to learn from.
I also am disciplined about my health. I bike a few miles every day. I go to the gym. I’ve customized a healthy eating plan that works best for me. All told, my commitment to “sharpening the saw” is the single biggest factor in my trading success.
I’ve noticed other successful traders also constantly improve themselves mentally and physically.
Just as in any other aspect of life, there are clear habits practiced by the most successful traders. Get to work today making these habits part of your approach to trading, and you’ll soon see the benefits in greater trading success.
We hope today’s Quick Tip helped you. If you found this helpful, you’ll want to check out the other computer How-To’s I’ve created on this page. You can always call us if you have questions: 800-387-5250