The Mental Strategies of Top Traders: The Psychological Determinants of Trading Success

Introduction

From my perspective, investing is not simply a fair coin-toss where everyone has the same chance of winning or losing. There is no question that some people consistently outperform other players. So, the question becomes, "How can you increase your chances of winning?" That question is the driving force behind this book. While I cannot define a step-by-step formula for trading success, I have outlined various attributes of successful traders in the hope that by learning more about them you can improve your own odds and the odds of those around you.

Certain psychological characteristics of successful people obviously can be found in successful traders^[] and portfolio managers. However, there is something unique about investing that requires some additional, seemingly incongruent, characteristics. For example, the most successful investors will have a high tolerance for risk-taking in a controlled way. They will also have a capacity for making rapid decisions with insufficient information but with sufficient thoroughness and discernment to increase the probability of success. They will have a strong desire for wins but have a tolerance for losses. They will know how to recover from failure and to persevere because at least 40 to 50 percent of their trades are going to be wrong.

^[] I consider the terms PM and trader completely equivalent; therefore throughout the course of this manuscript I will use them interchangeably.

Of course, I have explored many of these themes ...