What is required to be a successful trader? We have been mentoring traders for eight years, and we’ve seen many traders come and leave. We have seen many similarities between traders who have made great progress. We have therefore compiled a list of eight steps traders must follow to improve their trading and hopefully start making money.
Find your market
It would be best if you chose the markets that you wish to trade. Are you interested in trading currencies ( forex), futures, stocks, or stock indexes? There are pros and cons to each market, and none is superior.
It comes down to individual preferences. However, traders must also consider how trading in a particular market fits with their lifestyle. Day Trading on the domestic stock exchange might not be a viable option if you work a full-time job and are unable to monitor your charts or trades. The stock exchange is typically open from 9 am until 5 pm Forex and Futures are open every day of the week, with some exceptions. This may provide you with more flexibility.
After work, a trader can trade commodities or international currencies. Alternatively, traders may opt for long-term trading ( Swing Trading ), in which they do not have to monitor charts throughout the day and can check their trades only once per day.
This first step is vital because it will determine how well you can monitor and manage markets and trades.
Find a Trading Strategy
It would be best if you had a strategy. Google is full of thousands of trading strategies. But how can you choose the best one?
It would be best if you explored the different types of strategies in your first nine to 18 months to understand how to manage time and exit trades. It would be best if you tried a different trading strategy every three to four months. You will have enough time to understand each trading strategy. You should know what you prefer after you’ve tried 3 to 6 trading strategies. This step isn’t about finding the best trading strategy but rather about figuring out what kind of trader you really are. It would be best if you also considered which analytical and trading approaches suit you.
Make sure you have “complete” strategies when it comes to trading. The trading strategy must include rules for the following:
Entry Rules
Stop-loss and Take-profit rules
Exit rules
Trade management
Risk management
Most new traders make the error of focusing solely on the timing of trades and the entry selection aspect of a strategy and ignore the rest. Once they enter a trade, they don’t know how to manage their businesses or react to price changes. Traders will lose money and attribute it to the wrong entry rules because they do not know there are other vital aspects of trading strategies.
You can find complete, ready-to-use trading strategies in our Tradecademy.
Don’t Ride the Learning Curve
You will eventually have to stop experimenting and settle on a trading system. You cannot just pick a strategy and expect to make money. It is more of a process that creates a strategy work and then adapts it to the instruments you trade. It would be best if you also became a trader who can implement your strategy without being emotional or deviating from the plan.
You will find that, at first, even if you have a trading strategy and solid rules in place, you may not be able to execute your trades to the best of your ability. This is perfectly normal! It takes time to become a trader.
You will feel tempted to abandon the trading strategy you have chosen after your first few losses. This urge must be resisted because, in 95% of cases, the change isn’t necessary to your trading strategy but rather to you. The next point will explain this.
Over the years, we have worked with thousands of traders and have repeatedly seen that traders are unable to accept that even winning trading systems can (and will experience regular losses). If traders can’t get that, even a winning design could lose money; even if it makes money over the long term, they will jump to another strategy in order to find one that won’t experience losses. The sooner a trader accepts that there is no “perfect” system, the better.
Learn from your mistakes.
Regularly reviewing your trades serves two main purposes.
Most traders will first realize that they are responsible for their losses. Most losses are the result of trading outside your rules. You may do everything right, but still, the trade does not work. It is more likely, though, that you will lose money in the beginning because you broke your trading rules. It’s good news because the trader does not have to switch to a different trading strategy. Instead, they can work on themselves by creating better-coping mechanisms and improving their discipline. Check each of your previous trades to see if there was anything you could have done better.
A regular review of your trades can also show you if there are any problems with your strategy. I recently spoke to a trader whom I mentor, and he told me that, although 90% of his trades worked out, the price would hit the stop loss before moving in the direction he expected. In these cases, the trader likely uses a stop-loss too close to the current price. By giving the trades more time to develop, he could turn some losses into gains. These insights can only be discovered during a review of transactions.
Most traders do not review their trades regularly, and so never learn from them. There are a lot of great trading solutions available today. We also developed the Edgewonk.com Trading Journal to make the review process easier.
BACKTESTING: SPEED YOUR LEARNING PROCESS
In addition to keeping a trading diary, backtesting can be a great way for traders to learn faster. In a backtest, the trader looks at historical data to find trading opportunities and applies their trading rules. It is important to determine how trading strategies and trading rules performed in the past. Backtesting can provide traders with important information, such as historical win rates, the average number of trading signals generated by the strategy, and the reward-to-risk ratio.
A backtest can also help traders improve their pattern recognition. In the beginning, you will not be able to recognize patterns because most traders use technical analysis, pattern recognition, price action, or both. By analyzing a large amount of historical data and by placing many backtest trades, you will become familiar with a variety of chart scenarios. The traders will be able to spot better trading opportunities later on in real time.