26/07/2019
The Top 10 Crucial Elements For Successful Trading
26 July 2019
There are a lot of components one needs to have or plan out before going on to place a trade. It could be intimidating sometimes, especially for newer traders to juggle all of the elements at the same time. We have listed out the top 10 crucial elements you need to have in order to to be on the right track of trading.
Element no 1: Always Follow Your Trading Plan.
A trading plan is a set of written rules that specifies entry, exit, position sizing, risk management criteria. Following a trading plan with a statistical edge will allow a trader to duplicate the result over and over again so that in the long run he will able to reap profit from the market.
Trader is able to test out his or her trading plan first before risking real money through backtesting method. We have covered backtesting in details in another blog.
Element no 2. Treat Trading Like a Business.
Many come to trading for the wrong reasons, most of them come with the intention to earn a quick buck and leave or a hobby. This is no different than treating the financial market as an online casino. Without putting in the commitment to constant learning and hustling, it can be very costly. As a trader, you are essentially a small business owner and must do your research and strategize to maximise your business’s profit and lowering your expenses.
Element no 3: Capitalise on Technology and Proper Equipment
Trading is a competitive business, hence you need every single possible edge to your advantage. By that, I do not mean you need to spend a fortune in getting all the highest spec equipment before started trading. However, you do need a computer with decent computing power to run your different trading software, such as trading platform, charting software, different screens.
Besides, having a stable internet connection would save you a lot of frustration too. The last thing you want is when you’ve been patiently waiting for a trade to present an opportunity, and when it does, you fail to capture it due to some technical issues.
Element no 4: Protect Your Trading Capital
Protect your trading capital is the utmost important thing you need to do as a trader. Making and saving up money for trading can take a long time, or even difficult for most people. Hence having their account burst can be a devastating experience and result trader to take even riskier trade.
Hence, you should monitor and manage your risk like your life depends on it, because it is. Most junior traders would tend to risk more or take more risky trades just because they have some winners before that, hence manage your risk wisely regardless of how much you have in your trading account.
Element no 5: Only Risk What You Can Afford to Lose
The previous element talked about it can require a long time and lots of efforts in order to save up trading capital. The trading capital one put into trading account must not be the fund they require to survive, for example, money that they need to pay for their mortgage, paying for their kid's tuition fee, or even their emergency fund.
The fund that being put into a trading account must be a fund that at your disposal, which means it must not affect your daily living if you lose it all. This will allow you to trade with the less emotional burden as there is a lesser attachment to it. In addition, trader must never “borrow” money to trade. Losing all your disposable fund is painful enough let alone losing money that is not supposed to be risked.
Element no 6: Develop Your Trading Strategy Based on Facts
Trading strategy a component in trading which will determine how much your statistical edge is. The better the edge the more profit you can cut from the market. As a result, take your time to develop a trading strategy. Over the internet, everybody is claiming to have “the strategy” that can print you money, no doubt some of them are genuinely working strategy but many of them are not.
As a result, do not put your real cash in trading the strategy that you just found online or bought from someone, but test it, study it first before you risk a dime on it.
Element no 7: Always Use a Stop Loss
A stop loss is a predetermined amount of risk that a trader is willing to accept before entering a particular trade. The stop loss can be determined in dollar amount of a percentage of your trading capital.
Using a stop loss can take some of the emotion out of trading since we know that we will only lose X amount on any given trade.
It is better to have your position stopped out and the trade goes into your profit target than have your trade not being stopped out and win. It may bring short term joy that you are glad you did not put a stop loss order. However, I can guarantee that you are setting yourself for a trading disaster in the long run.
Element no 8: Knowing When to Stop Trading.
There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader.
An ineffective trading plan shows much greater losses than anticipated in historical testing. Markets may have changed, volatility within a certain trading instrument may have lessened, or the trading plan simply is not performing as well as expected. One will benefit from remaining unemotional and businesslike.
It might be time to reevaluate the trading plan and make a few changes or to start over with a new trading plan. An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business.
An ineffective trader is one who is unable to follow his or her trading plan. External stress, poor habits and lack of physical activity can all contribute to this problem. A trader who is not in peak condition for trading should consider a break to deal with any personal problems, be it health or stress or anything else that prohibits the trader from being effective. After difficulties and challenges have been dealt with, the trader can resume.
Element no 9: Being Able to View Your Trading In the Right Perspective.
Successful trading is not a business of winning and winning only, The real business of trading consist of both winning and losing, in other words losing is part of the cost of doing trading business.
When you are able to truly accept losing trades as a part of the game, the less likely your emotion will be affected when you encounter them. At the same time, you will less likely to over risked when you have a winning streak because you know losing traders are just around the corner.
Setting realistic goals is an essential part of keeping trading in perspective. If a trader has a small trading account, he or she should not expect to pull in huge returns. A 10% return on a $10,000 account is quite different than a 10% return on a $1,000,000 trading account. Work with what you have, and remain sensible.
Element no 10: Become a long-term student of the markets
The market is made up of humans, and as humans are evolving with the advancement of technology to do the market. Since, the market is a continually evolving, as a result, if a trader wants to profit from the market on a long term basis then there is no choice but to evolve the way they trade as well. This can’t be done without positioning himself as a student who is keen to learn from the market every day. The theory is good for helping traders to understand how trading and the economy mechanism works this can be done through reading books and articles like the one you reading.
However, trading wisdom is applying what you have learnt in theory, into real life trading. This usually come through experiences and it will take some times.
According to Malcolm Gladwell’s book Outliers says that in order for one to master a skill it requires 10,000 hours of practice. Some people may require lesser hours some people may need more. Before you are discouraged by this statement I would like to tell you they are ways you can shorten this period, it is by mentored by someone who has done it.
08/11/2019
15/02/2019
16/11/2018
07/10/2018
05/10/2018