You are here to know how to become a great trader. To become a great trader the most important thing of all is to know why do you want to trade in the first place. Is to make a lot of money to impress someone or you are just bored and want to do something with you life.
Is it because you really want to become a great trader. You should know why you want to do anything even before you take even a single step. In this article I am going to share thing that I have learned by trading and reading a lot books about trading.
“The market is a brutal place. Forget trying to be liked. Need a friend, get a dog. The market doesn’t know you and never will. If you are going to win, then someone else has to lose. You don’t like these “survival of the fittest” rules? Stay out of the zero-sum game.” Michael Covel (Trend Following)
You can follow to them to improve your trading and even your life. But it will not be of any use if you do not apply them to your trading. But you cannot apply all things at the same time so chose what are the areas that you want to work on your trading make those are strong before moving to another. You cannot improve on all the points at the same time so once you have chosen a point do not change your chose when it become hard to follow it. Only move when you are certain that you mastered it.
1. Keeping good records
What differentiate a normal person from a extraordinary person is the ability to analysis his own action. If you are examining your action it is hard for you get any better at anything. For examination you need data.
For data you need to keep good records. It may be hard for most of trader to start recording every trade they make but if you focus on making it a habit when you will find out that it is not that hard at all.
This should be in your trading plan when are you going to record the trade that you made just now. For me it is before I even make a trade I record it. So what I do is write in may excel what is price that I am going to enter at the stop loss and the profit target with the lot size. After I have written all that I will place my trade in the trading software looking at the the data I just entered.
2. Learn to handle loss
Loss a part of trading if you want to become good a trading you have to understand one thing that is that you will face loss. But the important thing is how you deal with them.
If every time you have a losing position get you in a self sabotage mode then it is going to be very hard for you to profitable in the long run.
You should celebrate your loss at first it may sound weird but is a good practice because loss is the best place to learn something new. If you too much focused on the money you lost then you will no be able to see what mistake you have made and learn from it. It is very important that you learn from your mistakes that is the thing that will move you forward in your trading.
3. Make a plan
You cannot do anything great in your life without a plan. This also apply to trading if you want to become a great trader you need to have a plan in place.
You should know what time you are going to trade. What instruments you are going to trade in? How much risk per trade are you willing to take? It is very important that you know your risk on every trade you make. Even when you think it is a sure thing you should always risk the same amount of money.
Because there is 50% chance that you can be wrong. You do not want to loss a significant amount of your capital on a single trade. It is not good for your capital and not good for your trading as well.
You have to keep trading the way you were before the drawdown and also be patient. There’s always part of a trader’s psyche that wants to make losses back tomorrow. But traders need to remember you lose it really fast, but you think you make it up slowly. You may think you can make it up fast, but it doesn’t work that way. David Druz
4. Follow the plan
Having a good plan is not enough if you do not follow it. A good plan is of no use if you cannot follow it so it is a important thing that you follow the plan that you have made and do not change it too much. Slight changes are acceptable but to make a new plan everyday is sure way to failure.
No trading plan will give you 100% success rate in your trading. So when you are following a system and make a losing trade it do not mean that the system is not good or you have to find another. Every system will have winning and losing trades. You have to learn to deal with them.
In the long run you will find that if you have just followed your system then you would have made money. But it is not a time to punch yourself in gut but to learn from it so that you will follow the plan that you have made in future. So that you can have a profitable future.
5. Think in multiples
You can only be profitable in your trading if you earn more then you lose. So your average loss must always be less then your average wins. It is also important that the profit is at least two or better three time that of the risk you take on every trade.
What I have found is that even the greatest trader of all time have a success rate of 70%. What that mean is that out of 100 trades that they make 30 of them are wrong. But if you are just starting out then you will see that your success rate is lower. So it become more important that you make more money in your winning trade then what you loss.
6. Master a trading method
You will find a lot of trader moving from one trading method to another in search of a perfect system. But there is no such thing you can earn money with any good system only if you master it.
What do I mean by mastering a system? What you really have to do is keep trading with the same system for 90 day so what you are going to do is make every trade according to the system that you have decided on. At the end of 90 days you will analyze all the trades that you have made in that time and find out how many of those are really placed according to your system and how many of the trades that you messed up.
I am not talking about profit or loss. What I am talking about is the execution of the trades. How good was your execution. At this point it do not matter if you are profitable or not the most important thing is that you follow your system.
7. Develop patience
Patience is a life’s most important virtues. But it become more important in trading so pay close attention to your action are you patient with your trading or not. If not then you have to work on it.
If you ask me what is the one thing that you think that differentiate a bad trader with a good one? I will tell you it is patience. The trader who have patience not to trade when there is no trading to be done and sit tight when is right can make a lot of money in the market.
It is not easy to be patient specially in the trading because you fill that if you do not trade all the time then you will not make money. But when you analyze you trades you will find that if you just have patience to not make wrong trade that is not right according to your system and sit tight when there was no reason to close the trade you would have made more money in the market.
8. Trading is a marathon not a sprint
Most of people think that trading a quick rich scheme but it is not that. It take time to become profitable in trading. And it take a lot of work to be consistently profitable which is the ultimate goal isn’t it.
But that do not mean that you cannot enjoy your trading now. You have to learn to enjoy every part of trading whether it is profit or loss or just a slow internet connection. I know it is hard to do even for me it becomes hard when you have a losing month. But you have to understand that all this is part of the game.
The only thing that you can do is keep going no matter what. Just follow the rules that you make and stick with your trading method.
9. Risk management
Risk management is the most important thing of all it is said that 50% of trading depend on your risk management. I have seen in my trading that it is the tool that help you to preserve your capital.
Capital preservation is the most important thing that you can learn at the start of your trading career that will help you a lot in the long run. Even most accompanied of trader have one or even more losing trading month but end up making money that year because of the risk management that they follow.
10. Trade like a business
Take your trading like a business have a plan follow the plan keep good records. You will not win everyday but if you master a trading method and develop patience you will be make a lot of money in long run.
These are some of the things that will make you a great trader. I am not saying that when you follow them you will never face a loss trade. But what I am saying is that if you follow this rules then you will be profitable in the long run.
Even the greatest trader of all time are only right 70% of the time. So it is very important that when you are not right you loss small and when you are correct you win big so that the small losses can be covered and you will be in overall profit.
Yes following this principles can be hard sometimes specially when you are not making profit even after following this principles but that is OK it will happen sometime. The only thing that you can do at that time is keep going forward. So that you will keep learning.
There is no stopping in learning in the market. Market will teach you new things all the time you have to be aware and pay close attention to what you are doing and also what market is doing.
There is no going around it you have to follow this rules if you want to become a successful trader. The faster you except that the better. It will take time for this things to become a part of you but when they do you will be rewarded several fold.
So keep going no matter how long the winter is summer will come. The only thing that will keep you from blowing your account before you start to make profit is money management. So develop a strong money management system and master it before doing anything else.
May I wish you a great year and your capital be the highest it had been for a long time. Happy trading or investing what ever you do make a plan and follow it.