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What Differentiates a Winning from a Losing Trader?

12 Years ago | December 17, 2013 1/28/23, 12:00 AM

As a participant and student of the global markets for over 20 years, I have always been fascinated by what makes a trader successful and what differentiates the winners from the losers. Trading success I define as one who can consistently make money while avoiding major drawdowns...See what differentiates a wiining trader from a losing on in this article by a respected veteran trader.


What Differentiates a Winning Trader from a Losing One?

As a participant and student of the global markets for over 20 years, I have always been fascinated by what makes a trader successful and what differentiates the winners from the losers.  Trading success I define as one who can consistently make money while avoiding major drawdowns. If one listens to the media or looks at any of the advertisements for retail currency trading on the internet, one would think this is an easy game which provides a road to daily riches.  As we all know or learn very quickly, that is not the case.  Success rates in this game are very low and there aren’t many retail forex traders who make money on a consistent basis.  In fact and unfortunately, a majority of retail fx traders within a few years blow up their accounts once or multiple times.   Why is that?  If I had to define one characteristic that separates profitable traders versus non-profitable ones it is PSYCHOLOGY!

Psychology Matters

To many, that comes as a surprise.  A lot of us, especially newcomers to the currency trading game, think if we can only find that right system, trade entry signal, the latest indicator or some guru who is going to post trade ideas profitably we will have the magic tool to make a living in this market.  We exhaust ourselves on efforts to find that one holy grail system or indicator that is going to lead us down the road to riches!  Thankfully, let me state that there are many ways to make profits in the markets and one has to find a methodology that works for them (maybe we can explore this in another article).  I have studied a lot of systems, tools and methodologies of trading and have seen successful traders use many different ones to make money.  I have seen Elliott Wavers, Gann, trend followers, swing traders, countertrend traders and even some who use lunar cycles make money on a consistent basis.  This indicates that there is no magic bullet system or indicator that will work for everyone.  Again, what separates the ones who make money consistently is PSYCHOLOGY.

Traits of a Winning Trader

One of the main traits of winning traders is that they cut their losing trades ruthlessly.  Psychology plays a big role in this and the psychological make-up of a winning trader and a losing trader are polar opposites.  The best I have seen in this business are not focused on hitting “home-runs” and being right, but are focused on risk/money management and making sure they are able to play the game the next day. All of the successful traders I have encountered religiously cut their losing positions.  It is not about being right to them, it is about making money and making sure they have the capital to play the game in the future.  Winning traders do not let their egos get in the way.  They are not forecasting or trying to justify their positions to others and placating their ego’s that they are right. They are focused solely on making profits and limiting drawdowns and have no problem cutting their losing positions.  To the normal participant, cutting losses hurts the ego because one has to admit they are wrong.  What a lot of people do when they are in a losing position is that they use the emotion of hope.  They don’t want to cut the position and be wrong, so they hope the market comes back for them where they can get out at breakeven or even a profit.  In this instance, normal human psychology has to be turned upside down.  Winning traders do not use hope in this instance of sitting on a losing trade like the majority, they have risk/money management rules that force them to get out of the losing trade.  Winning traders are not worried about right or wrong, but fear losses and want to always make sure they are able to play another day in the market and ruthlessly cut them.

Let Your Profits Run

Another differentiating psychological trait winning traders have is that they let their profitable positions run.  The easy “feel good” thing to do is to take a profit. It provides instant gratification.  Here again, profitable traders turn normal human psychology upside down.  While most use the human emotion of fear in this instance that the profit will disappear and take the gains, winning traders have a plan with profit targets and trailing stop losses.  They don’t allow the fear of losing the profit force them to take the “feel good” way out and book the trade.  In fact, one could argue that this is the time a winning trader uses hope and is in direct contrast to what a losing trader will do.  Most of the traders I know who make money on a consistent and long-term basis make the majority of their profits in just a few trades a month.  They allow their profits to run.

Trading in the currency markets is a very difficult endeavor.  There are many methodologies and ways to make a profit.  Unfortunately, there are very few who make money on a consistent basis with limited drawdowns. The one’s I have seen have different psychological traits which allow them to let profits run and cut losers ruthlessly.


By Joseph J. McDonough

Joseph J. McDonough aka NC JJM on the Forex forum has 20 years of trading experience in global markets and has been a Global-View member since1999.

This article published in our June 1, 2012 newsletter and it is worth reposting in our blog as it supports the views expressed in several of our articles. It was written by a respected trader and not by someone looking to sell a product. One goal of the Global Traders Association is to work for a level playing field and one way to do so is to pass on insights and perspectives on trading to our members.


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