Here’s what it takes to be a successful stock trader

What makes a good stock trader? These are multiple characteristics, in fact. Confidence, analysis and discipline all play an important role in creating a successful trader.

But that’s just getting started, says real-money columnist James “Rev Shark” Deporre. There is more to a reliable and profitable trader.

Here’s how Rev Shark explains it.

“A reader on Twitter recently sent me a note saying, ‘I don’t understand why you’re long on these volatile small caps and not safer stocks like AAPL or GOOGL'” Deporre recently wrote on Real Money. “My response to this observation is that I am confident in my ability to trade, and therefore I want to trade the stocks that have the potential to make the biggest moves so that I can make the most money.”

Basically, “the small-cap names that I tend to favor have more risk and more volatility, but they also offer a lot more profit potential,” he added.

(Essentially, good trading comes down to the classic trade-off between risk and return.) – Get the Apple Inc. report.

“If you want higher returns, you have to take on more risk or have a better way of managing risk,” Rev Shark said. “I think if I use an effective trading methodology and stay disciplined, I’ll do a lot better trading high volatility small caps rather than sticking to a large cap name.”

Every day, Deporre studies a list of stocks that move more than 10% that day. Big names like Apple (AAPL) – Get the Apple Inc. report. and Alphabet (GOOGL) – Get the Class A report from Alphabet Inc. Rarely make daily moves of this size, but there are usually at least 30 stocks that move more than 10% in a day. The risk of trading them is high, but the rewards are significant if you do it right.

This is where good trading skills can take a trader to the top.

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“Each merchant must decide which trading vehicles they will use,” Deporre noted. “Some focus solely on indices and watch every tick of the futures. Some prefer to trade highly liquid large caps which are common household names. These stocks are easy to buy and sell, and if you know them personally , the risk does not seem so great.

Rev Shark also believes that fundamental and technical research can give him – and any trader – a better edge on a stock that isn’t followed by 100 analysts.

“There’s nothing I can find out about an AAPL or a GOOGL that the big bucks don’t already know,” he said. “Perhaps I can apply psychological analysis or use the chart to manage a trade, but I don’t have a substantial advantage over others trading the stock.”

Yet most people don’t know how to find a good unknown small cap or how to search for them. That gives Deporre an edge there.

“With a small-cap name, there’s often substantial manipulation and a big disconnect between valuation and market price,” he said. “My advantage is that I can look for ways to profit when the gap closes.”

Ultimately, what works best in trading is very personal and will depend on risk tolerance, how much time you want to spend on research, and how much you want to monitor the market.

But if you want to be a successful trader, you need the right weapon.

“Small-cap stocks are my pick because I think they give me the best opportunity for big gains with less risk if I use good discipline,” Deporre said. “There are always times when your favorite weapon will be sub-optimal, but that’s just the cyclical nature of the market. Find the right weapon and then learn how to use it.

Please note: It is important to remember that you should not buy or sell a stock based on reading an article. Investors should do their homework. For more research and insight, consider TheStreet Quant Ratings for a quantitative approach to stock picking. Or get a daily dose of TheStreet’s smartest insights from its smartest analysts, delivered daily to your inbox via TheStreet Smarts.

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