Anyone who wants to become a profitable stock trader only has to spend a few minutes online to encounter advice like plan your trade, trade your plan, and keep your losses to a minimum. However, the strategy goes much deeper than this. These comments can be more of a distraction than advice for some of the best traders in the world. Keeping some rules to yourself can increase your odds of succeeding in the markets.
Always Use a Trading Plan
A trading plan is a set of rules that specifies a trader's entry, exit, and money management criteria for every purchase. Use technology to test a trading idea before risking real money. This process is known as backtesting. It allows you to apply your trading idea using historical data and determine if it's viable. The plan can be used in real trading after it's been developed, which has shown good results.
Use Technology to Your Advantage
Trading is a competitive business, so it's safe to assume that the person on the other side of a trade is taking full profit from all available technology. Charting platforms give traders infinite methods to view and analyze markets. Backtesting an idea using historical data prevents costly missteps.
Getting market updates via your smartphone allows you to monitor trades anywhere. A high-speed internet connection can uplift trading performance. Using technology to your advantage and keeping latest with new products can be fun and rewarding.
Protect Your Trading Capital
Saving enough money to fund a trading account takes time and effort. It can be even more tough if you have to do it twice.
Protecting your trading capital isn't synonymous with never experiencing a losing trade, however. All traders have losing trades. Protecting capital means not taking unnecessary risks and doing everything you can to save your trading business.
Risk Only What You Can Afford to Lose
Make sure the money in that trading account is reachable before you use real cash. Otherwise, a trader should keep saving until it is. Money in a trading account should not be assigned for college tuition or the mortgage.
Traders must never permit themselves to think they are simply having money from these other important obligations. Losing money is traumatic enough. It becomes even more so if it's capital that should have never been dangerous in the first place.
Know When to Stop Trading
An ineffective trading plan and an ineffective trader are two major aspects of stopping trading.
An ineffective trading strategy shows greater losses than anticipated in historical testing. Markets may have transformed, or volatility may have lessened. The trading plan simply is not performing as expected for whatever reason. It's time to reevaluate the strategy and make a few transformations or start a new one. It's not important the end of the trading business.
The Bottom Line
Most of these rules have one thing in common: attention to risk or lowering the loss of capital in finding the best traders in the world. You're in the business of creating money in the markets. Losses will inevitably occur. The motive is to keep the losses small enough to keep trading until you find the best traders in the world.