Critical skills essential for excelling in the role of an investor/trader

22 May 2024

To be successful in the investing world, one needs to possess enough skills to provide them with a certain competitive advantage over the herd. The skills that one could acquire not only take days or months, however, but it is also a life-long learning process that never ceases. The one who thinks had garnered enough knowledge or skills about the market and tends to believe himself/herself superior to the market is sure to perish on a long-term basis. Hence, the moral of the statement is that one should never think that s/he is greater than the market, instead what s/he should do is focus on acquiring skills on a day-to-day basis and analyze the trends and patterns, to analyze the market fluctuations and showcase the tendency of never stop learning attitude which would provide them with good returns over the period.

One of the aspects on which often most people have misconceptions is, that they tend to believe investors and traders are the same. But it is not true. Investors and traders are different based on their strategies. Hence, trading and investing are also separate, in the financial world. Trading involves buying and selling the stocks on a short-term basis, buying when the stocks are at their lows, and selling them at their highs. Whereas, investing refers to buying stocks and holding them for a prolonged period so that the power of compounding works out and favors the investors who followed this strategy.

Hence, this article will brief you about the necessary skills to become a successful investor first, then move towards the skills required to become a successful trader. However, it could be seen that the majority of skills coincide with both traders and investors, as they are the skills that are a must whether you are trying to trade or invest in the financial world.

Skills Required to Become a Successful Investor

1. Financial Literacy

One of the major skills to become a successful investor is financial literacy. The investments you will make when you become financially literate outweigh the investment steps taken when you lack strong financial knowledge. Successful investors own the assets that make money for them even when they are doing nothing because they are financially literate regarding their asset allocation. They know where to invest and what provides them the return regularly. They moreover neglect to allocate the asset whose value would depreciate over time. Instead, they allocate the assets whose value would be appreciated in the coming years. For instance, real estate, gold, stocks, index funds, etc. They know very well about the flow of their income, expenses, assets, and liabilities and possess solid financial knowledge to manage them efficiently. Acquiring in-depth financial knowledge takes a lot of research and time. So, devote as much as possible to learning finances before delving down into the jargon of the investment world.

2. Lifelong Learning Attitude

One of the common traits you will find among many successful investors to date is their attitude toward learning. They enhance themselves through consistent learning and their adherence to gaining new exposure and knowledge every single day. Successful investors consider themselves as students of investing, and their perception that they will never achieve mastery in this field implies that there is still more to learn, and it is a never-ending process. No matter what level of experience you possess, there is much more to grasp about investment and finance.

The world of investment is ever-changing. Therefore, what you would have known yesterday would not work today, which means you need to keep up with the trends showing consistency in your learning attitude. Read books, articles, and journals to gain something new every single day. All you need is the internet, and you can learn everything possible that exists to date. The only thing you need is the willingness to do it right now and stay away from procrastination.

3. Value Investing

Value investing is the one strategy that you cannot ignore if you want to achieve a high margin of returns in your investment journey. Value investing simply means identifying the undervalued stocks that showcase minor volatility in the market if compared to growth stocks. As mentioned above, one must have the mentality to adapt to a buy-and-hold strategy as an investor, not one who acts as a trader constantly trading on a time-to-time basis.

Buy-and-hold strategy and value investing correlate with each other in one aspect i.e., providing an enormous return on a long-term basis. To clarify, when you choose value investing, you will choose value stocks. Those value stocks would provide good dividends on an annual basis. Further, since you follow a buy-and-hold strategy, you let the stocks grow over an extended period. Ultimately, you will benefit both through capital appreciation and dividend gains enlarging your return through the power of compounding on the capital invested.

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4. Emotional Intelligence

Emotional Intelligence is the less talked about skill, yet one of the vital when it comes to investing. Also known as Emotional Quotient (E.Q.), it measures how an investor keeps himself/herself calm under pressure, how s/he tends quickly to recover from failure, and how one can creatively think under pressure and handle the circumstances surrounding him/her. If you analyze successful investors, they do not provide knee-jerk reactions to market fluctuations. Instead, they take a step back and try to analyze the market scenario. Many times, it could be frustrating when the investment does not go down as planned. In such a case, you need to control your emotions and maintain calmness.

If you become successful in terms of emotional control, it will be effective and help you not to make poor investments that would have otherwise done due to your emotions and lack of control. High E.Q. helps you not make random decisions in the market and keeps you away from overconfidence and greed when the market is in its bullish trend, and fear and doubt when the market is in the bearish trend.

5. Awareness at its Peak

One factor that differentiates an ordinary investor from a successful investor, is the awareness level possessed by him/her. If you want to succeed from the rest of the crowd, you need to update yourself with financial information and the events occurring in the contemporary context. You should be aware of both macro and microeconomic factors affecting the globe and your nation. You need to keep track of changes in policy whether it be taxation, interest rates, change in management of the company, etc.

6. Strong Fundamental Analysis

You could not deny the fact that one could reach nowhere if s/he does not possess robust fundamental analysis skills. Before investing in any company, make sure you know enough about the industry the company belongs to, its performance over the years, net profit, dividends provided, etc. Make sure you know how to read the company's financial reports, profit and loss statements, balance sheets, cash flow statements, etc.

You should know how to analyze the financial ratios of the company. If you can do so, you will have overall information about the fundamentals of the company, including its strengths and weaknesses. Without proper fundamental analysis when you invest in a certain company for an extended period, which lacks strong fundamentals, make sure you are ready to accept the risk factors associated with that particular company.

7. Solid Investment Strategy

There is no way you could achieve these heights without a solid investment strategy. You can determine which investment strategy works best for you because various investment strategies exist in the market such as Growth Investing, Value Investing, Contrarian Investing, and so on. Try to find out what works best for you. You could incorporate two or more strategies as well. For instance, growth investing includes growth stocks in your portfolio on the one hand, and value investing incorporates value stocks in your portfolio on the other hand.

When you find out what works best, you already have a plan for investment based on the strategy you adopted that will help you stay away from unnecessary confusion and hassle in your investment journey ahead. When you have built an investment strategy through your thorough research and on-the-way experience, you stick to the plan. As a result, market noise and random suggestions from different sources will not bother you. You do not care what the crowd is following, instead, you follow your plan.


8. Avoid Procrastination and Be Frugal

You must develop the urge to avoid procrastination if you want to become a successful investor. You need to have a deep understanding of the value of your time and the opportunity cost of not investing when you should have invested instead. You must develop the habit of utilizing every ounce of your time. Whether it be a normal life activity or your investment task, you should do it one time. Further, be frugal when it comes to unnecessary expenses.

You need to be very careful about what you spend. It is because you would have invested the amount if you would not have done the expenses unnecessarily. When it comes to showcasing to others in terms of your lifestyle, cars, and extra expenses on unnecessary kinds of stuff, keep it as minimal as possible. This will turn out to be very fruitful in your long investment journey because the redundant expense seems low on a daily or monthly basis, however, if you see it on an annual basis, the amount you spend would be huge. Instead, if you had invested that particular amount, you would have reached one step ahead in your journey of investment.

9. Discipline

Discipline is one of the most important skills when it comes to becoming a successful investor. In this age of social media where there is a lot of information available, there are a lot of distractions too. To build long-term wealth, one needs to master the art of self-discipline. Making money must be every investor’s fundamental goal, and if you are not strict with it, you are sure to lose it. Hence, developing the disciplined habit of doing thorough research before making any investment must be your top priority.


10. Patience and Persistence

Patience is one of the most vital skills when it comes to investing. The market can sometimes not work in your favor, and profit can take a certain time to book. Hence, you need to have patience, especially because as an investor, you must analyze your return on a long-term basis. If you are impatient in this aspect, then it can lead you to trouble. Hence, mastering the art of patience is very essential. Further, persistence to refine and work on your investment plan, to remain positive during highs and lows of the market, gains, and losses, and to show perseverance during the hard times make you stand out and succeed in the long run.

Skills Required to Become a Successful Trader

1. Technical Analysis

If you want to become a successful trader, then mastery of technical analysis skills is a must. You would not be buying and selling the stocks based on the fundamentals of the company, instead what you would be doing is trading the stocks based on the price movements of the particular stock in the past. You would not care whether the company is fundamentally strong or not. Hence, you need to have sound knowledge of technical analysis. Following are the indicators that you can master.

  • MACD (Moving Average Convergence Divergence)
  • Pivot Point
  • Ichimoku Cloud
  • RSI (Relative Strength Index)
  • Super Trend
  • Bollinger Bands
  • Candlestick Patterns

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2. Focus

Focus is critical when it comes to trading. There is so much going on while trading even in a single minute. If you change your stock movement chart even from 1 minute to 5 minutes, the whole price fluctuation changes. For instance, the price might go down on every single minute chart, however, it may be showing an upward trend of the 5-minute chart. Hence, there is so much to grasp for traders. Therefore, a next-level focus to analyze the trend, and pattern, and use indicators like Bollinger Bands, RSI Indicator, and MACD is required to successfully book the profit while trading.

3. Risk Management

To avoid booking a loss on the greater skill, risk management skill is required for traders. If a risk management strategy is properly applied, you could lose as little during your bad trades and gain immensely if you can execute good trades. This strategy will help you make informed decisions. For instance, making use of stop-loss would help you stay on the safe side and prevent you from high loss possibilities.


4. Mental Stamina

Since you will be sitting in front of your computer the whole day trying to make successful trades, it can turn out to be hectic in the long run. This is why mental stamina is a must for traders. You must be mentally prepared for possible losses as there is always a high probability of losing, along with winning.

5. Record Keeping

Record-keeping helps you track the record of each trade you executed, your point of entry and exit, the profit you booked in between, your loss, and the overall win/loss ratio. It is very handy as it helps to identify what you are doing right and wrong in the market, as you can track your progress over the period. This can turn out to be an effective skill to plan your next move when the market opens the next day by analyzing what you did wrong today, or what could have been more effective on the market today that you were not able to execute.

6. Adaptability

One skill that you could master as a trader is your ability to adapt according to the changing market conditions. Markets constantly change and you cannot rely on the same trade strategy you applied before. There is no surety that it would again work perfectly. Hence, you need to modify your trading strategy following the market price fluctuations. Based on the patterns and trends, you could set your next move. For instance, indicators like RSI and MACD could provide you with the winning trade in one instance. However, it could not provide you with the same result again. In the next instance, Bollinger Band and Ichimoku Cloud could leverage you. Hence, it is completely up to you how you adapt to the market.


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