Success doesn’t happen spontaneously. Sure, you can get lucky by hitting on a big option play or winning the lottery, but that’s not real success. It’s a windfall. Long-term success only comes from hard work and developing winning habits. It takes dedication and discipline.
In this article, we’ve outlined five winning habits that lead to successful investing. The trading world is one where the impulse buyer will flame out quickly. To consistently make money in this industry, you need emotional fortitude, an analytical mind, and a willingness to self-reflect.
Despite trading and investing being two different activities, these principles can be applied to both. The good habits you develop as a trader can be easily utilized in the longer timelines of portfolio investing. Conversely, investors with good habits often become great traders.
Rather than full sentences for titles, we’ve labeled each of our top-five investing habits using a single word principle. They are actions, but they are also concepts. Practicing the action will be ineffective if you don’t understand the concept. The five habits are:
Take a moment and memorize these actions and the order in which we have arranged them. It’s intentional. This is a duplicatable process and a recipe for success. Think of it as an order of operations. Practice them daily and you’ll develop good investing and trading habits.
Habit #1: Research
Where do you get your information from? Researching free sites puts you at risk of advertiser influence and stock promoters. Paying for newsletters like The Economist will provide you more accurate, unbiased information. Trading and investing decisions require facts, not opinions.
Stay away from local newspapers. Ignore editorial posts and stock promoters. None of these offer any real value. They’re typically slanted by political bias or motivated by profit. The first step in developing good research habits is knowing where to do your research.
Once you have selected good sources, get into the habit of doing research every day at a specific time. It should be outside of market hours. You don’t want to get bogged down with articles when you’re trying to make trades or build a portfolio.
Understand what you’re looking for. Traders use platforms like Tickeron to analyze chart patterns. That information can be supplemented with numbers from financial statements or news releases about pending annual reports. The rest is just noise.
Investors may benefit from trend analysis or breaking news, provided they filter it through the bias lens. A glowing review of a particular stock, written by one of the company’s “insiders,” isn’t worth much. An analytical piece from an unbiased financial professional is.
Habit #2: Discipline
The word “discipline” is defined by Oxford as, “The practice of training people to obey rules or a code of behavior.” It goes on to say that disobedience is corrected by punishment. For investors and traders, that means losses. Without discipline, you simply won’t make money.
Leave emotion at the door. One of the most common mistakes investors make is buying a stock because they “feel” it’s going to go up in value. If there’s no facts behind the feeling, don’t do it. Go back to habit #1 and research the company. If the numbers look good, then buy it.
Don’t confuse innovation with impulse. Heroes in fiction use gut instincts to win the day and get the girl. In real life, those guys get killed. An innovative idea is great, but it’s useless in trading without numbers to back it up. How do you get those? You guessed it. Research.
Dedicate yourself to working specific hours. This is particularly true for traders. You can have a bad morning and recover later in the day. Investors aren’t tied to that strict a schedule, so breaks are okay. Just make sure you spend a specific number of hours on your craft.
Set goals and stick to them. It’s important to have clarity on what you’re hoping to achieve. If you’re looking to make fifty trades a day, do it. If you want to grow your portfolio holdings by twenty percent this week, make sure that happens. Discipline yourself to get it done.
Habit #3: Self-Reflection
The most successful people are those who can look at themselves in the mirror and know who they truly are. Practice vigorous self-honesty. You’re going to make mistakes. Don’t allow setbacks to defeat you. Focus on them as if they’re your teachers, not your enemies.
You can’t truly be successful at anything if you don’t identify your strengths and weaknesses. Think of it as a personal inventory. Do this prior to starting your day and then reevaluate it at the end of the day. You’ll likely discover a few flaws or assets you weren’t aware of.
Acknowledging mistakes is critical to this process. This doesn’t mean you should accept responsibility for all the losses you incurred. Sometimes that’s simply not your fault. Review your actions during the day and identify areas where you can improve.
This exercise is not meant to be self-deprecating, so don’t waste time beating yourself up for actions that can’t be undone. Don’t justify errors and don’t try to blame mistakes on others. Acknowledge your actions and plan to correct them going forward.
An often-overlooked facet of self-reflection is emotional state. When you see a pattern of poor decision-making, it’s important to evaluate your psyche. Investors and traders need to be emotionless when making financial decisions. Are you capable of that today?
Most importantly, remember that you are human. You have defects and shortcomings, so you won’t always make the right choices. That’s why traders typically use AI robots to keep them on track. Machines don’t make mistakes. Only humans do.
Habit #4: Correction
Thomas Edison once said, “I didn’t fail a thousand times. The lightbulb was an invention with a thousand steps.” Imagine if he had given up after just a few tries. His name would have disappeared from the annals of history. That’s the power of correction.
Edison revised his experiment, then moved forward. There’s a lesson there. Success and failure are not mutually exclusive concepts. True success, in this case, happened after multiple failures. Expect that if you want to be an investor or trader. It’s part of this life.
As we mentioned at the top, these habits are in order. You did your research, disciplined yourself to take action, then evaluated the good and bad of your trading day. The next obvious step is to correct your mistakes. Make sure you don’t make the same ones twice.
For this step to work properly, the self-reflection in the previous step needs to be thorough. Failing to admit a mistake will result in a repeat of that error over and over again. That’s the very definition of insanity. You can’t correct something you won’t admit is there.
You cannot, by yourself, correct market volatility or always predict when an uptrend will end. Failure to act on a downtrend is a trading mistake, but not necessarily an investing error. Focus on what you can actually control. There are some things you’re just powerless over.
Habit #5: Iteration
Rinse and repeat. Once you’ve made corrections to any mistakes you have made, go back to the beginning and do some more research. As we said at the top, this is a process. Don’t just do it once in a while. To be successful, this should be a daily exercise.
Iteration for investors is the repetition of successful processes. The exercise outlined here will help you refine your trading practices and come up with a system that works. Once you get there, repeat that process every day until it doesn’t work anymore, then change it.
That may sound simple, but it’s not. The stamina to consistently follow a set process every day is what separates amateurs from professionals in the investment world. There’s always a tendency to “tweak” something before you have evidence to support that decision.
Think of this from a data perspective. If you run an analysis on a trading pattern to compare it day over day, changing a variable in that pattern will distort the data. The iterations need to be clean for you to properly evaluate them. Otherwise, how will you know if it’s working?
Some folks invest for fun. Newbie traders are often part-time hobbyists. If you fall in either of those categories, this article may not have been for you. Experiment. Use gut instincts. Maybe you’ll get lucky. If you want to make real money, follow the steps we just laid out.
Suggestion: Utilize AI Robots for Better Trading Habits
For serious investors and traders looking to overcome some of their human fallacies, check out the AI application Tickeron. It can automate some of your research and trading activity and you can practice some of your techniques using their Paper Trade option. It’s not a replacement for the process we just laid out, but it is an enhancement.