Entering into the trading world is very easy. There are no tests to pass. You don’t have to demonstrate any special knowledge. All you have to do is have some money and sign some forms to convince your broker that you won’t lose so much money that they could have a problem covering your losses. Once you’ve passed these easy criteria, you can start competing with the many professionals who make their living in the market. The net result, for most people, is usually a very expensive lesson.
By 1982, I’d had three such lessons. In 1962 I purchased my first stock, watching it go from $8 to $20 and then down to zero. Little did I realize that I’d violated almost every fundamental concept that I coach traders and investors on today. About 12 years later, I watched a $20,000 trading account disappear in six months. And in 1982, I discovered that you could lose more than you had accumulated, through margin.
By 1982, I had a Ph.D. in psychology. Perhaps that’s what it took for me to realize that there was a pattern to my trading. I’d jump into the markets and my money would disappear quickly. Furthermore, most of my trades were losing trades. Perhaps the results I was getting had something to do with me!
Investment Psychology Inventory
As a result, I began extensive research to determine the qualities that great traders and investors had, qualities that I seemed to lack. By the end of 1982, I had developed a test to measure those qualities in people, a test called the Investment Psychology Inventory. Over the years, it’s proven to be a great predictor of success in the markets on page 72.
The complete test has 176 questions, with a number of questions in the ten areas that my research shows is important to investment/trading success. For this article I’ve included a mini-test to give you a rough idea of where you might stand. So before we discuss the qualities of great traders and investors, do the self-assessment.
This mini-test will give you a rough idea of where you stand compared to more than 5,000 traders who have taken the full Investment Psychology Inventory. When you finish, use the scoring key in the box on the last page.
Though taking this test provides a measure of your market skills, you are probably interested in a lot more than that. What are your strengths and weaknesses; and how do you compare with some of the best traders in the world?
Qualities of Top Traders and Investors
So what makes a top trader? When I work with people, I start by looking for two qualities, personal responsibility and commitment, because people who have these qualities are easy to coach to greatness.
Personal Responsibility. Personal responsibility is probably the most important quality that a top trader/investor can...